Thank you for giving me the opportunity to speak to you today. I’d like if I may to begin by referring to the policy paper I wrote whilst in opposition, ‘Power to the people - the decentralised energy revolution’. In it, I set out my vision for a radical, greener, decentralising approach not just to energy but the climate change context in which it sits.
By changing the architecture of the electricity supply industry and opening the way for decentralised generation, close to the point of use, I described how opportunities will open up for technologies which are more carbon efficient, which waste less heat and which also avoid transmission losses.
Small is indeed beautiful. For it is relevant across our whole agenda - community empowerment, localism, the big society - where CHP, at all scales, is a practical, technical and proven response.
We set out to be the greenest Government ever - some challenge in the current fiscal environment. Government has began to deliver on this challenging agenda, though we accept there is still some distance to go. We have yet to see any real increase in the uptake of CHP, and that needs to be addressed.
One key reason for this soon became apparent after I took office. Up to that point, CHP had suffered from a disjointed approach in policy. With different areas of Government pulling in their own directions, there was no sense of a common goal.
Formation of Heat and Industry directorate
We recognised the need to join these policy streams together. That is why we announced the formation of a new Directorate for Heat and Industry, bringing CHP policy together for the first time with our wider policies for decarbonising the industrial and commercial sectors. This new arrangement provides a much improved platform from which to build understanding of the industry and take forward the industry’s contribution to energy policy.
Whilst the new Directorate will not be fully functional until September, my officials are preparing the ground already. As you know we are currently undertaking a strategic analysis of heat and cooling across all sectors in the UK.
The analysis will form a major bedrock on which policy for the new Directorate will be built. It will also inform the Government’s response to the Climate Change Committee’s 4th Carbon Budget report in the autumn. I would like to thank the Association for their continued valuable input into this process.
Carbon price floor
Against this, I acknowledge that there a high level of investment uncertainty within industry, most notably around the Carbon Price Floor and the removal of Levy Exemption Certificates in 2013.
I welcome the progress that my officials, working with yourselves and Treasury, have made in trying to ensure that CHP retains an appropriate level of subsidy overall. This is not only important for new investment, but also to retain the carbon savings that existing CHP schemes deliver.
I am aware of the industry’s concerns over this proposal. We need to get this right, as this will have an impact on the competitiveness of the UK industrial sector as a whole. We need to support manufacturing industry in controlling energy costs and improving productivity, at a time when the economic climate is difficult for all.
Decarbonisation must not mean deindustrialisation. I will be taking a keen interest on how this works develops further, and will certainly be offering my support to ensure the best possible outcome.
In the renewable CHP sector, I know investors are keenly awaiting the outcome on a number of policy developments. The Renewables Obligation review is still ongoing, and I know the future interface with the RHI has created uncertainty in the market.
The Department is working hard to move through this process of change as quickly as possible, in order to allow planned investments to proceed. Our aim is for clarity and fair reward for all renewable technologies. I am therefore determined that the combination of incentives must be made to work for low carbon CHP and will work to ensure that this is the case.
Electricity market reform
I want to turn now to touch on some of the opportunities for CHP. Electricity Market Reform will mean we have a market served by diverse and secure sources of low carbon electricity, at least cost to the consumer. That includes the contribution from distributed generation and heat technologies.
So EMR will represent a massive opportunity to mobilise the demand-side of the market. Industry should see this as a new opportunity and use the flexibility of CHP to help maintain the reliability of the grid.
I look forward to hearing how industry will meet this challenge, and continue to play a vital role in the future energy mix.
Revision of CHPQA
It is of course vital that CHP plants, no matter where they are sited, no matter what the fuel, are able to justify this support in future. I am sure industry will agree when I state that for the industry to thrive, we need to make sure that there can be no room for doubt on the benefits that CHP delivers today, and into the future.
That is why I am announcing today a fundamental review of the CHP Quality Assurance Programme. The aim will be to ensure the Programme is more accessible, reducing unnecessary burden on industry, simplifying where possible. However it must remain robust, fit for purpose as the foundation of our future CHP support.
We will issue a consultation over the autumn, with an aim to publish the new CHP Standard later in the year. We will welcome industry input in making sure the Standard meets your expectations.
Moving to micro-CHP, I welcome the news that this technology is now a reality in the marketplace, with sales approaching a thousand and development of new products continuing. However I want to see micro-CHP play a more mainstream role in the heating of our homes.
That is why I announced on the 21 June during the debate on the Energy Bill that I have agreed to carry out work to establish the UK potential for micro-CHP. I have invited Dr Alan Whitehead and other Committee Members to meet with officials to discuss how this can be achieved, so I can make an announcement at the Report stage of the Bill. I am sure industry will welcome this opportunity for micro-CHP to fully establish itself to get into the fast lane.
You know that on 22 June we published our Microgeneration Strategy. Whilst Government understands that support is important in seeing the industry grow, there are still a large number of non-financial barriers to its market penetration.
It is vital that industry is able to make the most of the opportunities that financial incentives provide. I would like to thank the industry for their invaluable work on producing the Strategy, and will now expect to all parties commit to making it a success.
I am also pleased to see that as house-building and property development is starting again, district heating and CHP is increasingly becoming a feature of new developments. I recognise the work that CHPA and others in the room have undertaken to help deliver a workable way forward for Zero-Carbon Homes policy. I am still pushing for a satisfactory outcome on the Whitehall District Heating System. I also wish to explore how district heating schemes can be brought forward under major new policy initiatives such as the Green Deal and ECO.
Decentralised energy summit
To conclude, I would like to return to my opening remarks on what the future of energy should be in Britain. I am serious about wanting to see a more decentralised energy economy - not at the margins, not incremental, not bonus schemes. I mean a decentralised local energy system.
For this to happen, we all need to take action. But not in isolation, and not just within our own organisations. We need a joined up approach, to see how we can pull together all the pieces of the jigsaw to complete the decentralised energy picture.
That is why I am announcing today my intention to convene a Government Industry Contact Group on Decentralised Energy. This will involve a small number of key industry players able to speak on behalf of the sector, working with me to remove barriers to deployment.
I aim to chair the first meeting of the Contact Group in the Autumn, and I will give more detail in due course. However I want to use the opportunity you have given me today to invite the Association to join me on the Group, and help me push decentralised energy into the centre of the energy debate.