APPENDIX 48
Memorandum submitted by BG MicroGen
1. EXECUTIVE
SUMMARY
BG Group believes that climate change is a reality,
supports the placing of greater emphasis on it in energy and environmental
policies and therefore concludes that a key objective of energy
and environment policy must be to drive lower carbon intensity
into the economy.
The process of driving lower carbon intensity
into the economy will require three components: a progressive
migration to lower carbon fuels, a more efficient use of energy
and the introduction of renewable energy sources.
Natural gas has the lowest carbon content of
all of the hydrocarbons and, in combustion, produces 22% less
CO2 equivalent emissions than oil and 40% less than
coal. Natural gas also releases virtually no particulate matter
and emits significantly lower levels of sulphur dioxide (SO2)
and oxides of nitrogen (NOx). Therefore, it is critical in policy
terms that all hydrocarbons are not treated as though they have
an identical environmental impact.
We believe that the economy of the future is
likely to be hydrogen-based. However, we see natural gas as a
clean, and convenient bridge to a carbon-free future and gas-fired
MicroCHP as a central plank in that bridge.
Energy efficiency improvements by households
are key to achieving a zero carbon economy. The equivalent of
a quarter of the UK's total Kyoto Commitment across all sectors
could be delivered through MicroCHP alone if all 13 million suitable
UK homes were converted. Even at more modest levels of penetration,
it is clear that the technology can deliver major environmental
benefits and help the Government meet its "green" targets.
We suggest that Government support for carbon
abatement measures should be targeted at the most cost effective
solutions. The PIU, in its Energy Review[24],
identified MicroCHP as by far the most cost effective of all the
carbon abatement methods. The Fuel Poverty Advisory Group has
also noted the importance of micro CHP
With government support, MicroCHP can make a
significant contribution towards achieving a low—and ultimately
zero carbon economy, and importantly, on a much shorter time-scale
than via many renewable technologies
Over time, the technical, regulatory and legislative
framework that is required for gas-fired MicroCHP to deliver energy
efficiency gains and carbon abatement can apply equally to renewable
technologies such as photo-voltaics and fuel cells. So, by acting
as the launch fuel for MicroCHP, natural gas can act as a bridge
to renewable energy sources.
MicroCHP is a radical and evolutionary change
in home heating, which incorporates the technology of the highest
efficiency boilers plus significant additional functionality including
the production of electricity. However, because it replicates
the functions of a conventional boiler and this is something which
domestic customers are familiar with, this technology can begin
the process of familiarising domestic customers with the concept
of generating their own power—making it far easier to sell
technologies such as fuel cells when they become available.
Measures which will help achieve the potential
of MicroCHP and which have significant parliamentary support demonstrated
by support for Early Day Motions are:
— Direct grant support (EDM 47).
— The extension of 5% VAT to accredited
MicroCHP (EDMs 79 and 29).
— Access to enhanced capital allowances
for accredited MicroCHP (EDM 367).
Customers only replace central heating boilers
around once every 15 years. It is essential therefore that as
a country we take all possible steps to ensure that the most CO2
friendly choice is made. An inefficient boiler once installed
cannot be changed without enormous inconvenience and extra cost.
Every time a customer chooses to install a traditional boiler
rather than a MicroCHP we have lost the opportunity to save more
than 20 tonnes of CO2 (1.5 tonnes pa for 15 years).
2. INTRODUCTION
TO BG GROUP
2.1 BG Group welcomes the opportunity to
give evidence to this Committee. BG Group is one of the very few
integrated natural gas companies with expertise and experience
from gas production, through transmission, distribution and marketing
to the consumer.
2.2 Part of the former British Gas, the
company now has its centre of gravity—around 65% of activity—in
exploration and production and has played a part in some of the
biggest gas finds in the world in recent years—in Trinidad,
Bolivia, Egypt and Indonesia.
2.3 BG Group has interests in around 20
countries worldwide but its base is still solidly in the UK, which
accounts for 55% of current production. BG Group is a top 30 FTSE
company.
3. INTRODUCTION
TO MICROGEN
3.1 MicroGen Energy Limited is a wholly
owned subsidiary of BG Group which has been established to develop
what the Group perceives to be a significant market opportunity
in Micro combined heat and power.
