COMBINED HEAT AND POWER (CHP)

Introduction to Combined Heat and Power (CHP)

A significant proportion of the energy used in industry is in the form of electricity. This electricity is generated in a variety of power stations that have typical efficiencies in the range 35 to 55%. The remainder of the heat input into these power stations is waste heat, which is usually rejected to the air. That is why large cooling towers are often seen at power stations. Power stations are designed to reject heat at a relatively low temperature so as to maximise the power station efficiency. Because of its low temperature, useful sinks for heat rejected by power stations cannot easily be found.

However in an industrial environment (and some others), it can be worthwhile to generate power on-site and use the heat rejected from the power generation system. Heat can be rejected at relatively high temperature. Although this reduces the efficiency of power generation the heat can be usefully used in the factory, so the overall system efficiency can be very high, up to 90% of the heat content of the input fuel. This simultaneous generation of heat and power is known as Combined Heat and Power often abbreviated to CHP. It is also sometimes referred to as cogeneration.

There are many different types of CHP scheme. Useful means to differentiate between them are the type of prime mover, the size and the usage of the heat and power generated.

• The key prime movers are reciprocating engines (either gas or oil fired, spark ignition or diesel engines), gas turbine-based systems (either simple or combined cycle turbines) and steam turbine systems.

• The power output of industrial CHP systems can vary from a few tens of kilowatts to ten of megawatts.

• CHP schemes can be designed so that all their heat and power output is used within the host site, with sites continuing to import electricity and heat, or the CHP scheme may sized to export power and/or heat some or all of the time.

In most CHP systems, the power output is in the form of electricity provided by a generator driven by the prime mover. However, the prime mover can be used to provide a direct mechanical drive to a power user.

CHP and the Climate Change Levy

Good CHP schemes offer considerable primary energy savings compared with conventional energy conversion systems, and hence the UK Government wishes to encourage the more widespread adoption of CHP through the following links with the Climate Change Levy:

• Firstly, all energy used in "good quality" CHP is totally exempt from Climate Change Levy (see below for definition of good quality);

• Secondly, there are obligations upon CCLA signatories to investigate CHP, and energy saving targets will be increased if CHP is shown to be "cost-effective."

• Thirdly, the Government will include CHP in the list of technologies eligible for Enhanced Capital Allowances, which were announced by the Chancellor as part of the Climate Change Levy package (See Information Sheet 13).

The Government has launched a scheme "CHPQA, Quality Assurance for CHP", to determine how to appraise good quality CHP. Those with a CHP plant who wish to benefit from CCL exemption must register their plant with CHPQA. Certain key aspects of CHPQA are described in this Information Sheet.

IMPORTANT NOTE: The basic energy efficiency targets for the Master Bakers Climate Change Levy Discount Scheme shown in Information Sheet 3 DO NOT make any allowance for CHP opportunities. The agreed targets are based on reductions in use of "delivered" energy. This means that CHP projects will be additional to the delivered energy target (see Guidance Notes Section 11). You will only be expected to implement CHP if it can be shown to be cost effective. This is not likely to be the case in shops or small bakeries, but CHP may be applicable in large bakeries.

Impact for Sites with Existing CHP Systems

If a site already has a CHP system that was installed before the site’s CCL Base Year the impact of the Climate Change Levy CHP rules is as follows:

1. The CHP system must be registered under the CHPQA Scheme to gain CCL exemption. If the system is "Good Quality" all fuel used by the CHP system will be 100% exempt from the Levy. For CHP systems not of "Good quality" the Levy exemption will be reduced on a sliding scale.

2. If the CHP system supplies all the site’s energy no further action is required – the site already has 100% exemption, so a CCLA is not required.

3. If other energy is purchased to supplement the CHP system supplies (e.g. import of electricity from the grid) you will need to sign a CCLA to obtain the 80% discount on this part of your fuel costs.

4. For a site that applies for a CCLA, the basic energy efficiency targets for the Master Bakers Climate Change Levy Discount Scheme shown in Information Sheet 3 will apply to the use of all "delivered energy" which includes the outputs from the CHP system as well as the imported energy.

Impact for Sites with CHP Systems Installed SINCE the Base Year

If a site has installed a CHP system since the Base Year (e.g. Base Year 1999, CHP installed in 2000) then the site target must be modified to take the CHP system into account. This is because, as stated above, the CHP system cannot be a contributor to the basic energy efficiency target. The Scheme Administrator will calculate the modified target.

The rules (a) to (c) above also apply in this situation.

Impact for Sites with no CHP Systems

For shops, there is no requirement to investigate CHP.

All bakeries who do not have CHP are expected to undertake a two-stage review of CHP feasibility by the first milestone (April 2003).

Stage 1 Pre-Feasibility. This will be a short review to show likely CHP system size, heat and power outputs, costs and savings. If this review shows a poor economic case for CHP, the Participant will have no further commitments in relation to CHP. The short review can be undertaken in-house by the Participant using a methodology that will be provided by DEFRA. Alternatively, a short study (probably 1 to 2 man-days) from an independent consultant may be appropriate.

Stage 2 Full Feasibility. If Stage 1 shows that CHP could be "cost-effective" then a more detailed feasibility study must be undertaken by the first milestone (April 2003). This should be a comprehensive review of CHP options to properly identify the optimum size and type of system and to fully appraise capital costs. The review should also identify savings and payback periods for a range of appropriate fuel price scenarios. DEFRA will provide advice on a number of "standard" fuel price scenarios that can be used. If the Stage 2 review concludes that CHP will be possible and cost-effective, then the effect of the CHP scheme will be taken into account in setting a future target for the CCLA participant.

IMPORTANT NOTE: The treatment of CHP, including the definition of "cost-effective" is subject to ongoing negotiation. Details will be finalised before Participants need to sign an Underlying Agreement.

Immediate Actions

If you already have a CHP scheme and you wish its fuel use to be considered for exemption from CCL then you should obtain the CHP QA consultation from the contacts listed in this Information Sheet. A form, F1, is included with the consultation papers; you should immediately complete and return this form to CHPQA to register interest in the scheme. CHPQA will send further details to you, as they become available. The proposed timetable for implementation of CHPQA is as shown in Table 11.1.

Table 11.1 CHPQA Timetable

Good Quality CHP

The government’s CHP QA Scheme has been set up to define and certify good quality CHP. Recent important documents are available as shown in the box below.

This document gives full details of Good Quality CHP and its treatment. The most important outcomes of the CHP QA process are as follows:

1. For a CHP scheme to be certified as "Good Quality" it must achieve a "Quality Index" (QI) of 100 and must have an electrical efficiency of at least 20%. The calculation of QI is described in the consultation document.

2. If the electrical efficiency is less than 20%, then the proportion of system input that has "good quality" outputs is defined and is exempt from CCL.

3. If electrical efficiency is acceptable, but the QI < 100, because there is a low degree of heat recovery, then the electrical output consistent with the actual heat recovery is calculated. Electricity supply up to this level is exempt from CCL; additional electricity generation is subject to CCL.

4. Reduced QIs are acceptable for good quality CHP during commissioning.

5. A lower electrical efficiency of 15% is acceptable for steam turbine-based CHP for a transitional period.

6. Applicants can define scheme boundaries

7. Most schemes will require monitoring of fuel input, electrical output and heat supplied.

8. Simplified reporting requirements are in place for small schemes of less that 2MW_e capacity.