Motion to Consider
My Lords, the energy efficiency directive updates the EU’s legal framework for energy efficiency, with a target of saving 20% of the EU’s primary energy consumption by 2020 and of making further energy efficiency improvements after that date. The directive establishes a common framework of measures for the promotion of energy efficiency within the EU and lays down rules to remove barriers in the energy market and overcome market failures that impede efficiency.
My department has responsibility for the aspects relating to increasing the uptake of cost-beneficial cogeneration, usually known as combined heat and power, and waste heat recovery systems in the UK. The Environmental Permitting (England and Wales) (Amendment) Regulations 2015 that we are debating today transpose in England and Wales Articles 14.5 to 14.9 of the energy efficiency directive.
The amending regulations require operators of new or substantially refurbished combustion installations of more than 20 megawatts in size to carry out a cost-benefit analysis and therefore consider whether the installation of combined heat and power, or waste heat recovery systems and the use of waste heat, could be cost-beneficial, with the aim of increasing energy efficiency.
Where cogeneration or waste heat recovery and use options are shown to be cost-beneficial, operators will have to install such systems, and this will be a requirement of their environmental permit. By installing such systems, operators will achieve cost savings. There will also be social benefits from reduced carbon emissions and improved security of energy supply. The amending regulations are consistent with our aim of protecting the environment for future generations, making our economy more environmentally sustainable and improving our quality of life and well-being.
The choice to transpose the requirement for a cost-benefit analysis by amending the existing environmental permitting regime has clear benefits for operators and regulators alike. Environmental permitting is an established process for regulating the development, operation and refurbishment of industrial installations in England and Wales. Nearly all the installations subject to the requirements of Article 14.5 of the directive are already subject to the Environmental Permitting (England and Wales) Regulations 2010, as amended. Use of this existing system therefore allows implementation of the requirements of these articles in a manner which limits burdens on operators and regulators.
My department conducted a public consultation exercise between February and April 2014. There were 20 responses to the consultation. All supported the use of the Environmental Permitting (England and Wales) Regulations to transpose the requirements of the directive. A number of concerns were raised by respondents regarding the suitability and practicality of the thresholds applied in the instrument. These concerns have been taken on board and changes have been made to the regulations to reflect this.
An impact assessment was prepared for the implementation of these amending regulations which showed an estimated net cost of £12.4 million over the 10-year appraisal period. The costs to regulators are included in this figure and may be recouped through environmental permitting fees and charges.
There will clearly be benefits to improving energy efficiency for both the operator and society. The impact assessment was not able to quantify these benefits overall as it is unclear how many operators would introduce changes. However, the impact assessment included a number of case studies which, for example, suggest that if combined heat and power were installed instead of an industrial boiler, depending on the size and configuration of the boiler, the operator could see annual savings of between £1 million and £7 million, paying back their upfront investment within six years.
These amending regulations will help to ensure that operators install energy efficient systems and reduce the carbon emissions where they are cost beneficial. I therefore commend the regulations to the Committee.
My Lords, I am again indebted to the Minister for his excellent introduction to the regulations. Energy efficiency has a crucial impact on energy security across the whole of the United Kingdom. It forms part of the measures to reduce emissions to meet our greenhouse gas reduction targets and is a vital part of keeping energy costs down for everyone. The Minister’s department is to be commended on taking this initiative to amend the regulations to require operators to undertake a cost-benefit analysis of installations of cogeneration. Has the Minister any evidence that this was not happening previously?
I note that these regulations have been delayed past the deadline of June 2014 following consultations, and that therefore England and Wales are following the vanguard of regulations in Scotland and Northern Ireland. How do these regulations compare? Will these measures be applied consistently across the whole of the United Kingdom to further the attainment of the UK’s international emissions reductions targets?
The success of this measure will very much depend on the individual circumstances of each application. I note that there was extensive dialogue with affected operators during the consultation process, from which the Minister’s department has taken concerns on board in drafting these regulations. However, no details about this dialogue, or of the consultation, have been provided in the Explanatory Memorandum. Can the Minister give further clarification by providing an assessment of the likely uptake of cogeneration?
Of the estimated 18 gigawatts of electrical cogeneration potential in the UK, only 8.4 will be built by 2020. It would be helpful to understand the quantum by which that might be improved by this measure. I wondered whether the consultation process had given his department any feel for what it might be, even through no impact assessment has been provided, on the grounds that the outcomes are difficult to quantify.
Finally, the Explanatory Memorandum states that guidance, which has also been subject to public consultation, is being prepared by the Environment Agency. Could the Minister give the Committee any indication of when it might be made public as this omission is likely to prolong the delay before these regulations will produce benefits? Meanwhile, I am content to agree to the regulations.
My Lords, I thank noble Lords for their contributions. My noble friend the Duke of Montrose asked whether there is a ready supply of combined heat and power boilers. There is indeed. On average, 120 megawatts of combined heat and power plant has been installed per annum over the past five years, which I hope indicates that there is a supply chain.
The noble Lord, Lord Grantchester, referred to the time it has taken to transpose the directive. There were indeed delays in finalising the text of the draft regulations, primarily due to the Government’s desire to integrate comments received by stakeholders during the public consultation. We took most of the comments received on board and reflected them in the draft regulations. In particular, we revised some of the thresholds to ensure that they fully apply the allowed derogations in the directive and avoid disproportionate burdens on British businesses, while still achieving the required level of support for energy efficiency. As he will understand, that required detailed technical discussions.
I thank the Minister for his answer. Can I press him further? Perhaps something that could be written down is what proportion of the current supply is based in the UK. One of our difficulties—this is something that needs to keep being emphasised—is that we keep on bringing in energy efficient technology and so on by simply buying it from abroad rather than having a home-grown industry.
I share my noble friend’s keenness that we should, as a country, take advantage of this growth market. I do not have the figures at my fingertips, so if I may, I will write to him.
The noble Lord, Lord Grantchester, asked how the regimes compare between ourselves and the devolved Administrations. They are essentially the same across the United Kingdom. My officials have worked closely with those in the devolved Administrations to ensure this.
The noble Lord asked when the guidance will be ready. The Environment Agency and Natural Resources Wales have developed cost-benefit analysis guidance to assist operators, which will be published shortly. The draft guidance was subject to consultation last year. He also referred to what he saw as a gap in the impact assessment. There is uncertainty regarding how many of the operators within the scope of this instrument would have undertaken a cost-benefit analysis without the requirement being added to their environmental permit. The outcomes, including the environmental benefits through reduced carbon emissions, will be site-dependent and will depend on operators’ decisions about how to proceed. They are therefore impossible for us to quantify at this stage. However, the impact assessment provides a number of case studies to which I referred in my opening remarks.
The noble Lord asked a question related to my noble friend’s point on how big the potential is for combined heat and power in this country. The analysis by the Department of Energy and Climate Change estimates that the total technical potential for CHP in the UK is about 13 gigawatts by 2020, of which 7.8 gigawatts is projected to be economically viable by that date. The majority of this is likely to be natural gas-fired. DECC’s final Electricity Market Reform Delivery Plan projects up to 600 megawatts of biomass CHP being deployed by 2020. The regulations will help to unlock this capacity.
The noble Lord, Lord Grantchester, asked me another question. DECC’s research suggests that there are barriers which these regulations would address, such as a lack of awareness of CHP or the in-house expertise to assess potential projects. I hope that this response has answered most of the questions put by the noble Lord, and to the extent that it has not, I will of course write to him.