Simon Osborne, head of product and channel management at Baxi, discusses the importance of a visionary policy plan.
Micro CHP (mCHP) is the next generation of heating appliance for households. It is an available technology that provides all the heating and hot water comfort of a modern condensing boiler whilst also generating low carbon electricity. MCHP can use the nation’s existing gas network and installer skills to enable consumers to heat their homes efficiently and at the same time generate low-carbon power that can be used on-site or exported to the grid. There are few homes in the UK that couldn’t benefit from mCHP.
A group of major mCHP developers, including Baxi, recently released a report demonstrating that it would be realistic to aspire to more than 1 million installations by 2020, and the majority of new gas-fired heating systems being micro-CHP by 2025. To attain this level of uptake ‘Government leadership to bring mCHP to market’ is key, as stated by the Minister for Energy and Climate Change, Greg Barker, during an adjournment debate held on February 1st.
Wide deployment of mCHP would generate remarkable benefits for the UK. MCHP can significantly reduce household emissions compared to a condensing boiler, the incumbent solution for domestic heating. MCHP is perfectly placed to reliably reduce national electrical demand and balance intermittent generation, especially winter peak demand, given the correlation between mCHP electricity generation and peak electricity demand. If deployed at scale, mCHP can generate cost reductions and economic gains throughout the energy system by displacing centralised generation capacity and reducing the strain on transmission and distributions systems.
By replacing 1 million condensing boilers with mCHP units by 2020, the UK would enable the annual mitigation of up to 2.1 million tonnes of CO2, annual cost reductions of at least £176 million per annum throughout the electricity system and the generation around 20GWh of electricity on a winter day (the UK currently imports on average 19.17GWh of electricity per day).
The potential benefits from the development of mCHP do not end there. A number companies are currently developing and manufacturing mCHP products domestically in various parts of the country, thus nurturing a high tech industry in the UK, creating jobs and setting up the ground for domestic development and an export led growth model. Baxi, the technology pioneer in the UK, manufactures its award winning Baxi Ecogen micro-CHP energy system in Bamber Bridge, near Preston in Lancashire.
The global demand for mCHP is projected to grow during this decade turning it from a niche innovation to a mainstream solution. UK-based mCHP developers are investing significantly to develop mCHP and build the necessary supply chains to deliver future demand. Companies in Japan, South Korea and Germany are also undertaking significant investment in mCHP with strong policy support and Government-sponsored programmes. The UK has a strong interest to keep up or even lead.
Proper policy support is key to render mCHP attractive for consumers at this early commercial stage. MCHP is a new technology, currently manufactured in low volumes, which leads to a relatively high starting price that must compete with a mature conventional technology like condensing boilers. MCHP is supported in the UK under the Feed-in Tariff (FIT) scheme. The Government in the recent FIT consultation proposed an increase of FIT support for mCHP from 11p/kWh to 12.5p/kWh, a positive development that underlines recognition of mCHP potential. However, a FIT of 12.5p/kWh would yield a negligible rate of return (RoR) for consumers. As has been argued by industry, a FIT of at least 15p/kWh would deliver a RoR of about 3%-5%, which is closer to that projected for other supported low carbon technologies. Adequate consumer incentive through proper support would increase initial uptake, generate economies of scale and learning and render the technology viable without subsidy in the future.
Investor confidence is also key for an emerging technology like mCHP. The FIT consultation foresees a volume triggered review of the tariff after 12,000 installations, to be implemented after 30,000 installations. This is an appropriate arrangement which establishes budgetary certainty, but the terminology used to describe the nature of mCHP support under the FITs, with words such as ‘cap’ and ‘pilot’, does not yield necessary confidence among industry investors. Positive alternative wording is key.
A policy plan beyond FIT support, would instil confidence among industry stakeholders. As mCHP achieves scale, continuous subsidisation will be hard to sustain. The introduction of an efficiency performance standard for boilers in 2005 under the Building Regulations made the UK the biggest market in Europe. A similar regulatory change to put in place stringent performance standards for new heating units by the end of the decade would create a level playing field for low carbon heating products, including mCHP, triggering a mass shift from conventional products and eliminating the need for sustained financial support.