Combined Heat and Power Quality Assurance (Temporary Modifications) Regulations 2021

Baroness Bloomfield of Hinton Waldrist Excerpts

Wednesday 19th May 2021 Grand Committee

Moved by

[Baroness Bloomfield of Hinton Waldrist]

That the Grand Committee do consider the Combined Heat and Power Quality Assurance (Temporary Modifications) Regulations 2021

Relevant documents: 51st Report from the Secondary Legislation Scrutiny Committee, Session 2019–21

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, the combined heat and power quality assurance scheme has been in place since 2001 to certify highly energy-efficient combined heat and power plants across the UK. Combined heat and power plants can be fuelled by natural gas or renewable fuels and are up to 30% more efficient than conventional methods of generation by making use of both the heat and the electricity they produce. To incentivise deployment of CHP, certification through the quality assurance scheme enables access to a variety of financial benefits which form part of the business model for CHP owners. Over 1,400 sites across the UK certify their combined heat and power plants through this voluntary assurance scheme, accessing over £500 million in benefits each year.

Combined heat and power plants are a vital technology for some of our most valued but energy-intensive industries. They will play a key role in our move towards net-zero emissions due to the variety of benefits they bring to an increasingly renewables-based electricity network and the ability to adapt in the near future to hydrogen fuel or carbon capture and usage technology. Both hydrogen and carbon capture and usage will be crucial in the decarbonisation of the UK’s energy use, particularly for energy-intensive industrial processes. Therefore, operators of combined heat and power plants should be appropriately supported, as they will support us to decarbonise.

The initial Covid-19 lockdown restrictions in 2020 impacted a large number of businesses. Multiple CHP users, across a variety of sectors and industries, approached the Government with concerns over the impacts the restrictions would have on their businesses. Restrictions meant that they were unable to operate their combined heat and power plants effectively and risked not being able to recertify as normal through the combined heat and power quality assurance scheme as a result. There were two key issues affecting their operation. First, for some industrial processes, demand for power remained but heat customers had shut down, meaning that useful heat was being wasted. Secondly, there were reports of a significantly reduced quality of biomass supply, which was negatively impacting the volume required to meet demand. These issues impacted the operational data that is used in the certification process, presenting a risk for operators that they might not be able to certify for their usual level of benefits in 2021.

A consultation was launched on 15 December 2020 to measure the number of affected operators and to seek views on a proposed temporary amendment to the certification process which we are here to discuss today. Agreement to support CHP operators was unanimous. The consultation received support from a wide variety of stakeholders, including unimpacted operators confirming that they agreed the solution was fair and appropriate.

The rules and procedures relating to the CHPQA are contained in the quality assurance scheme’s standard. Issue 8 of the standard has been amended to allow for a temporary revision to the certification process to allow operators to use their unimpacted 2019 operational data for their 2021 certification instead of impacted 2020 operational data. This will allow affected operators to access appropriate levels of financial benefits in 2021 based on their energy use, thereby avoiding further Covid-related financial impacts on key businesses and industries in the UK. To ensure that this easement is provided only to operators impacted by the Covid-19 lockdown restrictions, all operators seeking to utilise this easement must provide sufficient evidence, which will be assessed on a case-by-case basis by the experienced quality assurance delivery partner.

These regulations give effect to the amended Issue 8 of the standard through amendments to references in the Renewables Obligation Order 2015 and the Emissions Performance Standard Regulations 2015. Certification through the combined heat and power quality assurance scheme provides access to benefits under multiple policies implemented through a variety of powers. Associated instruments are being laid by Her Majesty’s Revenue & Customs, as well as in Scotland and Northern Ireland, over the coming weeks, to update the CHPQA standard to Issue 8 across the relevant legislation. The regulatory amendments will be in place for 12 months following this instrument coming into force.

The Government do not intend to extend the amendment to the quality assurance scheme’s processes for further years, as it is expected that businesses have now had the opportunity to adapt their processes, and we hope that there will be no additional extended periods of restrictions related to Covid-19 for the rest of 2021 and beyond. This update to the standard also removes references to EU directives.

