A concerted global effort is required to tackle climate change, and countries are competing on who can transition most effectively. How each nation adapts to a carbon constrained world will determine its future economic competitiveness and ability to deliver lasting, sustainable growth and prosperity. Within the Industrial Strategy, the UK Government has set twin aims of delivering a decarbonised economy and strengthening the global competitiveness of British businesses. These twin aims, while aligned with global trends, can also create tensions.
Decarbonising is, on the whole, a benefit to the UK’s economy, lowering the UK’s energy costs over the long-term. However, some elements of decarbonising the economy can result in higher energy costs, which can fall particularly hard on businesses, with business energy costs having risen by as much as 119% since 2004.
The cost of delivering a new energy system includes more than just the support for increased renewable and nuclear energy generation. The electricity system must meet the challenge of delivering sufficient capacity, balancing the electricity network on a second by second basis, and adapting and expanding power networks.
Meeting these three challenges carries costs. The Capacity Market, balancing services, and electricity networks add nearly £11 billion a year on users’ bills today, making up about one third of all UK electricity costs, and will rise to nearly £13 billion by 2021. In addition, meeting these system requirements with higher carbon resources can make it harder to meet our decarbonisation goals.
In order to meet these three energy system challenges, policy to date has focussed on the energy sector to solve them. However, there is a yet-unseized opportunity for businesses energy users to provide benefits to the energy system and lighten the load of this cost rise. By receiving value for their contributions, these businesses will be able to protect their profitability and competitiveness, and support inward investment.
A key tool for businesses to deliver these benefits is combined heat and power (CHP). Combined heat and power is the most efficient way to meet heat and power needs, cutting energy waste by up to 30%.
The benefits of CHP are being felt today. There are more than 2,000 businesses and sites in the UK which use CHP to support their operations. More than 111,000 jobs are located on these sites and CHP is helping to improve manufacturing productivity, control energy costs and protect long-term employment. CHP is also used by hundreds of heat networks, providing heating through a network of pipes to homes and businesses in UK cities.
While historically CHP plants were built and operated to run all the time, and while some industrial users will always have very limited power flexibility, new CHP plants are able to respond to market signals, providing more generation when needed and less when lower carbon generation is available.
CHP enables businesses to provide flexibility, efficiency, and local value, while achieving the Government’s strategic energy and industrial policy goals. In addition to its financial benefits, CHP saves carbon as long as it displaces other, higher carbon gas and coal power stations which do not recover their heat.