Select Committee on Environmental Audit Minutes of Evidence

Annex 1


  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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