Meeting the energy challenge – how distributed generation and CHP can contribute in the UK

The new ‘White Paper’ on energy, published by the UK Government in May, contains a significant section on heat and distributed generation. Here, UK Energy Minister Lord Truscott runs through UK energy policy objectives as laid out in the document, while WADE’s Jeff Bell traces the growing importance of decentralized energy within UK policy development.

The long-term global challenges of energy security and climate change call for action internationally, as well as action here at home. The evidence supporting the need for urgent action on climate change continues to mount. Sir Nicholas Stern’s report last autumn underlined the importance of acting now and together with other countries. If not tackled, climate change poses catastrophic humanitarian consequences and economic costs.

Meanwhile, world energy demand continues to grow. It is expected to be 50% higher by 2030 than it is today and is likely to be met largely by fossil fuels for some time to come. This means rising greenhouse gas emissions and greater competition for energy resources, which has massive implications for both climate change and security of supply.

CHP plants, such as this one at the Lindsey oil refinery in Immingham, help provide a diverse energy mix with low carbon emissions (npower)
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Here in the UK, our reserves of oil and gas are declining. While significant amounts still remain in the North Sea, production has hit its peak and is now falling. We will make the most of the reserves we have, but as our economy grows, we will become increasingly dependent on imports in a world where supplies are concentrated often in less stable regions. We need to take action to manage the risks this brings.

Over the next few years, energy companies will also need to replace ageing power stations and other infrastructure. So we need to create the right conditions for this investment, in order to achieve timely and increasingly low carbon energy supplies.

The Energy White Paper sets out a long term framework for action to address these challenges at home and abroad. It sets out our international strategy, which recognizes that we need to tackle climate change and energy security together. Influenced by the UK, the European Council has agreed to a new strategy, including commitments to competitive markets, cuts in greenhouse gas emissions, more renewable energy and a central role for the EU Emissions Trading Scheme as the potential basis for a global carbon market.

We also need to influence the wider international community, notably in getting a consensus on the post 2012 Kyoto Framework for reducing greenhouse gas emissions.


The White Paper also sets out the measures we are taking here at home. We have already published a draft Climate Change Bill which, for the first time, would impose a legally binding duty on government to reduce the amount of carbon that is produced. It’s all part of working towards our target of achieving at least a 60% reduction in carbon emissions by 2050 – and we will be the first country in the world to establish this kind of target.

Faced with these challenges, we need to do more. The first priority must be to save energy. So the White Paper sets out a range of measures to help us become more energy efficient and cut energy use.

CHP plants are now used increasingly used in UK hospitals (Dalkia)
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Consumers need better information so they can save energy. Next year, and the year after, any householder who asks for a visual real-time display – which will show how much electricity they are using – can get one free. In parallel, we will work with the industry to ensure that consumers have visual displays together with smart meters in ten years. In addition, we will introduce better and clearer energy bills.

It is estimated that leaving electric appliances on standby uses about 7% of all electricity used in UK homes. That’s equivalent to the electricity generated from two 600 MW gas-fired power stations, or more than 1500 2 MW wind turbines. So we will work with industry and others to improve the efficiency of domestic appliances, to phase out inefficient goods and limit the amount of stand by energy wasted.

If we are to make a real difference in reducing energy demand, we need a stronger obligation on energy companies to provide their residential customers with energy-saving measures. So the White Paper proposes that, from 2008, energy suppliers double their current effort, and from 2012 we aim to transform the way in which they see their relationship with their customers. The idea is to shift the focus to the provision of energy services, increasing energy efficiency and saving carbon in the home, rather than simply selling them gas and electricity.

We will also require big organizations like supermarkets, banks or hotel chains and large public sector organizations to limit their emissions and set tougher standards for the homes we build and the products we buy.


We need more low carbon generation of electricity and heat. We want to encourage the enthusiasm of individuals and communities to generate their own energy locally, such as homes or schools – for example through solar panels and wind turbines. We are, therefore, bringing forward a range of measures to support this approach. This includes providing better information and advice on distributed generation (DG) and combined heat and power (cogeneration), for example, providing information to households about the different technologies and how they work.

The Department for Business, Enterprise and Regulatory Reform (DBERR) and the UK energy regulator will consult later this year on options for more flexible market and licensing arrangements for distributed low-carbon electricity within the licensed framework, to be implemented by the end of 2008.

MiniCHP units help provide distributed generation (Baxi)
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We also need more clarity for microgenerators wanting to export electricity back to the grid. This will cover the terms for export reward, with all six major energy suppliers committing to publishing easily accessible export tariffs.

We will also make it easier to connect to the distribution network by simplifying the process. This includes a package of measures being delivered by Ofgem, including cost-effective charging for connection and allowing developers of DG a choice of connection provider.

