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Combined Heat And Power
29 January 2001
Volume 621
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asked Her Majesty's Government:

What are their latest estimates of the amount of combined heat and power to be installed by 2010.

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My Lords, we have set a target of at least 10,000 megawatts of installed CHP by 2010. Recent government projections indicate that around 7,600 megawatts will be installed by that date. That projection includes exemption of good quality CHP from the climate change levy, subject to EU clearance, but not the eligibility for enhanced capital allowances and exemption from business rating of plant and machinery which we have announced. A comprehensive CHP strategy will be launched in the coming months to ensure that, with the help of these and other new measures, our 2010 target is achieved.

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My Lords, I thank the Minister for that latest estimate. However, is he aware that other estimates, particularly one prepared by the European Commission, in which I believe the DETR participated, indicate that the figure will be no more than 6 gigawatts by the year 2010? Whether the figure is 7.5 or 6, it is of course less than the desirable objective of 10. As the Minister is no doubt aware, there are obstacles which stand in the way of further development of combined heat and power. Does he accept, for example, that under the climate change levy, although a certain amount of CHP is exempted, that which is exported into the network is not, which therefore acts as a disincentive. Furthermore, under the new electricity trading arrangements, the balancing arrangements militate against CHP. If the Government are really concerned to achieve their objective, should they not remove such anomalies?

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My Lords, I am aware of other estimates, including that of the European Commission and that of the CHPA, which puts the figure at 6,600 rather than 7,600. There are differences of assumption behind that which relate to the future of gas and electricity prices and other movements. We believe that our estimates are reasonably robust on the basis of policies already announced, excluding those to which I referred in my Answer. Nevertheless, the noble Lord is right. Further measures and the enhancement of existing measures will be needed to reach the target of 10,000 megawatts.

Export of electricity direct to customers is covered by the climate change levy provisions, whereas export to the grid in that sense is not. That is in line with other licence providers. We are considering further the way in which the new electricity trading arrangements (NETA) will impact on CHP and small providers of CHP. Before reaching a final regime under NETA, we shall take into account the kind of considerations to which the noble Lord referred.

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My Lords, I declare an interest as director of two power companies. Is the Minister aware of the great reluctance to invest in the energy market at present; first, because of the additional restrictions placed on the industry by the regulator, and, secondly, because of the commercial price of gas?

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My Lords, I recognise that because of the relative movement of gas and electricity prices, there are uncertainties. Nevertheless, I believe that in general the new system of regulation will enable the energy industry to meet not only its energy supply objectives, but also the environmental and social objectives which the new regime should impose.

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My Lords, is the Minister aware that the Embedded Generation Working Group recently reported and made a number of recommendations for stimulating the generation of small-scale electricity which covers CHP and renewables? Can he indicate whether the Government will take serious note of the recommendations made in that report?

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Yes, my Lords. The working group recommended that Ofgem should review the whole structure of the regulatory incentives in relation to CHP and that an implementations group should be established under government leadership to take that forward. We shall consider the recommendations, including those for CHP, both in that context and as regards renewables. I hope, therefore, that we can come up with further measures to meet our target of 10,000 megawatts.

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My Lords, I refer to the Minister's comments on social targets. I understand that only 35,000 of the poorest older people have benefited from the new HEES arrangements, HEES Plus, by having free central heating and insulation, and that the target figure is 280,000 by summer 2002. What plans do the Government have to ensure that that target is met?

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My Lords, the new HEES programme is considerably more substantial than the old HEES programme in terms of the measures that can be introduced into the homes of the "fuel poor", with grants available of up to £2,000. There was a hiccup in introducing the new scheme as regards bringing onstream firms which were able to deliver the new provisions. We believe that that has now been resolved. Just before Christmas the number of installations was up to the level of the original objective. We therefore think that, to within a few thousand, we should meet the target. Our overall fuel poverty strategy will be announced within a few weeks. That should bring together the HEES programme and other measures to benefit those who suffer from cold homes and low income.