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Combined heat and power: the way to net zero by 2050

GB looks at how combined heat and power is being used in the public sector and its benefits

What is combined heat and power?

Combined heat and power (CHP), sometimes referred to as cogeneration, is a process that captures and utilises heat that is a byproduct of generating electricity, effectively using one fuel source for two processes. The usually-wasted thermal energy is then used to provide buildings with hot water, heating, and can even cool them, alongside generating electricity. In turn, this makes CHP incredibly efficient (up to 90 per cent) compared to traditional energy-generating methods that rely on a power station and a boiler, which have an average efficiency of only 52 per cent.

CHP has become incredibly popular within the last two decades; in 2023, there were 2099 CHP sites across the UK, which represented 7.6 per cent of total electricity generation. 

This is no surprise given that CHP is both financially advantageous, and favourable for the environment, and is a particularly attractive investment for public sector properties, many of which require a constant, reliable source of energy. CHP, not relying on an external power plant for electricity, is especially attractive for hospitals and university buildings, which require round-the-clock powering.

What are the benefits of CHP?

Highly efficient, CHP uses little fuel, produces less greenhouse gas than traditional energy-generating methods, and is incredibly economical. Unlike a centralised power station, CHP generates power onsite, separate from the public energy network, which increases fuel security, as well as reducing energy lost through transportation and distribution. By generating their own electricity, public sector organisations can reduce their dependence on a large grid and avoid the risk of power outages, especially critical for hospital buildings.

For many organisations, CHP is the initiative that offers the biggest change to both energy costs and environmental impact, with a payback period of less than five years. Generating heat and electricity together can reduce carbon emissions by up to 30 per cent, and users of CHP typically save around 20 per cent of their energy costs. This is particularly significant as the public sector’s annual energy bill is approximately £3.4 billion annually, and the 2020 Energy White Paper shows that public sector buildings account for nine per cent of the UK’s emissions from buildings. Alongside huge energy savings, organisations and individuals alike can reap the benefits for a plethora of government initiatives, schemes, and levies, that promote the use of CHP as part of the wider mission to decarbonise the nation’s energy by making it a more affordable investment for all.

A potentially lucrative benefit of CHP is that, even when fossil fuels are used, emissions are still reduced. In 2020 alone, CHP lowered UK emissions by 3.5 million tonnes carbon dioxide equivalent (MtCO2e), even though natural gas accounted for 72 per cent of the UK CHP fuel mix that year. Greener strategies, however, like biomass and hydrogen, are on the rise, with a record 17 per cent of CHP fuel mix being renewable in 2023, and harmful gases released by landfills and sewage treatment plants can be harnessed and used in CHP processes. 

It is important to note, however, that the movement towards decarbonising entirely is still paramount to the UK’s roadmap towards net zero. An analysis found that CHP would continue to deliver carbon savings throughout the 2020s, but from 2032, CHP methods using fossil fuels would start to increase emissions. A fossil fuel CHP plant established until 2023 would deliver carbon savings over its lifetime (10-20 years, on average), but those deployed later would not. It is especially imperative, then, in 2024, that new CHP plants and strategies increasingly turn towards renewable fuel mixes if they wish to continue to harvest carbon savings, in order to reach net zero by 2050.

CHP and the public sector

With the public sector’s annual energy bill being so high, and the NHS accounting for roughly 30 per cent of it, CHP is a particularly attractive strategy for public sector buildings, with 70 per cent of applications being in hospitals, universities, and residential housing in 2020. CHP can be deployed quickly, effectively, and with few geographical limitations, and is best suited in environments that require a significant and continuous energy source. CHP can give peace of mind to healthcare professionals, policymakers, and councils who can depend on its on-site energy generation.

In 2016, Lord Carter published the report ‘Operational productivity and performance in English NHS acute hospitals’, which emphasised the potential to save £1.275 billion by increasing efficiency across the estate. Following his report, total NHS expenses for occupying and operating buildings have decreased to £11.9 billion in 2022-23, which was made possible by more than 1,850 energy efficiency schemes deployed across NHS estates since 2018, some of these savings driven by CHP units. 81 new CHP units were installed, and in 2022-23, the NHS reported 3.3 kWh of thermal and electrical energy produced by CHP units. By the 2022-23 tax year, there were 223 CHP units across all UK NHS trusts.

A 2019 report by the Committee on Climate Change (CCC) highlighted that should the UK wish to reach net zero on greenhouse gas emissions by 2050, as implemented into legislation in 2019, emissions from heating buildings would need to be reduced to almost zero. As it stands, UK housing accounts for more than 40 per cent of the country’s carbon emissions, and so heat networks could have huge potential for carbon savings, many of which are driven by CHP. In 2020, 14,000 heat networks met the energy needs of just under half a million customers across the nation, and the Department for Business, Energy and Industrial Strategy (BEIS) has suggested that heat networks could meet the heat demand of 17 per cent of the UK homes and 24 per cent of commercial and public sector buildings by 2050, with 32 per cent of these fuelled by gas-fired CHP. However, the government notes that as the UK’s electricity production becomes increasingly decarbonised, CO2 savings from CHP will decline unless renewable fuels replace non-renewable ones.

Government CHP initiatives

Switching to a greener method of energy production often comes at a high cost, and so the government has announced many schemes to incentivise organisations to make more environmentally-conscious decisions for their heating and electric needs, without facing a huge financial hit.

The Climate Change Levy is a tax automatically charged to businesses’ energy bills to encourage them to cut their energy consumption and related emissions. Businesses are charged per unit of natural gas and grid electricity, but ethical energy consumption through CHP rewards favourable treatment and reduced taxes. If a CHP system meets 

the Combined Heat and Power Quality Assurance Programme (CHPQA – a government initiative for assessing energy efficiency and environmental performance in CHP schemes), they will be exempt from paying. Those that are just below ‘Good Quality’ can still apply to have reductions on their charges. 

The CHPQA scheme itself has been a huge motivator in encouraging organisations to adopt low-carbon CHP strategies, as in 2001 (the year CHPQA was introduced), renewable electricity accounted for just 2.6 per cent of all UK electricity generated, but in 2018 this had increased to 33 per cent. That same year, CHPQA Certified CHP accounted for 92 per cent of UK CHP capacity.

The Public Sector Decarbonisation Scheme, financed by Salix, is a government scheme that aims to help public sector organisations reduce emissions from their buildings, and offers grants for decarbonising heating systems and enhanced energy efficiency, including low-carbon CHP programmes. Phase 4 of the scheme opened in October 2024 to cover funding for 2025-28 projects, and a successful CHP operation was put into place in Phase 1 at the Northern Lincolnshire and Goole NHS Foundation Trust, where a CHP system replaced coal-fired boilers.

Another project delivered by Salix, the Low Carbon Skills Fund awards investment to help the public sector identity carbon heat upgrade projects, and provides grants for expert advice and skills needed to decarbonise the public sector, including effective, low-carbon CHP projects. Phase 5 of the Public Sector Low Carbon Skills Fund had up to £16 million available for decarbonisation projects, and will be delivered in 2024-25. 

The future of CHP

While the benefits of CHP over the last two decades cannot be understated, as CHP has resulted in huge carbon and financial savings across the nation for individuals and organisations alike, it is clear that the future of CHP cannot for much longer involve non-renewable fuel sources. Although carbon savings for natural gas CHP systems have contributed to the UK’s mission towards net zero, as the UK becomes more and more decarbonised, these savings will start to reduce their impact and become less, hampering the UK’s mission. Just as renewable energy sources will pave the way for all energy production in the UK, they will also be key in the future of CHP, as well as the untapped potential of hydrogen.

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