UK CHP facing negative regulatory move

Ofgem, the UK energy regulator, is mulling a change in the law, which could have an adverse effect on companies who use combined heat and power technology.

The Daily Telegraph reports that some 375 industrial sites around the country that have installed small CHP plants could take a combined hit of £160m a year under plans being considered by the regulator.
These sites currently benefit from lucrative payments worth an estimated £80m a year for exporting their surplus electricity to the local power distribution network when UK supplies are scarce.

They are also currently exempt from paying charges faced by bigger power plants to help fund maintenance and upgrades to the UK’s high-voltage electricity transmission network. These cost reductions are worth an extra £80m a year, according to analysis by the Association for Decentralised Energy, which represents small power plant owners.

The Association for Decentralized Energy has responded to the news pointing out that many industrial manufacturers are utilising non-diesel based fuels in their high efficiency systems, so such regulation would be unfortunate if that is not taken into account.

ADE director Dr Tim Rotheray said: “In a bid to remain competitive, hundreds of the UK’s industrial manufacturers invested millions of pounds into their operations to improve efficiency and lower energy costs.

“Yet the process that Ofgem is rushing through could cause real harm to these manufacturers and their employees. If they lose embedded benefit revenue, some industrial manufacturers could see their energy costs rise by nearly 20pc, reducing their competitiveness, and putting jobs on the line.”

Ofgem claims  so-called “embedded benefits” that small power plants such as CHP and diesel generators enjoy may be “distorting energy markets”. They are instead considering not only scrappage of payments the plants receive but also making them pay network charges.

Ofgem argues the benefits give small plant developers an unfair advantage over developers of big gas-fired power stations when they compete for Government subsidies to support construction of new plants. Since the small plants have access to the additional revenue stream and face lower costs, they can undercut their bigger rivals. The regulator says there should be “a level playing field for all generators”.

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