Micro-combined Heat and Power

Wednesday 1st February 2012 Westminster Hall

11:00

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I have been here before—who can forget my seminal Management of Energy in Buildings Bill, a private Member’s Bill in 2005, which, among other things, tried to promote deemed permission for domestic microgeneration, or my proposed new clauses to the 2008 and 2010 Energy Bills on plans for the development of micro-combined heat and power and passive flue gas recovery schemes? I am afraid that the blank looks of those present seem to answer that question, but I am here to have another go.

[Mr Andrew Smith (Oxford East) (Lab)]

I am grateful to my hon. Friend for giving way so early in his contribution and congratulate him on securing this important debate and commend his expertise. I assure him that he did not receive a blank look from me—he has been a path-breaker on this issue and is leading the way once again.

[Dr Whitehead]

I thank my right hon. Friend for ruining my opening statement about the incomprehensibility of my previous arguments, but I am grateful to him for his support and cognisance.

I am armed today with substantially better prospects than at any stage hitherto as far as micro-CHP is concerned. What is micro-CHP and why am I so exercised about it? Put simply, it is a rather prosaic technology which, while it will probably not induce conversation at dinner parties, is potentially important for all of us, because most of us possess something that looks remarkably like a micro-CHP unit—namely, a boiler. So this is about boilers.

Members will remember how a previous boiler revolution—in which I was pleased to have had a hand in developing revised building regulations—has probably been responsible for reducing more domestic CO₂ emissions than virtually any other measure of recent years. I am talking of the specification in building regulations that condensing boilers should be installed in homes. That measure was implemented in 2005 and changed the face of boiler installation in the UK. Within a year, more than 85% of new boilers installed were condensing. They were 20% more efficient than traditional boilers, saving about 15% of gas consumption as a result.

A micro-CHP boiler goes into a kitchen or on a wall in exactly the same way as a standard boiler. It also heats the house and provides hot water in the same way, but it is powered by a Stirling engine, a Rankine cycle or—this will be the case in the near future—a fuel cell boiler, all of which are efficient and produce electricity alongside their heating duties. A typical domestic installation produces, effortlessly and alongside the normal heating of the household, about 1 kW of electricity, so it might generate 10 kW of electricity over a winter’s day of heating, which is equivalent to the output of a 3 kW solar installation on a sunny day.

Micro-CHP boilers have been promising for some years. The Stirling engine was invented in 1815 and has been promising since then. Indeed, I first visited the site of the then EcoGen boiler plant in Peterborough in 2002 and was told that the product was about two years from market, but it was not, and nor were other micro-CHP plants, and I think that some people have lost a little faith in the products over the years. Now, however, very efficient micro-CHP boilers are on the market. They work well and are coming down in price with larger-scale production. I visited Ceres Power in Surrey during the autumn. It is developing an even more efficient fuel cell boiler and I am confident that it will come to market in the near future. The products are now there and, if we have the imagination, are set for the second boiler revolution.

The simplicity of such a revolution has already been demonstrated. People will have boilers in their homes for the long-term foreseeable future. What is more, about 1.5 million boilers break down or retire and are replaced every year, so it is not difficult to see that, if future building regulations favour micro-CHP boilers as replacements, that would happen not with a great deal of fuss or with many lifestyle magazine articles, but with a further leap forward for domestic energy sustainability, which we will have to work on urgently over the next few years, as the Minister of State, Department of Energy and Climate Change, the hon. Member for Bexhill and Battle (Gregory Barker), is well aware, with the emergence of the green deal and the energy company obligation.

The potential of 1 million boilers installed by 2020 is, on any reckoning, considerable. Not only would that level of installation generate about 20 GW of electricity on a typical winter’s day—which is about equivalent to what we import via interconnectors on any given day—but 1 million householders would save considerable sums on electricity through self-generation, for which there is considerable appetite, as suggested by the upsurge in solar photovoltaic installations. Micro-CHP-generated electricity is eminently compatible with solar PV, because we would generate far greater amounts of electricity at precisely those times of year when solar PV generates least.

The second boiler revolution could act just as dramatically in reducing emissions. Even if those 1 million boilers replace older condensing boilers, rather than non-condensing models, after a 10-year life, they would generate a saving of more than 2 million tonnes of CO₂, which is about half the total estimated CO₂ savings that the Committee on Climate Change has pencilled in by 2020 for the results of greater efficiency in household appliances. That would be a dramatic contribution to emissions abatement.

The heating and hot water taskforce produced the “Heating and Hot Water Pathways to 2020” report last year. It underlines the potential and relative straightforwardness of the revolutionary path:

“Since it is a boiler replacement the route to market is already well established. With over 1.5 million gas boilers installed in UK homes each year (most of which are replacements) the potential market is huge. Also as a direct boiler replacement there is likely to be less installer and consumer resistance compared with other low carbon technologies.

