IE-CHP submission to the Draft Heat Generation Policy Statement for Consultation Towards Decarbonising Heat: Maximising the Opportunities for Scotland

IE-CHP submission to the Draft Heat Generation Policy Statement for
                           Consultation

    Towards Decarbonising Heat: Maximising the Opportunities for
                             Scotland

Executive Summary
Based in Scotland, IE-CHP (UK & Eire) Ltd is a Scottish joint venture company formed amongst
Intelligent Energy Ltd (IE), Scottish and Southern Energy Ltd (SSE) and Scottish Investment Board,
part of Scottish Enterprise (SE).

Formed in 2008, IE-CHP brought together Intelligent Energy’s fuel cell and hydrogen generation
technology expertise with Scottish and Southern Energy’s considerable customer base, installation
and servicing businesses to form IE-CHP (UK and Eire) Ltd. IE-CHP has been developing fuel cell
combined heat and power (CHP) systems since its creation.
The company’s SMART power unit, is an electricity generating device fuelled by natural gas which
produces heat as a by-product. Its primary purpose is to produce electricity for the home, doing so in
a way that reduces electricity bills for the domestic consumer and has the potential to bring
significant benefits to the electricity grid and society as a whole.

By measuring the home’s electrical consumption and regulating the electrical output of the fuel cell
the IE-CHP SMART power unit can produce up to 90% of the electricity needs of a typical home,
reducing the need to import power from the grid to short duration peaks only (e.g. boiling kettle).
The heat produced during the electricity generation is captured and used to supply up to 100% of
domestic hot water needs whilst also contributing to central heating use. Overall efficiency is up to
90%; more than double the typical efficiency of power from a large power station; saving up to £700
each year on a typical energy bill and reducing CO2 by up to 1.6 tonnes each year.

The IE-CHP unit, which is suitable for a range of properties, produces electricity in the home which is
more efficient and cheaper than taking electricity from the grid and it delivers heat as a by-product.
It will allow consumers to generate their own electricity cost effectively, reduce their reliance on the
electricity grid and become active players in the energy market. It currently uses natural gas to
produce the electricity but could in future use renewable energy.

Distributed generation produces heat and power in the home where it is needed, reducing the need
for centralised generation and the associated costs and losses associated with transmission.

With the loss of 20% of generation capacity, targets of 15% of renewable energy by 2020 and an
overarching 80% CO2 reduction by 2050 the structure of the UK’s generation mix will change from a
large scale centralised fossil fuel based system, to that of a distributed, renewable system and these
developments will significantly impact the electricity networks and system balancing.

Demand side management will be necessary to manage congestion in electricity distribution at peak
times and flexible and efficient distributed power generation such as the IE-CHP SMART power unit
will be able to provide this.

The planned decarbonisation of the natural gas network with have limited if any impact on SMART
power units because they can run on natural gas as well as biomethane and hydrogen, offering the
potential for zero-carbon applications in the near future. A number of studies have been
undertaken investigating ways to convert the UK natural gas pipeline network to transport
hydrogen. The decarbonisation pathways reviewed include biomethane and hydrogen injection 1 as
precursors to full conversion.

Whilst this consultation focuses on heat generation there are now a number of SMART energy
products available or nearing commercialisation which provide both heat and power. These
technologies are set to make a huge impact on heat and power generation; therefore the separation
of heat generation from power generation is no longer appropriate.

In developing new policies, standards and regulations to maximise the opportunities for Scotland the
government should consider, and engage with Scottish developers of, innovative new products such
as the IE-CHP smart power unit, as well as with the established players and technologies.

Questions:

Q1: Do you agree with the heat vision and heat hierarchy?

Yes, we agree with the heat vision and hierarchy detailed on page 9, point. 1.20.

Q1a: And why?

The starting point when trying to reduce energy bills, reduce C02 emissions and to increase security
of our energy supplies is to reduce energy demand.

The next, very important step is to ensure that the energy that is used is used as efficiently as
possible. The IE-CHP SMART power unit has an overall efficiency up to 90%; more than double the
typical efficiency of power from a large power station; saving up to £700 each year on a typical
energy bill and reducing CO2 by up to 1.6 tonnes each year. It can produce up to 90% of the
electricity needs of a typical home, reducing the need to import power from the grid to short
duration peaks only (e.g. boiling kettle). The heat produced during the electricity generation is
captured and used to supply up to 100% of domestic hot water needs whilst also contributing to
central heating use.

