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

Why heat is important Heat is our largest energy use ... 52% 34% 14% Heat is our largest energy use ... This was our starting point: We identified a strategic gap in the Department on heat supply which the Strategic Framework for heat attempted to plug Reasons on the slide speak for themselves as to why this was needed ....and is responsible for around a third of UK greenhouse gas emissions

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

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.  

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 heat in industry Chapter 2: Heat networks Chapter 3: Heat and cooling for buildings Chapter 4: Grids and infrastructure

HEADING Text 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. HEADING Text

Combined Heat & Power UK CHP capacity is currently 7.9 GWe 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

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

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

COMBINED HEAT & POWER BARRIERS 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

COMBINED HEAT & POWER RENEWABLE 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

HEAT NETWORKS UK Heat Network Penetration

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

Benefits and immediate challenges 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

Longer term challenges 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

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

Heat and cooling for buildings [ Heat Demand: Heat demand varies significantly over the course of the day, and, with space heating, over the course of the year, particularly pronounced during winter months, when space heating demand is greatest and total demand can reach 300 GW. New modelling takes better account of how heat demand is much ‘peakier’ than demand for electricity especially during high usage period – and technologies and infrastructure needed to meet peak need But, previous modelling did not fully capture the variation in heat demand within day and between seasons [the variation is clearly set out in this graph form Imperial College] THE PEAK HEAT CHALLENGE Previous modelling did not include some potentially important technologies. So in our most recent modelling we have included a wider range of technologies such as hybrid heat pump systems, gas absorption heat pumps, micro-CHP and domestic hydrogen boilers. Range of sources for heat networks also expanded to include waste heat from thermal power stations and large scale heat pumps. There is also better representation of heat storage in the modelling

Government’s original model for low carbon heat in buildings Heat and cooling for buildings Government’s original model for low carbon heat in buildings So how would we get to near zero emissions from buildings by 2050. Our strategy suggested a trajectory and a gradualist approach. The proportion of heat provided directly by natural gas is the central “arrowhead” in the diagram. It will be squeezed gradually from two sides; heat networks starting in city centres can spread outwards, and renewable heating systems targeted initially at rural, off-gas grid housing can spread in to the suburbs as they become a commercially viable alternative to gas. We see the 2020s and 2030s as the key transitional decades. Meanwhile, we need to drive down demand through energy efficiency measures. That applies to all building types in all locations, and is why the Green Deal is so important.

Government’s updated model for low carbon heat in buildings Heat and cooling for buildings Government’s updated model for low carbon heat in buildings So how would we get to near zero emissions from buildings by 2050. Our strategy suggested a trajectory and a gradualist approach. The proportion of heat provided directly by natural gas is the central “arrowhead” in the diagram. It will be squeezed gradually from two sides; heat networks starting in city centres can spread outwards, and renewable heating systems targeted initially at rural, off-gas grid housing can spread in to the suburbs as they become a commercially viable alternative to gas. We see the 2020s and 2030s as the key transitional decades. Meanwhile, we need to drive down demand through energy efficiency measures. That applies to all building types in all locations, and is why the Green Deal is so important.

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 The modelling for The Future of Heating identified GSHPs as being one of the key technologies on the least-cost path for meeting our carbon targets by 2050, recognising that the technology is positioned to deliver heat in a cost-effective way A number of actions on advice, standards and consumer protection Communication - The development of the consumer guide (announced yesterday) is the result of that work. The guide will be in an electronic form and also provide information and guidance for installers. Quality & performance – MCS has a key role, through self-regulation, to develop and enforce industry standards. High performing heating systems are key to building consumer confidence and a sustainable industry. Warranties – The MGICG is looking at warranties as the current situation is confused. We want clarity so consumers have adequate protection and can make informed decisions about the maintenance of their heating systems. Preliminary data from the RHPP metering programme is still being collected and verified. Emerging findings appear to indicate that on average there has been a measurable but modest improvement in the Seasonal Performance Factor. The data is due to be published in the summer. On Zero Carbon Homes by summer recess, DCLG will publish next steps including a proposal for Allowable Solutions. A change to Part L (energy) for building regs 2013 will be published in May.  

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.

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