The recovery of heat from power generation in Scotland: study

This study examines the technical and financial prospects for recovery of heat from four sites used for large scale fossil fuel power generation and then explores policies that could help make the recovery of heat a more practical option.

7 Identification of Current Policies

A review of existing district heating networks highlights the importance of supportive policy environments as critical to the feasibility of the project. This section therefore reviews the current and proposed, relevant, policy in Scotland. A following separate section examines planning issues - as this is such a key issue it has a separate focus.

7.1 Existing Energy Policy Support

This study focuses on four conventional power station sites that could recover heat and distribute this to heat consumers via district heating networks. The existing policy measures that would impact on this will include:

  • Measures aimed at large power stations, normally with the intent of limiting emissions.
  • Measures focused on CHP, normally aimed at supporting the growth of good quality CHP.
  • Other general measures that are not specific to power stations or CHP, yet apply to these systems.

A wide range of policy measures apply, for the purpose of this study we have focused on energy and environmental policy. To present these policy measures, these have been grouped, as shown in the figure below:

Figure 20 policy groupings

Figure 20 policy groupings

7.1.1 Fuel In

The review did not identify any policies that currently apply to fuel input. The proposals for a carbon floor price could apply to certain types of scheme - these are described in a separate section on the Electricity Market Reforms.

7.1.2 Emissions

Table 27 The impact of policies applicable to emissions

Policy Measure Impact
EU Emissions Trading Scheme ( EU- ETS)

The EU- ETS is a Europe-wide cap and trade scheme designed to reduce emissions of CO 2. Each EU member state must develop a National Allocation Plan ( NAP) approved by the European Commission. This sets an overall cap on the total emissions allowed from all the installations covered by the EU- ETS.

All four stations considered in this study will be covered by the EU- ETS and will need to purchase allowances that match the annual emissions of CO 2.

The price for EU- ETS allowances used in this study is £14.70/tonne CO 2 in 2013, rising in later years.

Large Combustion Plant Directive ( LCPD

The revised LCDP applies to combustion plants with thermal output greater than 50 MW. The LCDP controls emissions of sulphur dioxide ( SO 2) and nitrogen oxides ( NO x) and dust particulate matter ( PM) from power stations running on solid, liquid or gaseous fuel. This requires the fitting of abatement technology on coal fired power plant. Of the four stations considered in this study the LCDP has the most impact on Longannet (which is retrofitted with abatement measures) and Hunterston (which will need to have these fitted from the outset). LCPD abatement adds capital cost and some operating cost. The main operating cost is for SO 2 reduction as this consumes significant amounts of electricity, reducing power station income. Article 6, of the LCPD requires that new or substantially expanded thermal installations undertake a CHP feasibility study.

The LCDP is one of the Directives being incorporated into the proposed Industrial Emissions Directive The Commission has proposed the tightening of the maximum emission limit values for SO X and some other changes reducing the flexibilities available under the present LCPD. The proposals will affect the UK power sector, with possible implications for the development over the next decade of replacement power plants consistent with carbon reduction objectives.

There are also proposals to lower the threshold for small combustion plants falling within the scope of IPPC from 50 to 20 MW rated thermal input. In addition, the "aggregation" rules would, as now, require consideration of plants below the 20 MW threshold if, in aggregate within an installation, it would exceed the new threshold.

Together with the proposed tightening of the emission limit values for large combustion plants the Commission's proposal removes many of the flexibilities that exist in the present LCPD. These include the provision that allows plants to opt out of the terms of the LCPD in return for only being allowed to run for a set amount of limited hours and then closing. This has proved useful for those plants that do not wish to invest in the expensive abatement equipment required to meet ever tighter emission limit values. In addition the present LCPD allowed member states to put in place a national plan within a bubble of total emissions of SO X, NO X and dust. Combustion plants are still subject to ELVs, set by the regulator but are able to operate in a more flexible way as long as the overall bubble is not exceeded.

Carbon Capture and Storage Directive

Under this Directive plant receiving development consent are required to undertake a number of assessments related to capturing, transporting and storing its CO 2 emissions.

This applies to new combustion plant with a capacity of 300 MWe or more and of a type covered by the EU Large Combustion Plant Directive ( LCPD).

In Scotland the CCS requirements are incorporated in the guidance for Section 36 consents - see later.

Carbon Floor Price

Under the proposed Electricity Market Reform ( EMR) a tax of £16 per tonne of CO 2 produced. This applies from 1 April 2013 rising to £30 by 2020.

The EMR is discussed in more detail in a later Section - this new legislation is noted in this report - but as the details are under consultation the impacts have not been assessed.

Capital Plant

Table 28 the impact of policies applicable to capital plant

Policy Measure Impact
Enhanced Capital Allowances ( ECAs) New good quality CHP schemes can claim ECAs on eligible expenditure. The reduction in corporate tax acts as a reduction in overall capital cost. For schemes that do not fully qualify as good quality the amount of capital expenditure that is eligible for ECA will be scaled back. AEA's interpretation of the ECAs is that does not apply to large scale power stations.
Power Station Planning Consent

Power stations over 50 MW of output require planning consent from the Scottish Government under Section 36, of the Electricity Act 1989.

