Memorandum from British Sugar
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
Missing the target
Current CHP installation in the UK is only 4.7
GWea 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
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
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.
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.