However, we still need large-scale energy investment. Over the next 20-30 years we will need new generating capacity equivalent to over a third of our existing capacity. Our aim must be to ensure that companies have a wide range of options available so we can retain a diverse energy mix, which is good both for our security of supply and to help us to move to an increasingly low carbon economy.

Renewables are of crucial importance, which is why we are strengthening support for renewable electricity. The reform to the Renewables Obligation is essential, and will mean that by 2015 around 15% of our electricity supplies will come from renewables – triple the amount we have today – in just eight years. In transport, the renewable transport fuel obligation will save a million tonnes of carbon a year. We want to double it if we can be satisfied that it is sustainable to do so.

New technologies will also help. We want British-based business to be at the forefront of new green technology, which is why we set up the Energy Technologies Institute, bringing public and private investment together now with a minimum budget of à‚£600 million.

We will launch a competition for the commercial-scale demonstration of carbon capture and storage – which has the potential to reduce carbon dioxide emissions from fossil fuel power stations by as much as 90%.

We want to save energy. We want low carbon sources of energy, which is why we will do everything we can to encourage renewables like wind and wave and tidal power. But that alone will not be enough if we are to minimize our costs and risks.


Alongside this White Paper, we have also published a consultation document on the future of nuclear power in the UK. Nuclear is an important part of our energy mix at the moment. We currently get around 18% of our electricity from nuclear power stations which are a low carbon form of making energy. Most of these stations are set to close over the next couple of decades which means that time is pressing – we need to make a decision on the future of nuclear power this year.

The Government has reviewed all of the evidence and analysis on nuclear and given it careful consideration. We have reached a preliminary view that it is in the public interest to allow energy companies the option of investing in new nuclear power stations. We have not done this without serious thought. We have reached this view because we believe that nuclear power has the potential to contribute significantly to security of supply and to help us reduce the amount of carbon we emit.

Before we make our decision, we are committed to consulting. We are asking consultees to consider the evidence we have presented and to comment on a number of questions.

Our measures, including those in the Energy White Paper, put us on track to make savings of carbon emissions of between 23-33 million tonnes of carbon (MtC) by 2020. Put another way, if we meet the upper end of this range, this would be the equivalent of removing all the emissions that we get from every car, van and lorry on Britain’s roads today. Our measures will also help security of supply by saving energy, encouraging new timely investment in gas import and storage infrastructure, and maximising recovery of UK reserves of oil, gas and coal.

We cannot become a low carbon economy in a single step. Further measures will be needed if we are to achieve our long term goals, and in the light of further international agreements, in Europe and more widely.

The White Paper sets out a framework for action to enable us to make real progress now towards tackling climate change and ensuring secure and affordable energy supplies.

Lord Truscott is UK Energy Minister.

The documents mentioned above are all available on the DTI website:

Decentralized energy and the UK energy strategy

The UK government, perhaps more so than any other government in the world, seems to have grasped the importance of decentralized energy for meeting larger energy objectives including climate change mitigation, energy security and affordable access. World Alliance for Decentralized Energy (WADE) has been following the developments closely over the last five years. Indeed WADE feels that it has, with some degree of modesty, played no small part in raising the issue of distributed energy (DE) both in the public consciousness and on the political agenda.

By looking back at the recent policy developments in the UK we can follow the emergence of DE as a serious option for meeting the UK’s energy objectives. The four current pillars of the UK Energy Policy can be traced to the Energy White Paper 2003, Our Energy Future – Creating a Low Carbon Economy:

  • to put ourselves on a path to cut the UK’s carbon dioxide (CO2) emissions – the main contributor to global warming – by some 60% by about 2050 with real progress by 2020
  • to maintain the reliability of energy supplies
  • to promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and to improve our productivity
  • to ensure that every home is adequately and affordably heated

It was the 2003 White Paper that first hinted that DE may have strategic place in the UK’s energy future. Although the Paper conceded: ‘there will be much more microgeneration, for example from CHP plant, fuel cells in buildings, or photovoltaics’ in the UK’s future energy mix, the main focus of the document was, nevertheless, on how large scale renewables and energy efficiency could meet the above objectives. The White Paper promised monetary support to renewables in the form of tax breaks and research grants, and it reinforced the UK’s commitment to the Renewable Obligation Certificates programme and the EU’s Emission Trading Directive.

More recently there has been a noticeable shift in emphasis from large renewables such as off-shore wind to smaller decentralized options including cogeneration and microgeneration technologies.

In March 2006, the UK government released its Microgeneration Strategy entitled Our Energy Challenge – Power From The People. The pioneering report was an in-depth study commissioned by the UK Department of Trade and Industry looking solely at small scale decentralized energy in the UK context. The objective was ‘to create conditions under which microgeneration becomes a realistic alternative or supplementary energy generation source for the householder, for the community and for small businesses’. The study identified 82,200 existing microgeneration installations in the UK and suggested that by 2050, ‘microgeneration could provide 30-40% of the UK’s electricity needs and help to reduce household carbon emissions by 15% per annum’.