The guidance for Section 36 applications, issued in March 2010, includes requirements on heat recovery. This states that:

  • Scottish Government now expects developers to demonstrate that they have seriously considered how heat from any thermal station could be utilised for use by local households or industry.
  • Developers should produce a Heat Plan - as set out in SEPA's guidance for energy from waste schemes.
  • Developers should hold discussions with the local authority
  • Site selection should consider heat recovery

A number of power station proposals have been submitted under this new guidance.

The guidance also includes carbon capture readiness ( CCR) as required by the EU Directive.

This states that no new combustion plant covered by the threshold for CCR would be consented unless the application demonstrated it would be CCR when built. The guidance recognises that CCS plan may have less heat available due to the heat needed within the CCS process.

7.1.3 Power Out

Table 29 the impact of policies applicable to power output

Policy Measure Impact
British Electricity Trading Arrangements ( BETTA)

BETTA is the electricity market in Great Britain. Large power stations will be full members of this trading system, trading electricity in each half hour period.

A key part of the market design is to reward delivery of generation against predicted output. Failure to generate requires generation shortfall to be bought in the Balancing Market - where prices are intended to be high.

Hence, there is a potential tension between BETTA market requirements and heat supply requirements.

Renewables Obligation ( RO)

The RO offers a premium for electricity supplied from a range of renewable technologies.

If a power station fires biomass, the RO could apply to a portion of the electricity generated. Hunterston is planned as a multi-fuel station.

The RO has several bands for biomass; the number of Renewable Obligation Certificates ( ROCs) is different for each band. The banding and the number of ROCs per MWh of qualifying electricity are:

Co-firing on non-energy crop (regular) biomass 0.5
Co-firing of energy crops; co-firing of non-energy crop (regular) biomass with CHP; 1.0
Co-firing of energy crops with CHP 1.5

In order to qualify for the "co-firing of regular biomass with CHP" and "co-firing of energy crops with CHP" bandings it is required that the regular biomass/energy crops and fossil fuel have been burnt in separate boilers.

As such, power stations converting to CHP operation that co-fire by combusting biomass in the main boilers alongside fossil fuels will not be eligible for the relevant "co-firing...with CHP" banding.

A ROC is worth £45 - in 2013. The Electricity Market Reform proposals include changes to the RO.

Climate Change Levy ( CCL)

For large power stations CCL applies to the electricity generated once it is sold through a licensed electricity supplier. CCL is currently charged on electricity at £4.6/ MWh.

However the qualifying power output from good quality CHP is exempt from the CCL. For each MWh of qualifying power output the operator can obtain a Levy Exemption Certificate ( LEC).

The generator can redeem a LEC through a licensed electricity supplier, with values around 90% of the face value of £4.7/ MWh in 2013.

7.1.4 Heat Out

Table 30 the impact of policies applicable to heat output

Policy Measure Impact
Climate Change Levy ( CCL)

Heat customers in the business and public sectors will normally pay CCL on gas, the main heating fuel. This is charges at a rate of £1.64/ MWh of gas.

Heat recovery will not attract the CCL, hence this is advantage to some heat customers.

Carbon Reduction Commitment Energy Efficiency ( CRC)

More commonly known as the CRC, this is a tax on electricity and gas purchased by medium scale energy users. Initially this will be levied at the rate of £12/tonne of CO 2. Applicable to organisations with total electricity consumption > 6,000 MWh/y (based on half hourly meters). Averaging at about 1.0-2.0 MWe electricity demand.

Supplies of heat from CHP will be exempt from this and will be classed as zero carbon within the assessment of carbon emissions under the CRC.

Hence heat from CHP will have an advantage to some potential heat consumers.

Heat Market

Unlike the markets for electricity and gas, there is very little heat sold in the UK. Thus far there has been no regulatory framework to standardise terms or introduce consumer protection.

This leaves potential heat consumers with less confidence in switching to a heat supply contact - as the protection available when purchasing gas is no longer available.

Renewable Heat Incentive ( RHI)

The RHI offers a premium for heat supplied from a range of renewable technologies.

If a power station fires biomass and recovers heat, the RHI could apply to a portion of the heat recovered. Hunterston is planned as a multi-fuel station.

However it is assumed that Hunterston opts for the uplift within the RO banding rather than the RHI payment.

The RHI is worth £26/ MWh of qualifying heat for large scale systems.

Planning Consent for Heat Customers

The new Scottish Planning policy ( SPP) recognises the value of co-location of heat demand (new housing, new business development etc.) with potential sources of low carbon heat.

Hence future plans could include measures that encourage co-location. The following sub-section looks at this issue in more detail.

