CHP target in trouble, DTI admits

Revised modelling for the Government has confirmed what the combined heat and power industry has long argued - that existing policies will miss official targets for CHP by a wide margin. The industry is now concerned that the EU emissions trading scheme may add to its woes.

The Government's draft CHP strategy, issued in May 2002, offered few new measures to support the ailing industry (ENDS Report 328, p 45 ). The draft was supported by modelling work from Cambridge Econometrics which predicted that installed capacity would reach 9.3-10.3MW by 2010 - comfortably on course for the long-standing target of 10GW.

The prediction has been repeatedly challenged by the CHP Association - not least because an earlier study by the same consultants for Forum for the Future gave a much lower figure (ENDS Report 334, p 47 ).

In the meantime, the industry has continued to suffer. Installed capacity is stuck at around 4.8GW - and actually declined during 2002 (ENDS Report 343, pp 10-11 ).

The Department of Trade and Industry and the Environment Department asked Cambridge Econometrics to update the projections.1 The revised model suggests that only 7.7-9.4GW will be installed by 2010 - with the central value of 8.1GW lying towards the bottom end of the range.

Official support measures are now forecast to contribute some 1.9GW by 2010, down from 2.5GW in the draft CHP strategy. It remains to be seen whether the Government will include new measures in the long-overdue final version of the strategy.

The modelling did not assess the impact of the EU emissions trading scheme. The DTI says that higher electricity prices arising from the scheme should favour carbon-efficient generation, including CHP. It cites preliminary calculations by Cambridge Econometrics suggesting that the EU scheme could boost CHP capacity by 0.1-0.4GW, though "considerable uncertainty" surrounds the price of carbon and the impact of the national allocation plan (see pp 5-6 ).

In late October, the CHP Association, the Food and Drink Federation and the Confederation of Paper Industries wrote to Environment Secretary Margaret Beckett expressing "extreme concern" that the Government has yet to demonstrate how it will support CHP through the allocation process. Other Member States such as Germany and the Netherlands are said to be considering "progressive policies" to support CHP in their allocation plans.

"There remains a window of opportunity to ensure that the emissions abatement potential of CHP is fully acted on," the associations say. They call for free allocation of allowances for all CHP schemes, including new entrants, at a level which reflects CHP's benefits of on-site electricity generation and useful heat production.

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