3.2 Following an extensive review of various
technologies, MicroGen selected and obtained an exclusive worldwide
licence to develop and commercialise, the free piston Stirling
engine. The resulting appliance is an innovative energy system
for individual homes and small businesses that generates heat
for water and space heating requirements and at the same time
produces electricity from a single compact unit. MicroGen intends
to launch the product commercially in just over a year's time.
3.3 The unit, which fits into the same space
on the wall as a traditional boiler, can contribute to economic,
environmental and social objectives by:
— reducing a typical household's energy
bills by around £150 per year;
— helping lift people out of fuel poverty;
and
— reducing CO2 by around
1.5 tonnes per household per annum.
3.4 MicroCHP can also improve security and
stability of supply by reducing energy usage, increasing the diversity
of its supply and reducing peak loads on the network because it
generates power independently of large, centralised power stations.
4. BRIDGING THE
ZERO CARBON
ECONOMY GAP
4.1 BG Group believes that climate change
is a reality, supports the placing of greater emphasis on it in
energy and environmental policies and therefore concludes that
a key objective of energy and environment policy must be to drive
lower carbon intensity into the economy. The process of driving
lower carbon intensity into the economy will have three components:
— progressive migration to lower carbon
fuels;
— a more efficient use of energy; and
— the introduction of renewables.
4.2 The migration to lower carbon fuels
is critical. We believe that the economy of the future is likely
to be a hydrogen-based. However, the transformation to such an
economy is some years in the future. Action can and should be
taken now that reduces carbon emissions and we see natural gas
fired MicroCHP as a clean, convenient and innovative bridge to
such an economy.
4.3 Natural gas has the lowest carbon content
of all of the hydrocarbons and, in combustion, produces 22% less
CO2 equivalent emissions than oil and 40% less than
coal. Natural gas also releases virtually no particulate matter
and emits significantly lower levels of sulphur dioxide (SO2)
and oxides of nitrogen (NOx). Therefore, it is critical in policy
terms that all hydrocarbons are not treated as though they have
an identical environmental impact.
4.4. Environment and Energy Ministers have
made clear their zeal for much greater energy efficiency and improved
air quality. Many of their policies are designed to help renewable
energy sources achieve that. Whilst we support this approach,
renewables are still in their infancy, represent a fairly small
part of generation and are, by nature, concentrated in some parts
and absent from other parts of the UK. Many renewable technologies
are, therefore, a solution in the medium to long term. This leaves
a gap, which needs to be bridged. With government support, MicroCHP
can make a significant contribution towards achieving a low and
then ultimately a zero carbon economy. But, critically, it can
achieve this transition on a much shorter time-scale than many
renewable technologies.
4.5 Over time, the technical, regulatory
and legislative framework that is required for gas-fired MicroCHP
to deliver energy efficiency gains and carbon abatement can apply
equally to renewable technologies such as photo-voltaics and fuel
cells. So, by acting as the launch fuel for MicroCHP, natural
gas can act as a bridge to renewable energy sources.
4.6 A combination of the desire for a zero
carbon economy and concerns over security of supply of energy,
make it essential that energy is consumed in the most efficient
way possible. We therefore support the Inter-departmental Analysis
Group (IAG)[25],
which concluded that "the key issue is not whether energy
efficiency should be pursued as a priority within a carbon saving
programme—but how."
4.7 BG believes that government support
for carbon abatement measures should be targeted at the most cost-effective
solutions. The PIU, in its Energy Review24, identified MicroCHP
as by far the most cost effective of all the carbon abatement
methods.
4.8 Technologies offering distributed power
generation offer significant advantages with respect to emissions
and security of supply. However, the concept of generating your
own power within your home is a novel one with which domestic
customers are unfamiliar. Here also, the uptake of MicroCHP can
act as a stepping-stone for other technologies. MicroCHP is a
radical and evolutionary change in home heating, which incorporates
the technology of the highest efficiency boilers plus significant
additional functionality including the production of electricity.
However, because it replicates the functions of a conventional
boiler and this is something which domestic customers are familiar
with, this technology can begin the process of familiarising domestic
customers with the concept of generating their own power—making
it far easier to sell technologies such as fuel cells when they
become available.
4.9 Energy efficiency improvements by households
are key to achieving a zero carbon economy. The equivalent of
a quarter of the UK's total Kyoto Commitment across all sectors
could be delivered through MicroCHP alone if all 13 million suitable
homes were converted. Even at more modest levels of penetration,
it is clear that the technology can deliver major environmental
benefits and help the Government meet its "green" targets.