MicroCHP has been said to have the greatest mass market potential of any emerging low carbon domestic microgeneration solution. Studies have shown that microCHP could displace as much as 90% of existing boiler sales.”

That is the ambition that we could set ourselves.

I have given the sunny uplands vision, which will be generated, possibly, by nothing more than a stroke of a pen on a building regulation during the next few years.

[Mr Andrew Smith]

Before my hon. Friend leaves the sunny uplands, is not another of their aspects the fact that a lot of the technology’s development has taken place in this country, so, as well as its environmental benefits, it has industrial and employment benefits? We do not want this to be another industry in which breakthrough developments happen in this country, only for the commercial exploitation to go abroad.

[Dr Whitehead]

I thank my right hon. Friend for that important point, although I am slightly worried that he may have broken into my office and looked at my speech, because I am about to address that precise, important point on this clutch of technologies and their developers.

After the sunny uplands, we have to look at the reality, which is somewhat different. The industry has, on few resources, determinedly placed itself in a position in which it can supply reliable boilers over the next few years to the quantity that I have sketched out, and in so doing substantially reduce the cost differential between micro-CHP and conventional boilers. As my right hon. Friend has mentioned, the UK industry is a world leader on the technologies.

[Caroline Nokes (Romsey and Southampton North) (Con)]

The UK is a world leader in all sorts of microgeneration. Is the hon. Gentleman aware that SEaB Energy on Southampton university’s science park is generating micro-power in shipping containers? That might not be on the domestic scale of boilers, but it is proof that in the UK we are world leaders at coming up with innovative ideas and working out how we can generate power on a small and sustainable scale.

[Dr Whitehead]

I thank the hon. Lady for making that point. Indeed, the Southampton university science park is the base for leadership of a number of innovations in microtechnology, renewables and wave and tidal power. I am familiar with a number of the developments that are taking place there. It is a good plus for both our constituencies that that science park is producing such good work in the area of microgeneration.

The wider deployment of micro-CHP could, as my right hon. Friend the Member for Oxford East (Mr Smith) said, be beneficial for UK jobs. My colleague and next-door parliamentary neighbour, the hon. Member for Romsey and Southampton North (Caroline Nokes), has alluded to the fact that micro-CHP is very good for development and technological advances. The problem with our world lead in these technologies is the fact that, in truth, not many boilers have been deployed yet. Indeed, the initial results of the inclusion of micro-CHP boilers with the feed-in tariff programme last year—a pilot of 30,000 micro-CHP boilers was reviewed after the first 12,000 installations—have been less than sweeping, with only about 200 FITs payments taking place so far within that pilot.

However, that has to be set against the background of the very modest FITs payments allowed for micro-CHP: only 10.5p, along with a 3.1p export tariff. The figure of 10.5p is close to the starting marginal cost element considered to be generic for all renewables of 9p. That is the equivalent of support for large wind resources and is way below the 5% or so return on investment that is considered to be the sort of level that will attract investment decisions among householders and small businesses.

Of course, although micro-CHP is energy and climate efficient, it does not qualify for the renewable heat incentive as far as heat production is concerned for the obvious reason that, all other things considered, it is not fuelled by renewable energy. However, of course, it could be supplied in the form of biogas on an off-grid basis. I am not sure whether the Department would, in those circumstances, accept that micro-CHP would qualify both for RHI and FITs, but I imagine that that is a debate for another day. The fact of the matter is that a technology and an industry that can do great things are now waiting. The sector needs the confidence and future intent to enable it to scale up to the levels needed to produce a large intervention in the UK’s boiler landscape at a price that will eventually be at or close to those of more established boiler installations.

In the meantime, the industry needs some assistance in kick-starting—for example, the 30,000 installation pilot limit could be removed, so that there can be investment in a mass rather than a niche future. The allocation of a feed-in tariff of perhaps 15p per kWh would, along with the export tariff, enable a return even on present prices of about 5% to be achieved. I am confident that that allocation would be short-lived, especially if the Minister were to use his powers of persuasion to convince his counterparts in the Department for Communities and Local Government that a revision of part L of the building regulations in a few years’ time is appropriate. At that point, I imagine that no feed-in tariff support would be needed or necessary.

I hope that the Minister will be able to provide me with some positive encouragement for these very modest proposals in respect of micro-CHP, not least because, if he is not able to do so, I will have to come back and say it all over again. He will therefore have the pleasure of going through all this again—by the way, that is not a threat.

