Mark Tarry, Chief Financial Officer, AMP Clean Energy
It was perhaps fitting that this years’ Energy Live News Expo took place on 5 November – Bonfire Night – and one of the hottest topics being discussed was heat, and specifically, the decarbonisation of heat. In our presentation at the event, Stuart Reid and I outlined the measures businesses can take now to decarbonise, and for us, the clear path of no regret in the current climate is heat.
The fact that the room was packed – standing room only – demonstrated that, against a backdrop of net zero, businesses are keener than ever to implement decarbonisation strategies. So, why is heat the ‘hot ticket’ to achieving this?
Firstly, unlike electricity, heat isn’t impacted by TCR, so is arguably the ‘safer bet’ when it comes to installing on-site technology. In addition, the CBI’s recently launched report – ‘Low Carbon 2020s: A Decade of Delivery’ – firmly put the decarbonisation of heat on the policy wish-list.
In the report, the CBI outlined 18 policy points it wants any future government to consider, including ‘progress on the long-term challenge of decarbonising heat through new technologies and improved energy efficiency.’ The report came in the same week that BEIS officially launched its Industrial Energy Transformation Fund – a £315m pot of money that is intended to provide funding for energy efficiency and ‘deep decarbonisation’ projects to be delivered by 2024 – and the Government announced its ‘Net Zero’ review.
However, despite the upcoming election being billed as the ‘climate election’, the fact remains that the decarbonisation of heat is a major cross-sector challenge. And, amidst the ongoing uncertain political and economic times, many businesses are delaying major energy investment decisions that could reduce carbon and cost.
That said, there are still cost-effective options for businesses and, while each business is different, a smart, heat-led scheme is an investment worth pursuing.
So, what are the characteristics of a good heat-lead scheme? There are four key elements we look out for:
- Locational uniqueness e.g. a wood by-product, high grade waste heat, an 11kV electricity connection, a high onsite electricity load
- High heat demand
- Stable heat demand
- Existing fossil fuel use
With this in mind, there are three heat ‘sweet spots’ that businesses could – and should – be considering.
The decarbonisation of heat in off-gas-grid areas should be an immediate priority for many businesses. Biomass has a central role to play in a decarbonised energy future and can deliver substantial cost and carbon savings for commercial and industrial users. With the Renewable Heat Incentive (RHI) only available until March 2021, this action should be prioritised to reap the commercial benefits that the incentive offers.
Waste heat recovery
Heat recovery is something which should only require minimum consideration before implementation. It’s simply common sense, as well as good business sense. With so much heat wasted every day, heat recovery provides an opportunity to save on energy costs and carbon, whilst also improving environmental conditions on site.
Figures show there is 11TWh of wasted heat in the UK that is recoverable. Industrial scale heat recovery is particularly effective when captured and turned into electricity via an ORC system, which can deliver savings of up to £250K pa on a 10-year contract. Factor in future electricity and carbon price projections and could increase to £400K pa.
While the growth of renewables has been a brilliant success story for the UK, in the medium term, gas-generated electricity will still play an important role in supporting intermittent renewable energy sources and help cover supply needs during peak demand periods.
In the right cases, gas CHP can deliver significant cost and carbon savings when heat is captured and utilised on-site – particularly for industrial and commercial sites using large quantities of heat and power. However, businesses need to understand the cost and carbon implications of this technology – case-by-case scrutiny is vital.
So, with heat being the hot topic of the moment, there are several reasons why it makes sense to consider investing in a heat-led scheme. Non-financial drivers will become increasingly significant – heat is not impacted by TCR, and any future regulatory announcements are likely to be ‘on side’ with heat.
Added to this, volatility and pressures on electrification will ultimately drive more decentralised and on-site generation, and, as we’ve outlined here, there are some current heat ‘sweet spots’ that also maximise short term financial benefits.
So, during this ongoing phase of uncertainty, for any business wanting to explore cost-effective options to decarbonise, heat is definitely the path of least regret.