The experience of intermittent renewables and their impact on the grid together with the UK’s delay
in developing nuclear energy has moved opinion (DECC forecasts 2) towards acceptance that gas will

1
  Paul E Dodds and Will McDowall, UCL Energy Institute, The future of the natural gas pipeline system in the UK
(a)  March 2012 S.Strauch et al, Green Gas Grids, Overview of biomethane markets and regulations in partner counties
(b) http://www.greentechmedia.com/articles/read/Wind-Power-Makes-Hydrogen-for-German-Gas-Grid
2
  DECC (2012) “The Role of Gas in the Electricity Market”

continue to play a leading role in the energy mix. It can provide heat via an extensive and high
quality gas infrastructure and enable flexible and reliable electricity supplies.

Gas is a valuable resource for Scotland and its efficient use should be encouraged to deliver
economic benefits for the country. Future proposals to convert the natural gas pipeline network to
transport hydrogen include biomethane and hydrogen injection 3 as precursors to full conversion.
These smart power units can run on natural gas as well as biomethane and hydrogen, offering
benefits now by efficient use of gas and also the potential for zero-carbon applications in the near
future.

Q2: How can we ensure that Scottish businesses are best placed to take advantage of the new
products and services which will be required to deliver low carbon heat?

Scotland has been famous throughout the world for its engineering since the 18th century; IE-CHP
draws on those engineering skills and creativity to develop an innovative business and products with
high-value intellectual property.

IE-CHP is based in Scotland and therefore the successful commercialisation of its SMART power unit
product will bring benefits not only for consumers who purchase its products, but also for the
Scottish economy.

The IE-CHP SMART power unit can also bring benefits to Scottish businesses. For example, the
Energy Efficiency Standard for Social Housing (EESSH) aims to improve the energy efficiency of social
housing and reduce energy consumption, fuel poverty and the emission of greenhouse gases.
Installing the IE-CHP unit would help a housing association to achieve all of these aims.

It is not just the total amount of energy that is consumed that impacts the Scottish economy it is
when and where it is consumed. Distributed generation, such as the IE-CHP SMART power unit,
produces heat and power at times of peak demand and also exactly where it is needed, with no
transmission losses.

Q3: Taking account of the cost of implementation, what policies should the Scottish Government
pursue that will best ensure the impacts of heat decarbonisation to benefit consumers?

The huge potential of SMART power units,, such as the unit developed by Scottish company IE-CHP,
means that considering heat and power separately when developing strategy and policy is no longer
appropriate.

The IE-CHP SMART power unit, can bring significant benefits to consumers, however deployment at
scale will be required to reduce the costs of the products to a level that would make the customer
proposition attractive to most domestic consumers. The Scottish Government could introduce a

3
  Paul E Dodds and Will McDowall, UCL Energy Institute, The future of the natural gas pipeline system in the UK
(b) March 2012 S.Strauch et al, Green Gas Grids, Overview of biomethane markets and regulations in partner counties
(b) http://www.greentechmedia.com/articles/read/Wind-Power-Makes-Hydrogen-for-German-Gas-Grid

grant scheme to boost understanding and early adoption of products like the IE-CHP unit and help
reduce the costs.

Another supportive policy that could be introduced is the funding of a demonstration project,
perhaps in social housing, which could raise awareness of the benefits of SMART power units, assist
the housing provider to reduce energy consumption, fuel poverty and the emission of greenhouse
gases and assist network operators to address system challenges.

Over the coming decade the combination of decreased generation capacity from coal and oil, higher
levels of demand and increased levels of variable generation from renewables mean that balancing
supply and demand on the grid will become ever more challenging.
A smart power demonstration project could assist in addressing the challenges of higher demand,
managing the peaks and troughs of renewable generation and demonstrate how SMART power units
deployed in volume can be used for demand side management and become an essential tool for
both the transmission and distribution networks.
In developing new policies, standards and regulations the government should consider, and engage
with developers of, innovative new products such as the IE-CHP SMART power unit as well as with
the established players and technologies.

