Select Committee on Environmental Audit Appendices to the Minutes of Evidence


APPENDIX 7

Memorandum from British Sugar

BRITISH SUGAR—THE FUTURE FOR CHP

The Government's target

  The Government is committed to doubling CHP installation from 5 GWe to 10 GWe by 2010 as part of its sustainable energy policy. It has been widely acknowledged, not least in the report of the PIU Energy Review, that CHP is a key transitional carbon technology, conferring significant emissions reductions as fully renewable technologies are developed and work continues to reduce dependence on fossil fuels. The energy efficiency of CHP makes it a close relative of renewables and worthy of significant government support.

Missing the target

  Current CHP installation in the UK is only 4.7 GWe—a shortfall in the target of 5.3 GWe. So, far from accelerating to reach the target, investment has all but stopped as the economics of CHP have deteriorated significantly in the last year as a result of:

    —  The impact of NETA on small generators. OFGEM's report of 31 August 2001 confirmed that the electricity exports of CHP generators declined by 60 per cent during 2000-01. The DTI are making efforts to finding a solution to this problem but nothing is yet forthcoming.

    —  The unprecedented rise in gas prices (12.5p/therm in March 2000 to 22.5p/therm in May 2001).

  Companies able and willing to invest in the long-term future of CHP have been forced to shelve investment plans and to reduce qualifying electrical exports (as defined under the CHPQA scheme). In these circumstances the Government's CHP target has no hope of being met. Contrary to the Government's stated intentions, fossil fuel burn will continue to increase as demand is supplied to a greater extent by traditional power stations.

The reality for British Sugar

  British Sugar responded to the Government's CHP challenge but now, in the face of serious losses in our new award-winning CHP plants in Wissington, Norfolk, and Bury St Edmunds, we have been forced to abandon further investment in new generation CHP. As part of its programme to install the latest CHP technology throughout the company's factories, British Sugar was ready to invest a further £60/£70 million in two additional plants which would have added 140 MWe to UK installed capacity and saved a further 100,000 tonnes of CO2 per year.

Solutions

  The Government should step up its efforts to find and introduce a range of measures to enable the CHP industry to survive. These should include:

    1.  Full exemption for CHP from the Climate Change Levy. At present the CCL applies to CHP-generated electricity exports which negates the apparent benefits of the exemptions (for example on fuel inputs) that have been granted. The Chancellor said in his pre-Budget statement in November 2001 that the Treasury would consider the environmental case for full exemption. This should be introduced in this year's Budget.

    2.  Changes in the way that NETA Balancing and Settlement Code rules operate to reduce the penalties on CHP as well as renewable generation. The current work being undertaken by the DTI and OFGEM on consolidation does not provide an adequate response to the problems for small generators created by NETA.

    3.  The urgent introduction of an obligation on suppliers to purchase electricity from CHP similar to the obligation introduced for renewable generation. This could be set at a lower price (say, £20/MWh for CHP v £30/MWh for Renewables) thereby maintaining the distinction between CHP and renewables in terms of environmental impact.

    4.  CHP operators should be able to gain credit under the UKETS for exporting electricity to the grid (either local distribution network or national transmission network) to the extent that it has a lower carbon content than the grid average of 0.43tCO2/kWh. This credit should take the form of CO2 allowances granted on receipt by the Secretary of State of suitable data and supporting calculations.

    5.  The publication of the Government's Comprehensive CHP strategy as soon as possible.

  Work following the publication of the PIU Energy Policy Review should not deflect the urgent action that is needed to put CHP back on a sound basis so that its full energy saving and carbon reduction potential can be realised as soon as possible.

January 2002



 
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