Sums adding up for CHP
A combination of financial and carbon saving benefits is creating a very positive outlook for CHP, according to David Shaw, Business Manager of Baxi SenerTec UK.
When the standard rate of VAT went up to 20% at the start of the year people weren’t exactly jumping for joy. However, there is a considerable silver lining to this cloud in the shape of even greater potential savings for users of combined heat and power (CHP).
The Treasury confirmed that microCHP (covering installations up to 50kW electrical capacity for VAT purposes) would continue to attract a reduced rate of 5% VAT so increasing the financial incentive for end users to invest in the technology.
End users in residential properties and buildings occupied by charities can, therefore, reclaim a whopping 15% – which could amount to thousands of pounds in some cases – back on the purchase and installation costs of CHP.
There had been a steady rise in enquiries about CHP during 2010 as more building owners looked to secure an alternative, low carbon source of electrical power and heating. The increased VAT differential is another welcome boost and will further strengthen the financial case for CHP this year.
CHP owners can also claim Enhanced Capital Allowances to reduce their tax bill and the electricity produced and the fuel consumed by CHP systems are exempt from the Climate Change Levy.
Graham Meeks, director of the Combined Heat and Power Association (CHPA), says it was vital that energy-saving goods, such as microCHP, continued to attract this kind of tax break: “With the higher VAT rate now squeezing household budgets even further, it is imperative that the Government does all it can to help householders control their energy costs and tackle the scourge of fuel poverty.”
He also called for microCHP units to be fundable under the proposed replacement for CERT, the energy company obligation (ECO).
As a country, we need to support alternative sources of low carbon electricity because the National Grid is running into difficulties. The electricity regulator Ofgem has already announced that there is reasonable doubt about the ability of our current power infrastructure to meet increasing demand for electricity in the future. Some energy suppliers have already predicted rolling blackouts across the UK from as early as 2013 as the older fossil-fuel and nuclear power stations are de-commissioned.
As part of the Government’s energy strategy, unveiled in December, Energy Minister Charles Hendry admitted it would cost £130 billion to make our energy supplies more secure and sustainable. The price will have to be paid by consumers through higher fuel bills.
According to the Minister, £100bn will be spent on creating a sustainable power generation system to meet our pledge to cut carbon emissions by 80% by 2030. The remaining £30bn will go towards rebuilding and upgrading existing transmission infrastructure by 2020. Ultimately, the Government would like to de-carbonise the National Grid and convert buildings to all-electric systems powered by renewable and nuclear generated electricity. This is a commendable strategy, but enormously expensive and still a very long way off.
In fact, electricity is actually becoming more carbon intensive. The Department for Energy and Climate Change (DECC) has increased, by a significant 30%, the carbon emissions factor used to calculate the impact of electricity generated by large power stations and distributed via the Grid. This will have to be accounted for in the designs used by building services engineers to comply with Part L of the Building Regulations.
Therefore, any technology that generates electricity locally on site looks even more attractive both from a financial and carbon saving perspective. The more grid generated electricity our industry can displace the better, which is why we are seeing more interest in CHP. There is also growing interest in marrying more technologies to reduce carbon intensity. For example, electricity generated by on-site CHP can be used to power electric heat pumps – so increasing the already significant energy and carbon emissions benefits of each technology.
Aside from the carbon intensity, centrally generated electricity is only about 35% efficient. A large part of the useful energy is thrown away in the waste heat rejected via a power station’s cooling towers and still more is lost during the process of transmitting the electricity from the station to the point of use.
It is clear, therefore, that we need a mixture of solutions to improve energy security in the UK. We will continue to depend on significant amounts of centrally generated electricity, but we can no longer rely on the Grid to provide everything we need.
Microgeneration that takes the pressure off the Grid and produces electricity in a more efficient, low carbon way is the most realistic and reliable approach. CHP has the added benefit of providing useful heat as a by-product of the generation process exactly where it is needed.
Local authorities are clearly interested in taking advantage of this kind of cost-effective low carbon solution. Dundee City Council is an excellent example of one that has taken a proactive approach to tackling its carbon footprint and building operating costs. Most of the potential renewable and low carbon alternative heating and energy production technologies have been trialled and its in-house engineering design team has been able to build up enough experience to have a clear idea of the direction it needs to take.
“We have looked at most things, and have found condensing boilers and Combined Heat and Power (CHP) to be consistently cost-effective,” says the council’s Building Services Engineer Richard Allen.
“We are interested in exploring new design concepts along with tried and tested solutions, but tend to avoid the use of green gestures where they are not practical.”
The condensing boiler/CHP combination is now being rolled out across the city with schools, residential homes and even the city’s main shopping centre benefiting from this approach.
Reliability is a major consideration, particularly for local authority engineers with multiple buildings to maintain. The Dachs engines supplied by Baxi SenerTec are purpose designed for CHP and so will run for much longer than an average engine. For example, the life expectancy of a Dachs is equivalent to around three million motoring miles, so they certainly beat car engines for long-term reliability.
Value for money
Delivering value for money, throughout operating lifecycles, will increasingly be the key for all microgeneration solutions during the current period of austerity. CHP has stolen a march over many carbon saving alternatives because it is tried and tested and able to be retrofitted to a wide range of buildings with minimal disruption. This means it can reduce upfront costs as well as delivering long-term energy savings and carbon cuts.
The configuration of modern mini-CHP packages means they can be speedily integrated with existing services, while simultaneously reducing a building’s carbon footprint by between 30 and 35%.
However, it is equally important not to specify CHP for every type of situation, but to aim it where it is most appropriate. There is fantastic value in what Dundee City Council is doing because its in-house engineering team is building up extensive experience of the technology in different types of buildings with different usage patterns. That will show where CHP can provide real value for money and, equally importantly, where it does not work so well and alternative solutions should be considered.