APPENDIX 2
Letter to the Clerk of the Committee from
Joe Knowles, General Manager Aircogen Limited
I welcome your inquiry into the Energy White
Paper and it's ability to address the medium and long term issues
of energy use. I declare my interest to be in the field of Combined
Heat and Power specifically. I believe that whatever form energy
supply takes in the long term, CHP will remain the only logical
technology for a large part of our industrial, commercial and
perhaps domestic use.
It is therefore of great concern that the Energy
White Paper contains minimal reference to CHP with no new measures
for it's promotion to meet the current 10 GW Government target,
and nothing to suggest that this target will be continually raised
to assist in the long term objective of 60% CO2 reduction by 2050.
Perhaps it is unkind to suggest that the document strategy has
been dominated by DTI interests, and that DEFRA, who are incomprehensibly
still responsible for CHP, have had only a small voice in the
production of the White Paper.
The energy issue for CHP is that of heat. The
White Paper only tackles this in the context of domestic use and
fuel poverty. However, in our climate, there is a heating need
across the spectrum of business and commercial property as well
as domestic. Equally important are the constant heating demands
of our process industries large and small. Also, there are cooling
demands both in process industries and indoor climate control.
All of these heating and cooling demands represent potential for
CHP. It is only the current economics of electricity production
and the general short termism and low confidence in UK business
which reduces the commercial case for CHP, but the main hurdle
is lack of acceptance and effective promotion by Government.
DTI have stated that by 2020 or thereabouts,
with nuclear and coal power stations retiring, the effective mix
for power generation in the UK will be 20% renewable and 80% gas
fuelled, with most of the gas being imported. Currently approximately
40% of our power is gas derived. The White Paper also states that
there is no appetite for large power station investment, therefore
no second "dash-for-gas". So how will we generate this
additional power—surely by the use of as much CHP as possible.
Emphasis is being placed on domestic CHP in
the White Paper—possibly the most difficult and unlikely
market for CHP. There appears to be an assumption that large scale
(>20 MW), medium-scale (2-20 MW) and small-scale CHP (<2
MW) markets are saturated. Far from it—the potential remains
enormous, at least in the latter two categories. The current UK
potential is estimated as:
| * Remaining large-scale sites
| <30 |
| = 1,000 MW approx | |
| * Medium-scale sites | >1,500
|
| = 7,500 MW approx | |
| * Small scale sites | >10,000
|
| = 4,000 MW approx | |
| |
Every one of these sites is a more viable and achievable
option than domestic CHP, but there is no impetus for many to
proceed.
To cite an example of one potential customer of ours. His
operation requires both power and heat 24 hours and 360 days,
with the ideal CHP solution being rated at 1 MW. He has a negotiated
agreement requiring him to reduce energy consumption by 2010 by
7%. He has a strategy to make small savings each year at increasing
capital expenditure to meet this target. His ideas for the later
years savings are possibly unachievable. The installation of CHP
would reduce his primary energy consumption by around 25%. In
the current economic climate, his simple payback is over five
years and his board would prefer something less than five. He
would be willing to offset his budget for other energy savings
against the cost of CHP, thereby reducing the payback. However,
he believes that the implementation of CHP would result in an
increased energy savings target being imposed under the next round
of negotiated agreements, and will therefore not proceed. Michael
Meacher in response to a Parliamentary Question on the subject
on 27 February reinforced the fear expressed by this potential
CHP user.
The same customer may still proceed given the alternative
method of reducing his payback through receiving grant assistance.
His scheme requires the application of a new CHP technology and
carries elements of R&D and commercial risk. The CO2 savings
from the scheme are very high at 2,400 tonnes per year, mainly
because the system is designed to operate at energy efficiencies
in excess of 90%. The proposal has twice been refused under the
Carbon Trust scheme. The technology has repeatability on up to
50 UK sites, and being a unique UK development, could be exported
to hundreds more.
Another untenable situation is that of NHS hospitals, a market
within the ken of Government. The rules for assessing the energy
efficiency of a hospital operate against CHP. These rules consider
electricity to be equal to heating fuel for prime energy calculation,
which means that in the NHS terminology, the energy per square
metre for a CHP scheme is higher than for conventional systems.
PFI contractors in particular worship the low energy solution
as a selling feature so mainly discount CHP.
Unlike the developing technologies, CHP is proven and available,
and much closer to commercial viability than fuel cells, photovoltaics
and most renewables. Yet there is no support mechanism similar
to ROCs for CHP.
Finally, CHP will and should be part of our long term energy
future. Whether we are creating renewable fuels or developing
a hydrogen society, these hard won resources need to be utilised
with the maximum possible efficiency. We will still need heating
and cooling, so providing this as the second tier output of power
generation will continue to be both logical and economically beneficial.
In the CHP industry, it currently appears that Government are
bent on killing us off. A rethink of the role of CHP in the energy
future of this country is essential, and the current White Paper,
the Sustainable Energy Bill (second reading 28 March) and the
long overdue CHP Strategy are the remaining opportunities to put
the situation right.
I hope you can consider and support the case for CHP.
March 2003
| 
