London tries to put power near to the people

London’s Climate Change Agency wants to radically change the capital’s energy supply so that 25% comes from decentralised sources by 2025. Alex Marshall asks chief executive Allan Jones how it can meet such an ambitious goal

Back in 2004, London looked set to become the leading proponent of green energy in the UK, after Mayor Ken Livingstone established the London Climate Change Agency.

The LCCA’s job is to implement London’s climate change strategy. That includes a target to cut the capital’s carbon dioxide emissions by 60% by 2050 from a 2000 baseline by pushing through a "radical change" in London’s electricity and heat supply (ENDS Report 357, p 9 ).

The idea is to increase the use of "decentralised energy". This includes renewable energy installations connected to local distribution networks rather than the national grid, and gas-fired combined heat and power (CHP) schemes that supply heat and electricity directly to customers through district heating networks and "private wire" - local electricity systems.

But the strategy’s backbone is to build high-efficiency CHP plants that can also be used to generate cool water for air conditioning and refrigeration - so-called trigeneration technology (see box, p 31 ).

The agency favours such plants in spite of their high capital cost. According to the Combined Heat and Power Association (CHPA), a plant with an electricity capacity of 2MW - large enough to supply heat and power to 2,000 homes - costs about £3 million, plus £600 per meter for the district heating network.

This implies electricity generating costs of about £50 per megawatt hour compared with £31-42/MWh claimed for new nuclear power stations. But when revenue from the sale of heat, reduced transmission losses, and the facility to sell directly to consumers are taken into account the gap closes significantly.

Several important drivers which should encourage the construction of CHP plants have been introduced in recent years. The mayor’s revised London Plan, adopted last year, requires developers to "demonstrate that their heating, cooling and power systems have been selected to minimise CO2 emissions" and to allow decentralised energy.

It also requires new developments to reduce carbon emissions by 20% using renewable energy. Developers say this effectively forces them to look at biomass- or biofuel-fired CHP. However, as it only applies to the development’s carbon footprint after decentralised energy and energy efficiency measures have been taken into account, the need for renewable energy could actually be quite low.

More important, in 2006 the LCCA joined with EDF Energy to create an energy services company (ESCo) to develop, finance and operate decentralised energy schemes in the capital (ENDS Report 374, p 9 ).

In addition, last year’s climate change action plan says a quarter of London’s energy should come from "decentralised" sources by 2025 and 53% by 2050 (ENDS Report 386, p 39 ).

If the 2025 target is met, the conurbation’s CO2 emissions will be cut by some 28%, largely because CHP is much more efficient than centralised power (see box, p 31 ). To get there, London needs to increase its decentralised electricity generating capacity dramatically from 175MW in 2007 to 1,200MW.

Slow start
However, in the four years since the LCCA was established, it appears to have achieved little on the ground.

A few months after the ESCo was launched, LCCA chief executive Allan Jones said it was "developing 40 projects", the first of which would be announced by the end of 2006 (ENDS Report 380, pp 10-11 ). Mr Jones made a national name for himself in the 1990s as the man who radically slashed Woking Borough Council’s CO2 emissions with a series of pioneering schemes, including renewables and trigeneration.

But, in London, little has emerged since 2004. "I wouldn’t say development has stalled," says Mr Jones, sitting in the London Development Agency’s Palestra building in Southwark, London. "What we’ve found is that the time from initial expression of interest to financial close on a project is about 18 months, which is longer than we first expected.

"We’re also in the lap of the gods somewhat, because developers seem to prioritise their section 106 planning agreements [between councils and developers], then their construction contract and then they move on to the energy side of things. But the market is really starting to develop."

The ESCo is working on "some 18-20 projects" at the moment, he says. In the near term, this will lead to 105MW electrical of CHP capacity connecting to district heating networks.

Some of the projects are well known: 45-50MWe will be on the 2012 Olympics’ site in east London, while the company has also tendered to provide energy services for redevelopment schemes at Gallions Reach in Docklands, King’s Cross, and Elephant and Castle in Southwark.

The ESCo has had mixed success with these bids. It is among three shortlisted bidders for the Elephant and Castle project - which will install up to 9MWe of CHP to provide heat and electricity to more than 4,000 flats and 1 million square feet of office space when completed in 2014. The preferred bidder will be announced in March.

However, it lost the King’s Cross redevelopment in February to Metropolitan Utilities, part of the Inexus Group. This development will build 14MWe of CHP across the 67-acre site. The scheme’s size is dictated by the area’s heat demand and will provide only 30-50% of the site’s electricity needs, according to Andre Gibbs of developer Argent. If it was any larger, excess heat would be produced and the project would be "retrograde from a carbon emissions point of view".

In spite of losing such bids, Mr Jones says the ESCo should take some credit for them going ahead. "The mayor’s belief was that if we had one ESCo it would either pick up all the projects or draw others in. And that’s what has happened: there are now about 12 ESCo’s competing for projects."

"The mayor realised the London Plan’s targets would have fallen away if developers said, ‘we’d all love CHP schemes, but we’re not energy companies and can’t deliver them’."

Developer’s concerns
Developers have shown little resistance to introducing CHP and district heating networks into plans, says Mr Jones. But those ENDS spoke to say there is general concern that the mayor’s policies could push companies to use such schemes in unsuitable locations.

"One of my problems with these policies is they’re promoting CHP or trigeneration regardless of whether it’s the optimal solution - whether there is an adequate heat or electricity load on site to make a plant efficient enough to save CO2 emissions," says Jules Saunderson of the Green Building Council’s zero-carbon group. "In instances where it’s not, you have to look at other ways to lower emissions."

