Heat Policy - Government’s views on Combined Heat and Power and District Heating

1. Heat Policy - Government’s views on Combined Heat and Power and District Heating Chris Parkin – CHP Policy Lead, Heat Strategy & Policy Ecotec21 Symposium 15th April 2013

2. Why heat is important 52% 34% 14% Heat is our largest energy use ... ....and is responsible for around a third of UK greenhouse gas emissions

3. The Heat Strategic Framework March 2012 March 2013 The Future of Heating: A strategic framework for low carbon heat in the UK Last year The Future of Heating: A strategic framework for low carbon heat in the UK set out, for the first time, a framework for ensuring there is affordable, secure and low carbon heating up to 2050

4. Since Then… • We have been gathering evidence, identifying barriers and assessing policy options, including; • External modelling on cost-optimal technologies out to 2050, which better reflects heat networks, gas-based solutions and the importance of storage • Internal Heat Network and CHP modelling • Qualitative research by BRE into barriers to heat networks • Customer insight surveys on heating preferences and behaviours • Quantitative and qualitative research into homeowners’ willingness to replace their heating systems • Evaluation of the renewable heat premium payments scheme • Developing factsheets on heat-intensive industrial sub-sectors.

5. The Future of Heating: Meeting the challenge • Sets out our conclusions and specific actions to help deliver low carbon heating across the UK in the decades to come. It focuses on four different aspects of the heat challenge – industrial heat, networked heat, heat in buildings, and grids and infrastructure. • Chapter 1: Efficient low carbon heatin industry • Chapter 2: Heat networks • Chapter 3: Heat and cooling for buildings • Chapter 4: Grids and infrastructure

6. INDUSTRIAL HEAT Sector-specific ‘low carbon roadmaps’ for each key industrial sector, with BIS and industry – focusing on the most heat and CO2 intensive sectors Developing further evidence on supporting CCS for industry we committed to complete a technoeconomic study by the end of the year with BIS. We are looking for industry partners. European Regional Development funding working with BIS to influence the £600m to support low carbon industry. Recoverable waste industrial heat – building our evidence and investigating how to incentivise harnessing waste heat from industrial processes, alongside the 2014 RHI policy review. HEADINGText

7. Combined Heat & Power Where are we now UK CHP capacity is currently 7.9 GWe Supplying 39 TWh/yr electricity, 55 TWh/yr heat Supplying hot water and steam at up to 450°C and 60 bar Existing capacity is primarily in industrial sectors supplying process heat needs

8. COMBINED HEAT & POWER International comparison Many other EU Member States have a higher proportion of CHP in their generation mix

9. COMBINED HEAT & POWER Projected Growth Modelling suggests economic potential for 18GWe CHP by 2020 Strong growth in renewable CHP capacity is projected Less growth in conventional (non-renewable) CHP capacity is projected (20% increase by 2020) despite significant potential Growth primarily small CHP supplying space and water heating to public & commercial buildings

10. COMBINED HEAT & POWER Barriers to & Benefits of Additional Natural Gas CHP Capacity BARRIERS • High hurdle rates (18-25%) compared to power generation (7.5-10%) • For small, exporting, CHP projects, accessing the electricity market wholesale price BENEFITS • The Gas Generation Strategy indicated that significant new capacity could be required by 2030 to replace retiring plant and to balance increasing intermittency • Natural gas CHP is the most efficient natural gas generating capacity • An additional 3.4 GWe CHP could save 28.5 Mtonne CO2(2012-2035) provided it displaces gas, and not lower carbon, generation

11. COMBINED HEAT & POWER Next Steps on Renewable & Natural Gas CHP RENEWABLE • CHP specific RHI tariff has been proposed to replace ROC “uplift” • CHP exempt from cap on new build biomass capacity • CHP Quality Assurance criteria being tightened to ensure support is focussed on schemes delivering significant benefits NATURAL GAS • DECC will… • Work on a bespoke policy for new gas CHP capacity, subject to confirmation that this will not displace lower carbon generation • Explore interim opportunities for providing affordable finance from existing funding • Examine whether the specific characteristics of CHP warrant future amendments to the Capacity Market

12. HEAT NETWORKS UK Heat Network Penetration

13. HEAT NETWORKS Potential • Potential is estimated at 7% of domestic heating and hot water demand by 2030, rising to 14% by 2050

14. HEAT NETWORKS Benefits and immediate challenges BENEFITS • Networks can make the most of a range of heat sources that individual building solutions cannot harness • In urban areas there are challenges with electric heating - building density will prevent wide use of individual ground source heat pumps IMMEDIATE CHALLENGES • Commercial considerations • Difficulty in attracting finance and reaching commercialisation • Lack of standardised commercial models • Consumer challenges • Local Authority capacity and capability • Issues around Heat Network development • Difficulty selling electricity produced by CHP

15. HEAT NETWORKS Longer term challenges • Issues around Heat Network development • Lack of common technical standards • Lack of statutory access to land • Difficulties joining up Networks • Future low carbon heat sources • Difficulties in planning for future requirements

16. HEAT NETWORKS DECC Next steps • Heat Networks Delivery Unit (£3m over two years) • Heat Networks Funding Stream (£6m over two years) • Supporting establishment of industry-led customer code of conduct • Examine scope for extra financial support for heat networks through the RHI (as part of RHI review 2014) • Heat metering (Energy Efficiency Directive) • Licence Lite

17. Heat and cooling for buildings [

18. Government’s original model for low carbon heat in buildings Heat and cooling for buildings

19. Government’s updated model for low carbon heat in buildings Heat and cooling for buildings

20. Heat and cooling for buildings • Reducing demand through, for example, Green Deal and rolling out Smart electricity and gas meters. • Carbon emissions from heating & cooling buildings need to be nearly zero to meet, 2050 Carbon Plan • Actions on supply incentives and supply chain: • Extend the Renewable Heat Premium Payment scheme. • Improving installer competence, consumer advice and consumer protection • Through to 2050 - modelling identifies a role for a range of heat pumps, district heating, creating low carbon gas grid • DECC will explore what role tighter standards on building emissions could play

21. Grids and Infrastructure Following a pathway to low carbon heat will, over time, mean significant change for the UK’s energy infrastructure. Low carbon heat will have impacts on the existing gas and electricity networks; there will be new infrastructure like heat networks and heat storage, and potentially also new infrastructure to support the use of hydrogen and to take carbon dioxide away. Decisions on all the different elements of the UK’s energy infrastructure cannot be taken in isolation. Proposed new actions therefore include: • Taking forward work to examine the strategic interaction between lower carbon electricity generation and heat production • Commissioning further research to investigate the role hydrogen might play across the UK’s energy system • Announcing the successful Phase 2 demonstration projects for its Advanced Heat Storage competition • Exploring with the industry how best to address the strategic questions facing the gas network.

22. THANK YOU FOR YOUR ATTENTION https://www.gov.uk/government/publications/the-future-of-heating-meeting-the-challenge