Annex 1
CLIMATE CHANGE
LEVY AND
COMBINES HEAT
AND POWER
Most Power Stations producing electricity are
inefficient because they produce a large quantity of relatively
low level heat in the form of low pressure steam and/or hot water.
This heat is dissipated to atmosphere via large cooling towers.
The principle behind so called Combined Heat and Power (CHP) is
to increase overall efficiency by making use of the low grade
heat for example in district heating (heating homes) or as steam
in industrial processes.
If an industrial site has a requirement for
both steam and electricity it may be efficient and cost effective
to install a small electricity generation facility. Usually the
size of this facility is designed around the steam (or heat) requirement.
This is because it is easy to buy in additional electricity if
generation is not sufficient to meet the requirement or to sell
surplus electricity if generation exceeds requirement. It is not
possible on most sites to do the same with heat since there is
no national steam or hot water grid.
In some industries, however, there are some
processes which are overall exothermic, ie they produce heat as
a by-product, and some process which even though they require
a large heat input as activation energy (to make the reaction
proceed) produce by-product heat. In these cases there is surplus
heat available and this creates the potential opportunity of putting
this heat to good use by using it to generate electricity. In
the very loose terminology this would not normally be regarded
as CHP but it certainly improves overall efficiency.
Further, if a site decided, as can be economic,
to generate its own electricity in non CHP mode, perhaps by burning
a flammable by-product such as coke over gas in the steel industry,
there would be savings in transmission losses and distribution
losses (which can amount to seven per cent) and in the difference
between generation cost (effectively System Marginal Price—SMP)
and Pool Selling Price (PSP). In terms of the physical reality
this latter effect is because the national distribution system
does not have to provide the service of providing for uncertainties
in the demand. This difference between SMP and PSP is typically
worth a further seven per cent giving the self-generator an overall
saving of 14 per cent.
Under the CCL tax regime there ought to be equal
treatment of all on-site generation of electricity whether it
meets the criterion of being called CHP or not. This is very important
to industrial companies who generate electricity on site either
to use waste heat efficiently, to use combustible by-products
or simply to avoid costs associated with the national distribution
system.
November 1999
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