I am concerned that, if no early support and encouragement is given to micro-CHP, someone else will take it off our hands and we will not have the presence, the technical imagination and the investment capacity of the hard-won position our industry is now in. That will have gone or withered and we will be playing catch up. We need that support to come now. We are talking about an extremely modest investment by the Government—perhaps 2% of the FITs budget up to 2015, or far less than that if there is some clever management of the FITs budget. That 2% or less would have a potentially enormous payback for householders and Great Britain plc alike.

11:15

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

I am very grateful to the hon. Member for Southampton, Test (Dr Whitehead) for initiating the debate. He has unrivalled expertise and parliamentary experience in this sector. I am delighted that my name will be linked to his long crusade going back over a decade on behalf of these technologies.

I share the hon. Gentleman’s excitement and belief in this technology. When I was in opposition, I began considering the issue of decentralised energy and its potential to be part of our carbon reduction transformation. This technology has the potential to engage consumers in the energy sector and make them more self-reliant and more conscious of their consumption. It can also provide the opportunity to export. All of those things are good. If we can get micro-CHP right, it can play a far larger role in driving the decentralised energy revolution that we want to see—perhaps even more so than some of the other technologies that are sometimes considered to be more glamorous and are grabbing the headlines. Not every home in Britain can have a solar photovoltaic panel on its roof or be in the right place, but very few homes would not benefit from a micro-CHP.

Like the hon. Gentleman, I have been frustrated by the lack of progress and the missed deadlines for the introduction of a wide, scalable, consumer-friendly roll-out. When I was retrofitting my home in 2006-07, I was very keen to get one of the new micro-CHP boilers. Among all the other interventions I was making on my house, it was the one piece of kit that I was really keen to get. It took more than a year to do the retrofit. During that time, we were constantly promised that the boiler would be arriving and it never came. In fact, I left the house as I no longer lived there and, in all that time, it never came—despite being tantalisingly close to getting one and having seen the model.

The hon. Gentleman is right: we need the industry to respond. I recognise that there is a clear role for Government leadership. I can understand the reactions of the industry to investing in innovation, research and development to bring micro-CHP boilers to market, not just as an interesting gadget or as an alternative method of delivery, but as an attractive, price-competitive alternative to taking electricity from the grid or installing a conventional boiler.

The hon. Gentleman is right: the condensing boiler revolution is a great unsung part of our success during the past decade at reducing our carbon emissions. I do not have the figures to hand, but I am sure that he is right. That fairly simple intervention of jump-starting or pushing forward an advance in relatively simple technology had a massive impact. As a result of him having reminded me of that, I will go away and think about whether we have that transformational push in our current policy landscape, with its focus on feed-in tariffs and heat tariffs as a means of pulling through with its very expensive 25-year tail. Is that necessarily the universal panacea that we need?

I do not want the hon. Gentleman to think that we are not committed to providing a feed-in tariff for combined heat and power, because we absolutely are. We are consulting on tariff levels and I will be publishing our proposed levels very shortly—within a matter of days. I will be introducing a new tariff proposal for CHP. Unlike in almost all the other technologies, I will be looking to raise the tariff in those proposals. I do not think that I will be able to satisfy the hon. Gentleman’s demand for 15p, but I am considering raising the tariff.

I have to be honest about the tariff. It is difficult, in the current climate, to make the argument for swimming against the tide, when some other technologies are facing substantial tariff reductions. We are constantly demanding that they deliver greater value for money to the consumer. We are putting any form of subsidy under close scrutiny in the light of the impacts on people’s bills. That is warranted in respect of micro-CHP. The role of the feed-in tariff is not to provide a long, indefinite subsidy to particular technologies. If there is never any hope of a particular technology being able to deploy without subsidy in a reasonable time frame, it is hard to make the case for our subsidising that technology rather than others.

If micro-CHP can scale up, that represents potential. However, it is unlike other technologies. The hon. Gentleman is right. There are other policy levers apart from feed-in tariffs, which are a useful signal, and, let us face it, we have that policy tool in our hand now and we should not ignore its potential, but we may need to come back to other policy levers if the feed-in tariff alone does not send a strong enough signal.

I share the hon. Gentleman’s ambition for the mass deployment of CHP. If we can get that technology to gain customer acceptance and if the industry can come forward, his ambition of 1 million boilers by 2020 is something that we should think about. The industry needs to hear that message. I should like to test that ambition to find out whether it is credible and feasible. I do not want to posit another number and see the same level of progress as in the previous decade.

The hon. Gentleman is right. Back in 2002 there was lots of talk about the potential roll-out. The first phase of the feed-in tariff scheme for micro-CHP has been beyond disappointing. The number of boilers is almost non-existent: a fraction. We set the 30,000 limit, worried that there would be a surge of deployment, but there has been 1% of that.

