Combined Heat and Power: pathway to decarbonisation - call for evidence

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Closes 20 Dec 2021

Executive Summary

In 2019 the UK became the first major economy to place a commitment to net zero greenhouse gas emissions by 2050 into law. The target requires the UK to bring all greenhouse gas emissions to net zero by 2050, compared to the previous target of at least an 80% reduction from 1990 levels[1]. In addition to our net zero target and as part of the UK’s Nationally Determined Contribution (NDC) to the United Nations process, the UK has committed to an ambitious pledge to reduce emissions by at least 68% from 1990 levels by 2030. The 2020 Energy White Paper and Ten Point Plan signal the steps needed to achieve the net zero goal. The recently published Industrial Decarbonisation Strategy and the forthcoming Heat and Buildings Strategy set out more detail on how this rapid decarbonisation will be achieved in these key sectors. The amount of renewable energy in the generation mix of the electricity grid is now over 40% and fossil fuels such as coal are due to be phased out of the generation portfolio by 2024. Natural gas has long been the largest fuel type in UK energy generation, but the associated emissions need to be addressed, and virtually all areas of heat and power demand need to take significant action in order to decarbonise.

Combined heat and power (CHP) is an efficient cogeneration process able to use a wide variety of fuel sources, capturing and utilising the heat that is produced in power generation. By generating heat and power simultaneously from the same fuel, CHP can achieve efficiencies of up to 30% compared to the separate generation of heat through a gas-fired boiler and an electricity power station. Where a demand for both heat and electricity exists in the same location, CHP can reduce energy costs whilst reducing carbon emissions and air pollution.

CHP is technically feasible for many types of thermal generating stations, including energy from waste and biomass with CCUS (BECCS), hydrogen and nuclear, but a significant majority of CHP plants in the UK are currently fuelled by natural gas. CHP generators may export power not used on site acting as dispatchable generation, adjusting exported power output to provide valuable flexibility services to the electricity network. CHP plants are used by a wide variety of sectors, in particular chemicals, food and drink, paper and refining industries. CHP is used in large commercial and civic buildings with high heat demands, such as hospitals, hospitality and leisure facilities, retail outlets and heat networks. 

Government currently provides support to CHP because of its relatively long payback period, the environmental benefits of cogeneration and the technical requirements of plant installation. The CHP Quality Assurance Scheme (CHPQA), an annual assessment process, ensures that all CHP plants that benefit from government support meet a minimum level of energy efficiency.

Since the introduction of the CHPQA scheme in 2001, the UK generation mix has changed considerably. Now renewable and low carbon generation provide increasing proportions of the national electricity needs, reducing the emission reductions delivered by CHP electricity generation compared to the average grid emissions. Modelling work on the impact of new natural gas CHP plant on the GB electricity market concluded that from 2032, unabated natural gas CHP would begin to displace an increasing proportion of low carbon generation, effectively raising carbon emissions and jeopardising achievement of carbon budget targets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

This latest engagement is part of a longer review and is intended to build on the 2020 call for evidence[2] by seeking views on a variety of potential options for future CHP policy which may help create a pathway to decarbonisation. The call for evidence indicated support for fuel switching and for existing natural gas CHP to act as a bridge whilst transitioning to low carbon alternatives and that amending current incentives to encourage the transition would be welcomed with sufficient clarity required for long term planning. Subject to consideration of the 2020 call for evidence, this current engagement and the development of other policy areas interacting with CHPQA (such as hydrogen, CCUS and biomass), one possible option would be to end support for new unabated gas CHP installations at some point in the short to medium term. The rapidly changing nature of technological development means that specifics concerning timing and in-depth policy details may be subject to change as the landscape evolves requiring further stakeholder engagement in the future.

 

[1] The Devolved Administrations are able to set their own climate change targets as part of the UK’s long-term emission reduction goal. The Climate Change (Emissions Reduction Targets) (Scotland) Act 2019, which amends the Climate Change (Scotland) Act 2009, sets targets to reduce Scotland's emissions of all greenhouse gases to net-zero by 2045.  The Environment (Wales) Act 2016 sets a legal target of reducing greenhouse gas emissions by a minimum of 80% by 2050, and the Welsh Government has laid regulations to formally commit to net zero emissions by 2050. Northern Ireland contributes towards the UK climate change targets and carbon budgets set out in the Climate Change Act 2008.