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

Considered in Grand Committee

Moved by

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

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.

I am delighted to contribute to this little debate and I welcome the regulations. I congratulate my noble friend on setting out their remit so clearly and comprehensively. I place on record my enthusiasm for combined heat and power and I recognise the advantages of this form of use, particularly given that it has efficiency of over 80%. Operators typically save around 20% on energy bills and can save up to 30% on carbon emissions. Transmission and distribution losses are reduced while fuel supply security is increased.

I should like to put a number of questions for my greater understanding of the impact of the regulations. My noble friend said that the Covid situation, particularly lockdown in 2020 and at the beginning of 2021, has led to the need for these regulations. However, if, heaven forfend, a lockdown were to be reinstated later this year, what will happen to the regulations when they come to their natural expiry date, which I understand is 12 months from 18 May?

Also, my noble friend referred to the fact that one of the issues leading to the need for the regulations before us is that there was a reduced supply of biomass. Is that still the case or has the situation been redressed? Are we still heavily dependent on imports of biomass? If so, I plead an interest, given that I was a North Yorkshire MP for 18 years.

Farmers in this country stand prepared to contribute to the supply of biomass. I could be wrong, but I understand that one of the sources could be fast-growing willow trees. It would be a much better and more sustainable supply, while contributing to the income of farmers in the UK, if we could secure biomass from a UK source rather than importing it. Will the Minister address the issue that she herself raised about the reduction in biomass supply? Is that still the case? Are we completely dependent, for the large part, on imports? Has the supply now been reinstated?

My Lords, this instrument has been prepared by the Department for Business, Energy and Industrial Strategy. The CHPQA scheme, through the CHPQA standard, outlines the CHPQA methodology, definitions, thresholds and criteria for “good quality” certification of a CHP plant. The latest version of the CHPQA standard, Issue 8, was published by the department on 11 March 2021 to reflect the temporary easement for CHP plants impacted by measures implemented in response to the Covid-19 pandemic and to remove references to the energy efficiency directive.

The instrument modifies for a period of 12 months, beginning with the day on which it comes into force, the Renewable Heat Incentive Scheme Regulations 2018 to refer to the CHPQA standard as Issue 8. CHPQA certification enables access to incentives through multiple schemes legislated for by different departments and the devolved Administrations, which all intend to modify these schemes via separate instruments as soon as they can. Separate modification regulations for 2021 are also being laid by the department, the purpose of which is to make similar modifications to the Renewables Obligation Order 2015 and the Emissions Performance Standard Regulations 2015 via the affirmative procedure.

CHP is an energy-efficient technology that allows generation of both heat and power on-site, providing fuel and carbon savings compared with separate generation. The scheme was launched in 2000 as a voluntary programme to assess and certify CHPs. To encourage CHP installations and efficient use of the technology, certification through CHPQA enables operators to access multiple benefits, including exemptions from the climate change levy and carbon price support taxes and emissions performance standards limits and, for renewable-fuelled CHP, the renewable heat incentive and renewables obligation.

The CHPQA standard outlines the methodology, definitions and criteria for “good quality” certification. The CHPQA standard is referenced in the individual legislation for each scheme that CHPQA certification provides a benefit in relation to.

To certify, CHP operators submit operational performance data for the previous calendar year to claim taxes and benefits in the next calendar year. There are two key parameters for CHPQA certification: quality index and power efficiency. The QI calculation is based on the amount of useful heat, electricity output and fuel input. CHP schemes can achieve either full certification if they pass the thresholds or partial certification, with benefits deducted proportionally to the overall QI and power efficiency values.

Finally, a six-week consultation was held between 15 December 2020 and 29 January 2021. This consultation period was considered appropriate because of the straightforward nature of the changes, narrow stakeholder interest and timing pressures to confirm certification for 2021. This was paired with direct stakeholder engagement, including with all CHP plants certified in 2019.

I thank the Minister for introducing this statutory instrument. She has already touched on some of the topics that I wanted to pursue a little further.

As has been explained, the instrument temporarily modifies the certification process for the combined heat and power quality assurance scheme, which certifies energy-efficient combined heat and power plants and gives access to financial incentives, including environmental tax exemptions. As with many businesses, the pandemic and lockdown have given rise to a highly abnormal year, so some schemes that would normally have qualified for incentives may not, because their 2020 operational data does not qualify them. Where those businesses can show a direct effect from the pandemic, the Government are allowing use of their 2019 data instead of the anomalous Covid-impacted 2020 data for the purposes of qualifying for the financial incentives in 2021.

That is a logical approach, and this is not the first SI that I have seen which makes adjustments because of the pandemic. I am pleased to see that the safeguard is there: there has to be a direct effect of the pandemic, rather than the ability to choose 2019 data automatically if it was better, potentially for other reasons. Therefore, I agree with the changes and I hope that the Minister will indulge me as I use some of the time available to ask a few general questions about combined heat and power, and indeed energy from waste.

One thing I noticed in the Explanatory Memorandum was the use of the expression “Good Quality” CHP, which is what the incentive is about. That is key, and it set me wondering where CHP sat in the context of net zero more generally. The Minister explained that much depended on carbon capture and the development of hydrogen for the future, but there are also problems—such as how to utilise the heat, especially in the domestic environment—that have restricted how well CHP developments have proceeded to deliver on not wasting the heat. What are the Government doing to help in that?

I thank the Minister for her introduction to the regulations before the Committee today. This instrument is simple but effective and its aims are largely technical. It modifies for a period of 12 months the application of two aspects of the combined heat and power quality assurance scheme in relation to the effects of the Covid-19 pandemic on the performance of CHP operators that resulted in shortfalls in their standards in the provision for the previous calendar year.

The Government have agreed to allow a temporary easement to the certification process necessary to enable CHP operators to continue to access multiple benefits, such as carbon price support taxes and emissions performance standard limits. Indeed, 2020 was a very abnormal year as well as an inappropriate one on which to submit performance data. These regulations modify two instruments—the Renewables Obligation Order 2015 and the Emissions Performance Standard Regulations 2015—to refer to the technical Issue 8 of the CHP quality assurance standard. CHP operators can submit their 2019 operational data instead of the 2020 data for the 2021 certification. Issue 8 was published on 11 March 2021 to reflect this temporary easement for CHP plants impacted by measures implemented in response to the pandemic.

I am content to approve this order to allow a recovery period in which CHP operators can continue with data from the previous year’s performances. Do the Government believe they have judged the length of dispensation period correctly? What calculations have they undertaken to assess the slippage effect of the pandemic and whether a shorter period of time might have been sufficient for operators to get back on track?

I imagine that all the failing operators will have applied for this dispensation. Can the Minister tell the Committee how many operators the Government estimate may apply, and will the submission only of data from 2019 qualify them for certification? Will the operators need to demonstrate how Covid-19 impacted their business performance? Have the Government considered that there could be CHP plants that might have fallen short and yet not have been severely impacted by Covid-19? Would this matter, as it is the data that is not impacted and not the quality of standards? Perhaps the Minister might explain, as the measures implemented to combat Covid-19 may well have affected all performances, irrespective of district or operational abilities. However, that the data provided in 2019 would be sufficient to qualify for continuation of benefits would suggest that a large degree of compliance will not have changed, only the data achieved in 2019 for those shut or intermittently open during 2020.

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.

Motion agreed.

Sitting suspended.