Q3a: What evidence do you have to support this?

Japan, faced with rising energy costs and vulnerable nuclear power took decisive action to accelerate
commercialisation and uptake of fuel cells. This experience in Japan has demonstrated the
significant impact that government support can have. More than 80,000 fuel cell units have installed
in Japan 4 and the Japanese government has an objective to introduce 5.3 million fuel cells into the
market by 2030 5.

Q4: What do you think should be the balance and focus of government intervention, business
innovation and individual action and why?

Government intervention should aim to provide social efficiency and equity. Where new
technologies are being developed that can bring benefits to society but which will not be realised
without government intervention then it is appropriate for government to intervene to kick start the
market.

Another justification for government intervention is where market failures mean that a product is
not fairly rewarded. For example, distributed generation produces electricity at the place it is
needed and often at a time when it is most needed, but this is not reflected in the reward. Time-of-
Use tariffs could provide a fairer system of reward for distributed generation and could also
transform customer behaviour and engagement with energy usage.

4
  http://www.energymatters.nl/Actueel/Columns/tabid/121/articleType/ArticleView/articleId/190/Fuel-cell-CHP-passes-the-point-of-no-
return.aspx

5
    The Government of Japan (2013) ‘Japan’s First Biennial Report under the United Nations Framework Convention on Climate Change’

The IE-CHP SMART power unit is the result of business innovation and can lead to individual action
and engagement with energy usage in a way that has not been seen before. However, government
intervention similar to that described, which has worked successfully elsewhere is needed to realise
the societal benefits.

Q5: Given the existing financial incentives and policies in place, what other mechanisms do you
think would result in significant behaviour change in both home and non-domestic buildings and
process?

Building Standards can play a key role in ensuring energy performance of buildings is optimised.
Introducing mandatory standards can transform the market as was the case when condensing
sending boilers were mandated in the UK in 2005. Mandatory targets on landlords to deliver energy
savings for their tenants can also play a part.

Q6: How do you think a national heat map could be used to support the development of a low
carbon heat sector for Scotland?

No Comment.

Q7: Do you support the proposed unit of measure for the overall district heating target of 1.5 GWh
by 2020?

No Comment.

Q8: Do you support the level of ambition for the district heating target?

No Comment.

Q9: Do you support the level of ambition for the number of homes to be connected to district
heating by 2020?

No Comment.

Q10: Do you have evidence of existing communal heating systems installed before 2000?

No Comment.

Q11: Do you believe further regulation of heat supply is required?

Q11a: What level of regulation would be appropriate?

No Comment.

Q12: Do proposed consumer protection schemes meet the needs of heat users and supply
organisations?

No Comment.

Q12a: And if not, what changes are needed or what more is needed?

No comment.

Q13: Is there sufficient non-financial support for the development of heat networks?

No Comment

Q13a: if not, please comment on priorities and timescales for support? Please provide evidence,
where possible based on practical examples of district heating.

No Comment.

Q14: Are the many existing financial support mechanism sufficient to support delivery of district
heating schemes?

No Comment

Q14a: If no, ca you provide information and evidence to demonstrate the need for additional
funding mechanisms.

No Comment.

Q15: If the mechanism that you propose was in place, what additional specific outputs and
outcomes for district heating would result from your own work and on what timescale?

No Comment.

Q16: Do you have any further evidence on thermal storage and consideration of how it might
interact with other technologies and policy priorities?

No Comment.

Q17: Do you see heat recovery and information about excess heat available as a useful tool for
industry to maximise the benefits of the heat it consumes?

No Comment.

Q17a: Do you have any comments?

No comment.

Q18: Are there any Scottish specific issues that should be dealt with in the review of the non-
domestic RHI?

No Comment.

Q19: Without interim milestones and taking into account the existing mechanisms to support
uptake of renewable heat technologies, what non-financial mechanisms do you think are the most
effective in driving this uptake?

No Comment.

Q20: Do you support the approach to focus on three areas to support the geothermal:
demonstration projects; ownership issues; and development of our geothermal vision and a
routemap?

No Comment.

Q21: How can the anaerobic digestion industry be best encouraged to avoid useful heat being
wasted? We are interested in any evidence or practical experience to support your views.

No Comment.