This change to the CHPQA certification process will avoid increased operational costs being passed on to consumers, and will support vulnerable businesses and industries in the UK to avoid further financial impacts and potential job losses caused by the Covid-19 pandemic. Due to the financial incentives accessed through the CHPQA predominantly being exemptions from a variety of operational costs, such as taxes, no new or additional funding is required to implement this support.

I conclude by emphasising the important role that combined heat and power technology will have in our route to decarbonising energy use. Therefore, stake- holders affected by Covid-19 restrictions should be supported. This amendment provides excellent value for money for the public purse as no additional funding is being allocated to the support and it avoids additional running costs being passed on to consumers. This is a proportionate, transparent and widely supported administrative amendment that will avoid further financial impacts on crucial, vulnerable businesses and industries in the UK. I commend these regulations to the Committee.

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[Baroness Bloomfield of Hinton Waldrist (Con)]

I thank all noble Lords for their valuable contributions to this short debate on a very important subject. I start by saying that my response to the noble Lord, Lord Bhatia, will be provided in writing after the debate.

I make the following points in response to those raised by my noble friend Lady McIntosh—and I am very grateful for her support for the proposed amendments. The public consultation published in December 2020 discussed only the option of providing support for the 2021 certification period. While we expect businesses will be able to adapt to further impacts in 2021, if circumstances change we can consider extending the support. The UK supports only biomass that complies with strict sustainability criteria. We are reviewing the air quality impacts of biomass to ensure that our energy policies can jointly tackle climate change and improve air quality. We understand that biomass CHP operators have been able to re-establish supplies.

My noble friend also asked how many CHP plants were not functioning as they should. By 5 May 2021, 261 sites, representing 19% of all certified CHP sites, had expressed an interest in submitting evidence to access the easement; 197 were in England, 33 in Scotland, 18 in Northern Ireland and 13 in Wales. I think that answers a question raised also by the noble Lord, Lord Grantchester.

In answer to the noble Baroness, Lady Bowles, I am very grateful to her for her support for this important safeguarding and welcome her comments on the broader issues of energy from waste, as indeed I do those of my noble friend Lady McIntosh. It is an area in which I am particularly interested, but my briefing does not really cover a lot of the questions that she asked in detail. However, I would be delighted to write to her with more details, and perhaps there will be more questions in the House relating to energy from waste.

The CHPQA requires that heat is used usefully; to qualify for benefits, sites must demonstrate that the heat being used displaces alternative heat generation, such as by boilers. Noble Lords mentioned some wider policy challenges around the effective distribution of heat and support for decarbonisation, which will help us to reach 2050 targets. There is a great deal going on in this space, such as strategies for hydrogen and industrial energy, and it may be easier for me to write to provide a more detailed list.

I can tell the noble Lord, Lord Grantchester, that almost all operators will use 2019 data for their recertification, but those without 2019 data will use their design data, as is the usual process within the scheme. Evidence will be required to access the easement to show sufficiently the impact of Covid on the operation of CHPs. No serious concerns were raised during the consultation.

The noble Lord also asked about checks and balances. To ensure that this easement is provided only to operators impacted by the Covid-19 lockdown restrictions, all operators seeking to utilise this easement must provide sufficient evidence, which will be assessed on a case-by-case basis by the experienced quality assurance delivery partner. The CHPQA delivery partner has the required technical experience to access these applications, and I am assured that they have sufficient manpower to process the applications.

Following the Covid-19 restrictions throughout 2020, support for the impacted combined heat and power operator is crucial, as this technology holds significant opportunity to help decarbonise energy use. Without this support, valuable jobs in green industries could be lost and efficient technologies abandoned in favour of carbon-intensive alternatives. This administrative amendment is transparent and fair, as confirmed by stakeholders during public consultation, and represents excellent value for money, with no additional capital required to implement. I commend these regulations to the House.

Motion agreed.