Capacity Market costing UK ‘hundreds of millions’ in costs

The UK government’s Capacity Market is undermining the UK’s Industrial Strategy, resulting in hundreds of millions in extra costs to decarbonise the energy system, a new report by the Association for Decentralised Energy (ADE) has found.

The government’s flagship scheme to secure Britain’s electricity supplies risks missing out on savings of £750m a year by ignoring combined heat and power technology, according to the report.

New modelling and analysis performed by the ADE found that building CHP units instead of less efficient, power-only gas plants would help save between £656m to £774m on energy bills a year by 2030, while saving the equivalent carbon emissions of taking 1 in 14 cars off the road.

ADE Director Tim Rotheray believes the government needed to be mindful of the costs involved in ignoring the technology.

“Efficient combined heat and power, like much of efficiency policy needs a clearer focus. Wasted energy costs all consumers and the economy,” he said.

“The economy depends on competitive business. Those businesses need to decarbonise cost effectively to remain competitive in the future. Today’s report provides Government with a clear answer on how to support industrial competitiveness and deliver a significant carbon reduction.

“By installing CHP, thousands of businesses across the UK could help lighten the load of the cost of the energy transition while delivering much needed new capacity, helping to balance the grid and reduce network investment costs.

“To enable a more competitive energy economy, it is vital that policies including the Capacity Market, carbon taxes and network charging arrangements recognise and reward CHP’s long-term value to consumers and the environment. Enabling CHP gives real potential to make a user-led energy revolution a reality.”

Around 2,000 factories and businesses have so far adopted CHP to cut an estimated £375m from their total annual bills. But despite these savings the Government has blocked CHP from its capacity market auctions, putting the brakes on further benefits.

The report asserts that giving CHP the same support as traditional gas plants could more than double its capacity from around 5.5GW to 13GW in a major boost for the UK’s bid to secure investment in low carbon energy and boost post-Brexit productivity.

The analysis also demonstrates how CHP can help lighten the costs of transitioning to a low carbon energy system and meeting the UK’s decarbonisation targets, while also strengthening the global competitiveness of British businesses.

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