104. Despite the fact that space and water heating
accounts for a third of the UK's energy consumption, only 1% of
it is produced from renewable sources.
The scope for carbon dioxide savings in this sector is therefore
enormous. In Chapter 2 we noted that there is some potential for
community-level CHP to make a contribution in this regard, particularly
in urban areas for new build developments. Although current CHP
stations mostly run on fossil fuels, they still produce lower
carbon dioxide emissions than would the separate provision of
electricity and heating. Also, once the technology is ready, fossil-fuel
based plants could fairly easily be replaced with systems using
renewable fuels, without affecting the attached heat distribution
network. In some cases it would simply be a matter of switching
105. There are several barriers to the wide scale
development of community CHP. Because the initial capital cost
of CHP stations is higher than for electricity-only plants, this
means their economic viability depends on the ability to locate
a stable demand for the heat generated. Communities are seldom
able to co-ordinate themselves to take advantage of the potential
for using CHP in their areas, or are simply unaware of the possibility.
As one witness noted to us: "Somehow our culture seems to
have lent itself less to these communal solutions
As we have seen with the example of Woking, it often requires
the leadership of particular individuals to bring about change.
With regard to renewable sources of heat, there is the added difficulty
of securing a supply chain of biomassan industry which
is still in its infancy in the UK. The Government is currently
developing a strategy for biomass, which is due to be published
in the middle of 2007.
106. Some of the evidence we received was critical
of the level of support available for encouraging community and
Businesses have access to enhanced capital allowances as well
as exemption from the Climate Change Levy, but few have made use
of these incentives. This is partly due to a lack of awareness,
but also because firms are unlikely to look at their energy sources
beyond the 20-year replacement cycle of their existing equipment.
Funding is also available under the Low Carbon Buildings Programme
for community and commercial projects, but the total level of
support is not large or long-term enough to have a big impact
on the level of take-up.
107. There was no clear consensus among our witnesses
as to what would be necessary to see greater use of renewable
heat within community-based schemes. The Renewable Energy Association
(REA) told us it would like to see in place a long-term revenue
support mechanism in the form of a Renewable Heat Obligation,
providing a similar level of support for heat derived from renewable
sources as the Renewables Obligation currently does for electricity.
Indeed, it seems perverse to us that a CHP station using a renewable
fuel can receive Renewables Obligation Certificates for the electricity
it produces, but no equivalent reward for its heat, despite the
fact that this, too, contributes to reducing carbon dioxide emissions.
This must act as a disincentive for the use of CHP in favour of
electricity-only biomass power stations.
108. A Renewable Heat Obligation, the REA argues,
could be placed on suppliers of fossil fuels for heat, using data
already collected from them as part of the requirements under
the Climate Change Levy. In terms of cost per tonne of carbon
dioxide saved, the REA believes such an Obligation for heat would
cost only a third as much as the equivalent scheme does for electricity.
The Energy Saving Trust was, however, doubtful of the feasibility
of such an approach. It argued that heat provision is more decentralised
than for electricity, and it would therefore be more difficult
to place an Obligation on 'heat suppliers' in a similar way to
commercial electricity suppliers.
As a result, any such scheme would be far more costly to administer,
and smaller scale heat producers might face the same difficulties
in benefiting from it as households currently do for electricity
under the Renewables Obligation. The Trust's preference was to
raise awareness and use capital grants to stimulate the sector.
109. There is
some scope for reducing carbon dioxide emissions by encouraging
greater use of community-based combined heat and power (CHP).
However, while the current schemes to support such systems require
a pro-active approach by communities to take advantage of them,
a lack of awareness and co-ordination prevents many from doing
so. Also, the reward for producing low-carbon heat is much less
than that for low-carbon electricity. We accept the potential
difficulties of implementing a Renewables Heat Obligation. Nevertheless,
we recommend that the Government should look at other ways in
which it can provide incentives for local areas to move towards
community-based low-carbon heating, where it is appropriate for
them to do so. Current policy places too much emphasis on the
role of local electricity generation and not enough on the production
of heat. Renewable, low-carbon heat production is the Cinderella
of energy policy and this attitude must change.