5. ACTION REQUIRED
5.1 It is widely accepted that energy efficiency
is not sufficiently valued by the market. One of the ways in which
this market failure can be corrected is by the introduction of
economic instruments, which place a value on this benefit. In
keeping with our view that government support for carbon abatement
measures should be targeted at the most cost effective solutions,
we have considered the most cost effective ways of providing that
support and recommend the following measures:
5.2 Direct grant support for MicroCHP similar
to that provided to the solar electricity industry and LPG vehicles.
Such a grant would not need to be a permanent
measure but could be used to "kick-start" the introduction
of MicroCHP—which delivers greatly enhanced benefits over
both condensing and traditional boilers. The grant could be a
time or volume-expired measure, as once a critical manufacturing
mass is established within the MicroCHP industry, unit costs will
fall and MicroCHP will be able to compete alongside other energy
saving and carbon reducing technologies.
5.3 This measure has considerable support
within parliament, as demonstrated by the large number of signatories
(134) to Early Day Motion number 47 tabled by Dr Ian Gibson MP,
"Extension of the new technology grant scheme to domestic
CHP systems and domestic heat pumps".
5.4. EDM 47 states "this House . .
. believes that encouragement for new technology is essential
for achieving long-term reductions in emissions of carbon dioxide;
therefore calls for the extension of that grant scheme to domestic
micro-combined heat and power systems and domestic heat pumps,
both of which are new technologies with great potential for the
future; and notes that in the case of domestic combined heat and
power systems the recent report by the Performance and Innovation
Unit, in Table 6.1 identified MicroCHP as the most efficient method
of carbon abatement and that the Government's Fuel Poverty Strategy
stated that it also has a considerable potential to reduce fuel
poverty."
5.5 The extension of 5% VAT to accredited
MicroCHP
Domestic customers currently pay 5% VAT on the
energy that they use but 17.5% VAT on energy saving devices. Five
per cent VAT is a recognised fiscal instrument, already used by
government to incentivise domestic consumers—it already
applies to energy saving materials, and this includes central
heating and hot water system controls. A customer who installs
a MicroCHP, which is among the most efficient energy saving devices
available, should also benefit from the lower rate of VAT.
5.6 Parliamentary support for this measure
is demonstrated by EDM 79 "Reduction of VAT on Energy Saving
Materials" and EDM 29 "VAT on DIY installations of energy
saving materials", which have gained 215 signatures.
5.7 Access to enhanced capital allowances
for accredited MicroCHP
In the March 2002 budget, the Government extended
the application of Enhanced Capital Allowances on Good Quality
CHP to include leasing arrangements in the business sector. In
the domestic sector, basic rate capital allowances are also available
to the Government's Affordable Warmth scheme. Extending access
to even basic rate capital allowances to all domestic sector leasing
arrangements for suitably accredited energy efficiency measures,
including MicroCHP would be particularly effective in encouraging
the establishment of "Energy Services". This is a business
model supported by the Energy Saving Trust that encourages energy
efficiency measures by allowing customer payments to be structured
such that the extra capital cost of the energy saving measure
(in this case MicroCHP) is paid concurrently with the receipt
of the benefits that the measure brings.
5.8 In support of this measure EDM (number
367) "enhanced capital allowances for domestic sector energy
services" was put down last week by David Chaytor MP, Chair
of the All Party Environment Group.
5.9 The potential benefits of MicroCHP are
huge. However the window of opportunity is small—because
customers only replace central heating boilers around once every
15 years. It is essential therefore that as a country we take
all possible steps (short of compulsion) to ensure that the most
CO2 friendly choice is made because an inefficient
boiler once installed cannot be changed without enormous inconvenience
and extra cost. Every time a single customer chooses to install
a traditional boiler rather than a MicroCHP we have lost the opportunity
to save more than 20 tonnes of CO2 (1.5 tonnes per
annum for 15 years).
December 2002
24 Table 6.1, p108, The Energy Review, A Performance
and Innovation Unit Report, Cabinet Office, February 2002. Back
25
Long Term Reductions in Greenhouse Gas Emissions in the UK,Report
of an Inter-departmental Analysts' Group. Feb 2002. http://www.cst.gov.uk/energy/greenhousegas/greenhouse.pdf. Back
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