Toothless CHP strategy set up to fail

The Government's long-awaited strategy for combined heat and power contains nothing new to help the troubled industry - despite containing a forecast that the 2010 target for CHP capacity is likely to be missed by some 15%.

In 1999, the Government set a target for 10GWe of CHP capacity to be in place by 2010, formalising a commitment made when Labour was in opposition. A strategy to deliver the target, first promised some seven years ago, has been delayed repeatedly.

Meanwhile the CHP industry has been hit by a combination of high gas prices, low electricity prices and the effects of the new electricity trading arrangements (NETA). Installed capacity barely grew in 2001 - and fell in 2002 as major developers withdrew from the market (ENDS Report 343, pp 10-11 ).

A draft CHP strategy was released in May 2002 - but contained no substantive new policies (ENDS Report 328, p 45 ). However, Michael Meacher, the Environment Minister at the time, said the Government could re-examine the case for a CHP obligation on electricity suppliers if the 2010 target looked unlikely to be met.

The Government used modelling work by Cambridge Econometrics to justify its inaction. To the bewilderment of the industry, this predicted that CHP capacity would reach 9.3-10.3GWe by 2010.

Two years later, the Government has finally issued its final CHP strategy. It includes a revised forecast from Cambridge Econometrics predicting that capacity will reach 7.7-9.4GWe by 2010 - with a central forecast of 8.1GWe lying towards the bottom of the range (ENDS Report 346, pp 6-7 ).

Despite this prediction of failure against the 10GWe target, the Government offers merely to monitor progress "to assess whether the measures set out in this strategy remain a sound basis for achievement of the CHP target."

The strategy lists some minor policy developments which have occurred since the draft strategy was released, but contains no new major policy measures to rescue the industry. It accepts that a CHP obligation would be "the surest way to ensure the 2010 target is met" - but dismisses it as a relatively expensive way to save CO2 emissions which is inconsistent with policies to promote competitive energy markets.

DEFRA points out that the effect of the EU emissions trading scheme was not included in the modelling. It claims that this could add another 100-400MWe of capacity, raising the central forecast to perhaps 8,500MWe by 2010.

However, Cambridge Econometrics' model included a contribution of 400MWe from micro combined heat and power. The strategy admits that there are uncertainties about when micro-CHP will enter the market. In May, leading UK developer Microgen confirmed that its system is unlikely to be commercially available before spring 2007 - a year later than previously hoped - to allow more time for testing (ENDS Report 330, pp 33-34 ).

Moreover, the Government's new energy efficiency plan does not assign a CO2 saving to micro-CHP by 2010 - apparently because it expects sales to be too low to register (see pp 45-46 ). Meanwhile, the House of Lords has passed an amendment to the Energy Bill requiring the Government to draw up a microgeneration strategy (see pp 35-36 ).

Launching the CHP strategy, Environment Secretary Margaret Beckett said: "We must continue to aim for our target of 10GW of good quality CHP capacity by 2020. We want to provide a framework in which business can plan long-term investment decisions with greater certainty. This strategy document does that."

Appearing on the same stage, David Green of the CHP Association welcomed the strategy as a "base-camp" from which the industry can build. "The important thing for us is not what the strategy says, but the direction it is taking us in," he said.

Mr Green's polite comments to Ministers contrast with the line taken in the CHPA press release, handed out immediately after the press conference. This dubbed the document a "strategy without substance" and said that new measures are needed urgently.

A priority for the CHPA is to exempt CHP from the renewables obligation. The House of Lords passed an amendment to the Energy Bill to achieve this, but the Government has signalled that it will remove the amendment in order to protect renewables generators (see pp 35-36 ).

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