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 targetted 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 (more information on HMRC news release here).

More information on the CCL is given in HMRC Reference:Notice CCL1 (August 2005) A general guide to Climate Change Levy

The latest information on the CHP exemption is outlined in HMRC Reference:Notice CCL1/2 (August 2005) Combined heat and power schemes

Additional information is also available via the Government’s CHPQA programme – see: Guidance Note 41: Use of CHPQA to Obtain CCL Exemption

and HMRC presentation CHP Arrangements for CCL: Key Aspects

Exporting CHP schemes are awarded Levy Exempt Certificates (LECs) through a system administered by OFGEM. Full details of this scheme in document Guidance for exporting ‘good quality’ CHP generators & suppliers
Issue 4 (December 2005) on OFGEM’s CHP CCL exemption section of their website.

An overview of the system is given in the following 2006 OFGEM presentation

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.

Further information on CHPQA Guidance Note 42: Use of CHPQA to Obtain Enhanced Capital Allowances

and also through the ECA website

and HMRC Guidance Note ECA - 100% Enhanced Capital Allowances for Energy-Saving Investments

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. More information can be obtained from the CHPQA programme – Guidance Note 43: Use of CHPQA to Obtain Exemption from Business Rating of CHP Plant and Machinery

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.
Further details are outlined in the HMRC Regulatory Impact Analysis document
Reduced rate of VAT on air source heat pumps and micro CHP units March 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.]
More details on EEC can be found at Defra’s and Ofgem’s websites.
http://www.defra.gov.uk/Environment/energy/eec/
http://www.ofgem.gov.uk/ofgem/work/index.jsp?section=/areasofwork/energyefficiency

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.
Further details can be found on the following HMRC note Enhanced Capital Allowance for Biofuels Production Plant

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. More information on Ofgem document Energy Efficiency Commitment 2005-2008 Innovative Action - Decisions document November 2005

Renewable CHP
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.
More information on the RO can be found on the DTI’s website.

More information on the recent addition of CHP to the list of qualifying energy from waste technologies is included with the document
Renewables obligation order 2006: final decisions - January 2006

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 setaside of allowances within the New Entrant Reserve (NER). The following links provide further information:
UK Government’s Phase I NAP

Spreadsheet for calculating new entrant allowances for phase I of the EU emissions trading scheme

Phase II (2008 – 2012) details to be posted here shortly.