HL Deb 30 June 2003 vol 650 cc596-9

3 p.m.

Lord Ezra

asked Her Majesty's Government:

What prospect there is of achieving their objective of 10 gigawatts of combined heat and power (CHP) by 2010 as set out in the energy White Paper (Cm 5761).

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty)

My Lords, the measures to support combined heat and power announced in the energy White Paper, when taken together with the support measures previously introduced by the Government, can significantly help CHP. Although challenging, the target to which the noble Lord referred is achievable with sustained effort on the part of both the private and public sectors.

Lord Ezra

My Lords, I thank the Minister for that Answer and declare an interest in the promotion of small-scale generation of electricity. Does he agree that combined heat and power achieves efficiencies of up to 90 per cent compared with 40 to 50 per cent for a conventional power station, and that CHP has so far saved 4 million tonnes of carbon emissions in the atmosphere compared with conventional generation? However, does the Minister also agree that market conditions have meant a substantial slowdown in the creation of new CHP capacity? For example, in 2001, only 38 megawatts of new capacity were brought into effect compared with 800 megawatts in the previous year. In those circumstances, is not some major new initiative required in order to achieve the Government's objectives?

Lord Whitty

My Lords, the Government are well aware of and committed to the energy efficiency advantages of CHP. The noble Lord is right; the market conditions reflected in the relative prices of gas and electricity have reduced the market signals for the choice of CHP in a number of installations. However, the changes which the Government have brought about, both in the CHP draft strategy which we shall finalise later this year and in the energy White Paper, will help to turn that position, as will the changes in the new electricity trading arrangements (N ETA) regulations, which in part previously hindered the adoption of CHP in certain circumstances. A number of support measures are now in place to get us back on trend to achieve the target.

Lord Dixon-Smith

My Lords, the reality is that the new trading arrangements have successfully reduced the price of electricity by 40 per cent at the wholesale level and have been very beneficial for consumers. However, as the noble Lord, Lord Ezra, said, they have had a dramatic effect on investment. What positive steps will be taken by the Government to change things? Unless something is done now, the electricity generating industry will be frozen in its old-time, inefficient and environmentally unfriendly framework. The opportunity will no longer exist for new investment to be made because it is uncompetitive and uneconomic.

Lord Whitty

My Lords, the noble Lord is correct in referring again to the changes in prices which have reduced the incentive for CHP. However, he is wrong to say that the Government are not already engaged in substantial support for that sector to offset those market signals. We have changed the climate change levy exemption and introduced enhanced capital allowances and a community heating programme of £50 million. As a result of the energy White Paper, power station consent applications will need to give full consideration to the CHP option. We have set a target for the Government estate for CHP. As I said, we have altered the NETA arrangements, which in some cases inhibited CHP adoption, and there are a number of other support measures.

I agree that hitherto we have not seen the market turn around. The success of these measures should come about over the next two or three years. As I said in my Answer, the target is challenging but we believe that we have the support measures in place to deliver it.

Lord Hunt of Chesterton

My Lords, are the Government building on the achievement of certain local authorities which have exploited CHP in combination with alternative energy sources significantly to reduce their overall energy consumption? Are the Government ensuring that the National Grid is more competitive in integrating those initiatives into the national electricity system?

Lord Whitty

Yes, my Lords; a number of local authorities on both a medium and small scale have positively considered and begun to introduce CHP schemes, some of which are based on renewable energy sources. I commend them for doing that and recommend other local authorities so to do. As regards the National Grid, this relates back to the initial position under the NETA arrangements of Ofgem, which have now been substantially modified, partly in order to be less detrimental to the adoption of CHP. That will change the balance and the cost of CHP feeding into the National Grid.

Lord Jenkin of Roding

My Lords, what are the Government doing to implement the recommendations of the Carbon Trust, which is one of the Government's instruments, to try to achieve a low-carbon economy by encouraging the next generation of CHP technology, which, as the Carbon Trust states, offers potential for even better performance, lower costs and lower carbon emissions? What are the Government doing to encourage that?

Lord Whitty

My Lords, there are two dimensions to that. The first is to support the adoption of medium and relatively large-scale CHP through the various measures to which I referred. The second relates to micro-CHP and its potential contribution to the domestic and small commercial sector. The Government are at present much engaged in getting type approval adopted and in encouraging the sector to develop substantially in a way that can be incorporated into the next stage of building regulations, to encourage micro-CHP contribution to reducing what is still a burgeoning level of energy use within the domestic sector. So both parts of the next generation of technology are covered by government support.

The Countess of Mar

My Lords, can the Minister tell the House how many municipal and privately-owned waste incinerators incorporate combined heat and power technology and how many are operational in the United Kingdom?

Lord Whitty

My Lords, I regret that off the top of my head I cannot provide an answer for the noble Countess. I suspect that relatively few such facilities are municipally owned. In view of international comparisons, this is certainly an area in which we need to do substantially better.

Lord Avebury

My Lords, has there been greater investment in CHP as a consequence of this extension of the CCL exemption to that sector in April? Can the Minister tell the House what is meant by "good quality CHP" in that connection?

Lord Whitty

My Lords, there is a very complex definition of good quality CHP, which I am happy to provide to the noble Lord. The change has only just been brought about, since April. Therefore, I cannot say what effect that change in tax treatment has yet achieved. Clearly, at present there is a low level of take-up of new CHP, but all these measures are designed to encourage future planning decisions and commissioning in favour of CHP over the next two to three years.