Combined Heat and Power(CHP)

CHP Support


Over the past few years the Government have introduced a number of support mechanisms to support the growth of CHP. Some of these are targeted at specific types of CHP technologies or CHP market sectors.


Climate Change Levy (CCL Exemption)


The Climate Change Levy (CCL) came into force on 1 April 2001 and included an exemption for Good Quality CHP. The exemption was originally limited only to CHP fuel inputs, however, this was extended in the 2002 Budget when the Government announced that Good Quality CHP electricity sold via licensed suppliers will also be exempt from the CCL. Following a successful State Aid application to the European Commission, this exemption came into effect on 1 April 2003. (See the Association’s Note on CCL Exemption timelines).


The levy is chargeable on the industrial and commercial supply of taxable commodities for lighting, heating and power by consumers in Industry, Commerce; Agriculture; Public administration; and Other services. The levy does to domestic consumers, or by charities for non-business use. The CCL rates have been fixed since 2001, however, the Government announced in Budget 2006 that they will now increase in line with inflation.

 

Enhanced Capital Allowances


Enhanced Capital Allowances (ECAs) were introduced as part of the CCL package in April 2001. They are 100% first-year capital allowances on investments in certain energy-saving equipment. Businesses are able to write-off the whole cost of their investment against their taxable profits during the period in which they make the investment. Good Quality CHP is one of the technologies eligible for support under the ECA scheme, as it qualifies as “energy-saving plant and machinery”. The CHP plant and machinery covered by the ECA scheme is detailed on the Energy Technology Criteria List.

Preferential Treatment of Business Rates for CHP Plant


CHP plants are not fully exempt from paying business rates, however, the Government has introduced preferential treatment under the business rates regime for Good Quality CHP plant.


MicroCHP


MicroCHP schemes benefit from a reduced rate for their installation, from the standard level of VAT payable from the normal level of 17.5% to 5%.This was announced by the Chancellor in his Budget 2005.
MicroCHP schemes also benefit from an ‘uplift’ factor applied to their energy savings under the Government’s Energy Efficiency Commitment (EEC) programme. [Under EEC, electricity and gas suppliers are required to achieve targets for the promotion of improvements in domestic energy efficiency. The second phase of the EEC runs from 1 April 2005 to 31 March 2008.]

ECAs for Biofuel Plant utilising CHP


It was announced in the Chancellor’s Pre-Budget Report 2005 that, subject to State Aid clearance, that Enhanced Capital Allowances (ECAs) will be granted for future biofuels plant construction providing certain processes are used. Good Quality CHP has been recognised as such a qualifying process.


District Energy (Community Heating)


The main programme for promoting the use of District Energy schemes – the Community Energy Programme (CEP) – was unfortunately brought to a close by Government in March 2006. The programme was administered by the Energy Saving Trust and information on the CEP can be found on their website.
Community Heating with CHP has been identified as an ‘innovative action’ under the Energy Efficiency Programme (EEC) and, similar to the treatment of MicroCHP, also benefit from an ‘uplift’ in energy savings to encourage suppliers to invest in such projects.


CHP schemes that utilise a renewable energy fuel (such as biogas, in most instances, or biomass as many developers are currently looking to introduce, and, from January 2006, also on the biomass-content of Refuse Derived Fuel (RDF) in energy from waste plant) are rewarded with a premium on each MWh of electricity produced under the Renewables Obligation (RO) mechanism. There is currently no benefit provided to the production of low-carbon or renewable heat.

EUETS


Phase I of the EU Emissions Trading scheme operates from January 2005 to December 2007.The Government included within its National Allocation Plan (NAP) special treatment for new entrant CHP (the EUETS Directive encourages Member States to promote the use of ‘Clean Energy’ technologies) schemes by establishing a CHP set aside of allowances within the New Entrant Reserve (NER).

 

 

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