Micro-combined Heat and Power

Debate between Andrew Smith and Lord Barker of Battle

Wednesday 1st February 2012 Westminster Hall

[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.