Instead, argues Mr Saunderson, developers could pay into a fund for local authorities to invest in energy projects. But he also suggests authorities could invest in renewable electricity projects far from developments, such as wind farms.

More specifically, many developers disagree with the London ESCo over how to implement CHP schemes. The ESCo prefers private wire, which the CHPA says lowers generation costs to half that on the grid, or about 5 pence per kilowatt hour during the day and 3.5-4p/kWh at night. It also allows the developer to link companies into long-term energy contracts.

But King’s Cross developer Argent has decided to connect to the national grid, even with the increased costs that involves, because it would have to comply with limits on the amount of electricity it could supply if it used private wire. It also feels tenants would be put off coming to the site if they had to sign long-term electricity contracts.

Ofgem in the way
Such comments are causing Mr Jones to push for regulatory changes to make private wire more appealing.

The "exemption supply limits" are most in need of change, he says. Currently, a power station is exempt from needing a licence to generate, distribute or supply electricity if it is below 10MW capacity. Given that licences can add up to £4.8/MWh to a plant’s operating costs, this is a significant benefit.

However, exempt plants can only supply domestic customers with 2.5MW of electricity, and only distribute 1MW of this on-site through private wires. These should be raised to 5MW at least, says Mr Jones. "You can meet these limits by breaking projects down into 1MWe plants, but that adds greatly to the cost of a scheme and can you imagine doing it somewhere like Thamesmead that’s got 25,000 homes on it? Do you really want to have to put in twenty-five 1MWe plants all connected through a distribution network? That’d be crackers."

Without change, the government will struggle to meet its target for zero-carbon homes by 2016, he adds.

Ofgem and the Business Department (BERR) have published initial proposals on the issue for consultation (ENDS Report 396, p 40 ), but they are concerned that if private wire flourishes, consumers will be locked into long-term energy contracts. "It is as yet unclear how the risks and costs of maintaining plant and providing service to customers will be managed, particularly outside a local authority setting," says the proposals.

Allan Jones disagrees. ESCos can allow other electricity companies to access private wire networks, he says, enabling consumers to switch supplier if need be. Suppliers could also be given a statutory code of practice stating how they should protect consumers. "We do not need a licence," he insists.

His arguments are persuasive, especially when he talks about the potential cost benefits to consumers of private wire. "In terms of competition, we’d argue we are competing with the generation, distribution and supply of energy. The centralised market only competes in supply, which is a small part of the costs of your electricity bill. Because of that, we can offer contracts index-linked to energy prices so that they are always below the market cost."

If the regulations around distributed energy are changed, "much less or no" financial contribution would be needed from developers to install decentralised energy schemes, he says. It would also improve the viability of schemes on existing large housing developments.

The costs could drop even further if CHP schemes are fired by a renewable fuel like biogas made from waste (see box, p 28 ).

But even if these changes are made and private wire CHP schemes are installed in new developments across London, they will not put the capital anywhere near its decentralised energy target.

By 2012, says Mr Jones, less than a third of the 1.2 gigawatts of CHP capacity needed by 2025 - some 350MWe - will be operating. To meet the target, twenty-four 50MWe CHP installations, or sixty 20MWe ones, would have to be built, he says and most would have to serve existing buildings. "New developments represent about 1% of the building stock in London each year so if we continue to just do new development work we’d at best achieve 17% of London’s energy supply by 2025, which isn’t enough."

To improve the energy efficiency of London’s existing stock of buildings, including its energy supplies, the LCCA recently formed the Better Buildings Partnership, which includes such large property holders as British Land, Land Securities and Hammerson.

There are several new measures which should encourage landlords to attach their properties to district heating networks. A new mandatory cap-and-trade scheme for large non-industrial energy users, the Carbon Reduction Commitment, is due to come into effect in 2010 (ENDS Report 390, pp 41-43 ).

The EU energy performance of buildings Directive, which requires buildings to be energy-rated, is also having an impact, (ENDS Report 370, pp 28-31 ).

"The big players like British Land are already being asked questions by their tenants such as ‘What is the energy rating of this building?’, ‘How to do you plan to lower emissions?’ and so on," says Mr Jones. "Companies I speak to do feel under pressure from it."

The ESCo’s plan to retrofit buildings does not involve creating private wire CHP systems, but instead looks at where London’s electricity distribution network intersects the national grid. These are the places to site CHP plants, Mr Jones says, as electricity can be fed into the network without the expense of having to reinforce it.

Having worked out the potential locations for plants, the ESCo plans to look at where the heat from them can be used - "energy-dense areas like the City, Westminster, Blackfriars, Southwark and maybe Croydon" - and to find potential users.

The infrastructure for installing the heat network could be financed "on the back of" framework agreements with major building owners to buy the heat and electricity. For example, in Westminster this could be government departments.

But Allan Jones admits this plan does not yet have much of a basis in reality. "Technically we can achieve these developments - and we can probably commercially achieve them too - but that doesn’t get away from the fact you need to do deals with building owners, and many of them at once," he says.

"The mayor’s ability to create a market with the London Plan doesn’t extend to existing buildings. We’ll have to encourage, cajole and ultimately wait for building owners to call for such projects."

It could be a long wait. None of the property companies ENDS spoke to mentioned the potential to reduce the carbon emissions of their properties by joining a distributed energy network before being prompted.

"The figures aren’t right for us to install individual CHP plants in our buildings," says Dave Farebrother, environment director at Land Securities. "Introducing a distributed energy scheme requires coordination between land holders, councils and so on to draw up schemes.

"We need to do it - but I can’t see us getting that coordination for a while." Allan Jones does not seem fazed by such comments. "We know we’ve got to make this happen," he says. "And we’ll try our best to do it."

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