I am mindful that we need to revisit Government support and leadership. I assure the hon. Gentleman that, in this Minister, there is someone who is interested in this agenda. That is why I set up the distributed energy contact group, which involves all the key players on combined heat and power and decentralised energy. I want to embed that in policy thinking at the Department of Energy and Climate Change, not just in response to one idea, but building on the success of our microgeneration strategy last week, for example, when we had terrific buy-in from stakeholders throughout the sector. I want to build that now and ensure that decentralised energy is right at the heart of thinking in the Department, which—let us be honest—in the past has tended to gravitate to larger-scale energy solutions. We all know that; it is not a secret.

I assure the hon. Gentleman that, under the coalition, we are trying to be more permissive with our ideas in considering the potential of a range of technologies. I am personally committed to driving the decentralised agenda—not just introducing more competition in large-scale generation, but introducing viable consumer models that will work at distributed and microgeneration level.

The hon. Gentleman is right to say that it will be a challenge to decarbonise heat and electricity in homes. It is a big challenge that we will have to tackle on a number of fronts. There is no silver bullet that will allow us to do that. A lot of attention is on the solar PV industry, which takes a significant amount of subsidy—more than 90% of the feed-in tariff budget. The hon. Gentleman knows that it is an attractive technology. The way that it is going, from being the most expensive technology, is exciting. Rapidly falling costs mean that it could reach grid parity, potentially, even within this Parliament at larger scale and, certainly, for the consumer within the decade, and could be cost-competitive with other large-scale renewables within a year or two. The price falls are exciting. However, it is not the only technology out there.

In respect of the carbon footprint, when retrofitting my home I was as keen as mustard to install solar PV, because apart from a micro-CHP sticking some PV panels on is the other whizzy, exciting thing that can be done. Arup surveyed my house, before the feed-in tariff had come in, and it was made clear to me that that was the least cost-effective thing that I could do if I was serious about reducing the carbon footprint.

There is a clear hierarchy when considering reducing the carbon footprint and improving the efficiency of a home. It has to start with energy efficiency, which is why the green deal will put a big emphasis, and a new push, not just on cavity wall and loft insulation, but on whole-house retrofits, including solid walls, windows, doors and the range of interventions to improve the total envelope of the building. After that, renewable heat must be considered and then microgeneration. It is in that order that we should prioritise subsidy, leadership and interventions.

[Mr Andrew Smith]

I am encouraged by the Minister’s positive commitments. Is not another advantage of micro-CHP that it will supply most electricity at the times of peak demand for electricity, which is not always so with alternative technology?

[Gregory Barker]

That is a good point. It is on tap, which is the benefit of it.

I am excited by the innovation that the hon. Member for Southampton, Test mentioned. Traditionally, a lot of the CHP boilers have needed a high heat load—a 5:1 ratio in terms of heat and electricity—but some of the new hydrogen models offer almost a 1:1 ratio. I am not the expert on that; the hon. Gentleman is. It would be a much more attractive proposition for people if they could use such a boiler in the summer, when they are not using their heat load except for hot water, or in the winter when only using a marginal heat load because they have taken all steps to insulate their home to a much higher level.

Developments in CHP now mean that, rather than just having a marginal by-product of a large heat load, it can offer an exciting balance between heat, which we hope to reduce demand for by making our homes more energy efficient, and electricity, which we anticipate there will be an increased demand for as we increasingly go towards a more electrified economy, if I can put it like that.

I reassure hon. Members that we will consider support for micro-CHP as part of the comprehensive review of feed-in tariffs, and I will come back with those proposals shortly. But I by no means regard that as the end of the matter. As we encourage take-up and begin to go beyond the pilot stage, we must revisit the scheme to ensure that subsidy is sustainable. Certainly it would not be sustainable to reach a million homes with the sort of level that we are talking about. That is why we have a sensible cap at 30,000 units. But let me be clear, the feed-in tariff would go beyond that 30,000. I think that is meant to signal a limit in terms of a sensible budgetary constraint on being able to subsidise at that higher level that number of units. I certainly anticipate a long-term future for the feed-in tariff for micro-CHP, but I do not rule out other policy interventions being necessary in order to jump-start this particular technology. The microgeneration strategy that we published in June 2011 is also helping us to stimulate the microgeneration industry, developing the solid steps that were taken in previous years, and I commend the work of the Government supported by the hon. Gentleman.

I thank the hon. Gentleman for calling this important debate and look forward to working with him constructively on a cross-party basis where there is a lot of consensus on where we need to travel. We now have to do the difficult work of ensuring that we have sufficient deployment.

11:29

Sitting suspended.