WADE’s comments, incorporated into the document the preceding autumn in the lead up public consultation, helped ensure that microCHP units were considered as microgeneration, along with the renewable options.

In July 2006, the UK published a follow up document outlining its general energy strategy going forward. With the publication of the Energy Review, we witnessed (despite also the re-emergence of nuclear as an option being considered) a large section dedicated to ‘Distributed Energy’. Distributed Energy included both microgeneration and large scale CHP and thus was very similar to WADE’s definition of DE. To WADE’s knowledge, this was the first time a national government had examined DE as major energy portfolio option side by side with the conventional options typically on the table.

Previous policies (such as in Denmark in the early 1980s as the country legislated a shift to CHP in its existing district energy network, or Spain’s recent policy support for wind energy) had been very successful at promoting specific technologies in isolation that can be used in DE applications. Governments had, up until then however, been very poor at recognizing the commonalities between the various DE technologies and addressing the suite of DE technologies with a single coherent strategy or policy.

Coincidently or not, the Energy Review was published a short three months after Greenpeace UK published an influential study called Decentralising UK Energy: Cleaner, Cheaper, More Secure Energy for the 21st Century. The study, based on applying the WADE economic model to the UK, argued that using decentralized energy was a much cheaper and more secure way of meeting the four objectives stated above when compared with the other options which were then on the table: centralized coal, nuclear, gas and wind.

WADE has since collaborated with Greenpeace UK, the Greater London Authority, the Town and Country Planning Commission and others on follow up activities, including studies examining the potential for decentralized energy in the city of London, the city of Edinburgh, and Scotland as a whole. In each case, evidence suggests that going down a decentralized route to meet the UK’s overall energy objectives would be the investment with the best return.

In May 2007 the UK Government came out with a follow up Energy White Paper (outlined below) called Meeting the Energy Challenge. Again, the document had a whole chapter dedicated to ‘Heat and Distributed Generation’. It contained some of the most convincing language yet that the UK was serious about promoting the idea of decentralized energy: ‘We also want to mobilize the enthusiasm and potential of individuals and communities to generate their own energy locallyࢀ¦ we are therefore bringing forward a range of measures to support more distributed forms of energy’.

Specifically the White Paper promises:

  • more flexible market and licensing arrangements for distributed, low carbon electricity supply, to be implemented by the end of 2008.
  • greater clarity on the terms offered by energy suppliers to reward microgenerators for the excess electricity they produce and want to export back to the grid.
  • provision of information and advice to those individuals, communities and developers considering distributed energy solutions, alongside advice on energy saving.
  • incentivizing Distributed Network Operators to ensure more efficient and speedy connection to networks.

In conjunction with the Energy White Paper, A Special Review Of Distributed Generation was also released in May 2007, published jointly with the UK Office of Gas and Electricity Markets (OFGEM). The study goes into much greater depth on the benefits of DG to the UK and outlines specific initiatives that will be undertaken to level the playing field for DE investment. Specifically the DTI proposes the following measures in the report:

  • facilitate market and licensing arrangements.
  • improve export reward.
  • provide better information on the benefits of DE to the public.
  • facilitate DG connection with support services.
  • establish a new Distributed Energy Unit at DTI which will specialize in DE and ensure that above measures are carried out.

Leading up to the publication of the above documents, the UK DTI used the WADE model to explore in further depth the economic savings realizable from increased investment in DE, and the WADE model work is cited in both publications.

In the meantime, Local Councils throughout the UK are implementing progressive policy at a local level to promote DE. Back in 2004, the London Borough of Merton introduced a rule whereby any new developments had to generate at least 10% of their energy from renewable energy. Since then, over 162 other UK boroughs have either adopted a similar rule or are in the process of adopting such a rule. Municipalities are also getting on board. The city of London has also been very vocally supportive of DE and is undertaking various initiatives to promote the greater use of DE across Greater London.

Decentralized energy is clearly growing in popularity in the UK both with the public and with the policy makers. Despite these encouraging trends, however, still much work needs to be done to before DE is on equal footing with the traditional power sector players. If all of the government’s promises are turned into action, the investment climate for DE in the UK will be on track to improve considerably. In short, the early steps are steps in the right direction but we are not quite at our destination. The well-meaning government documents must now be translated into action.

WADE has worked hard to raise the issue of DE on the UK agenda with, we believe, some success. WADE has been consistently stating that DE is the clear means by which any country, including the UK can ‘meet its energy challenge’ and it will continue its work to promote the concept of DE, both in the UK and the rest of the world.

Jeff Bell is Program Director for WADE.

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