7.1.5 District Heating Network

Table 31 the impact of policies applicable to district heating networks

Policy Measure Impact
Renewable Heat Incentive ( RHI) The RHI applies to heat supplied via district heating but there is no specific treatment or uplift for heat supplied via district heating
Wayleaves & Planning Permission

Installing district heating requires access to roads, pavements etc, to dig trenches and lay the pipes.

If the network is to be developed by an organisation able to exercise powers of a Statutory District Heating Undertaking (that is, the city council or a holder of an electricity supply license stipulating district heating) this will permit them to lay mains in the public highway. However, it would not exempt them from the need to apply for planning permission.

A street works licence will be needed from the streets authority to dig up roads.

7.1.6 Wider Strategic Support for District Heating

In addition to the policy measures that influence specific aspects of district heating, the Scottish Government's The Energy Efficiency Action Plan for Scotland in includes a programme of activities to support district heating [20] .

The Action Plan takes a comprehensive approach, covering all sectors and issues. Hence the Action Plan includes a specific action to:

"We will proactively develop district heating as a discrete policy area within energy efficiency, including by:

I. Appointing a dedicated officer to take forward district heating policy and co-ordinate activity across Scottish Government;
II. Supporting a number of local heat mapping and feasibility projects over 2010/11;
III. Investigating options for training or workshops for planning authority officers;
IV. Pursuing options to finance district heating projects; and
V. SEPA's advice to planning authorities re. water, heat and power"

The Action Plan also notes the wider policy measures that support low carbon district heating e.g. in Scottish Planning policy ( SPP) and the National Planning Framework for Scotland 2 ( NPF2).

In all the Action Plan notes several supporting initiatives, including:

  • The NFP2 which advises that planning authorities 'should take account of the potential for developing heat networks when preparing development plans and considering major development proposals'.
  • The Energy Saving Trust planner support pack: "Sustainable Energy in the Built Environment Best practice for Scottish Planners". This includes sections on district heating and heat mapping and provides case studies of how planners can encourage sustainable energy use.
  • Funding local projects such as detailed feasibility studies of district heating within phase 2 of the Sustainable Glasgow Initiative.

The Action Plan Also recognises the importance of finance, proposing:

  • The use of the European Regional Development Fund ( ERDF) programme which has been extended to introduce the possibility of funding energy efficiency and renewable energy measures. This could be used in existing housing in the 13 urban local authority areas targeted by the ERDF. Up to £15 million of ERDF could be accessed to fund low carbon, energy efficiency and district heating projects during the life of the programme.
  • Working with partners - as part of work by the Scottish Low Carbon Investment Project - whether appropriate district heating projects can be included in an overall package of opportunities for international investment.

Since the plan was launched, on March 2011 the Scottish Government launched a new £2.5 million loan fund to support district heating networks. This scheme offers loans on a commercial basis for both renewable and low carbon technologies. It is being administered by the Energy Saving Trust with applications now submitted for assessment.

7.1.7 Conclusions

As the preceding tables show, there are many existing policy measures that have an influence on heat recovery from large power stations. However, none of these were developed specifically to support the type of innovative schemes that is the focus of this study.

Hence, a key element of this work is to identify and assess policy measures that apply directly to these stations and the heat that could be recovered.

7.2 Energy Policy Developments

Energy policy is subject to regular change hence the current policy initiatives reviewed in the previous section are likely to change during the 40 year life of a district heating system. The financial assessment has assumed that the current policy frameworks continue. This is the only possible assumption - as detailed policy arrangements cannot be predicted over a 40 year period.

However there are near term policy developments that are under consideration now. In terms of financial impact the most significant of these is the proposed Electricity Market Reform, while the Industrial Emissions Directive ( IED) is an important new control on power station emissions, finally the proposed new EU Energy Efficiency Action Plan promotes the use of heat recovery. These new policies are reviewed below.

7.2.1 Electricity Market Reform

In December 2010 DECC released details of proposals that will significant change the electricity market in the UK, the Electricity Market Reform ( EMR). These proposals contain four main elements:

  • A carbon floor price
  • A capacity payment
  • A reform of the Renewables Obligation
  • An Emissions Performance Standard ( EPS)

Because the EMR proposals are not yet finalised, their impact cannot be modelled. Instead, the following sections introduce these proposals and suggest how they may impact on the recovery of waste heat.

The Carbon Price Support Mechanism and CHP

The EMR address one of the perceived barriers to investment in new low-carbon electricity generating capacity. This is stability in the price of carbon faced by electricity generators burning fossil fuels and certainty over the long term about what this price will be.

This proposal is known as the Carbon Floor Price

There are two parts to the proposal:

  1. Removal of existing environmental taxes on fuels used to generate electricity. This means the removal of CCL (for gas) and excise duty (for oils) when these fuels are used to generate electricity.
  2. The introduction of a new tax called the CCL carbon price support rate ( CPS) on each MWh of fuel burned to generate electricity.

The level of the CPS is in proportion to the CO 2 emitted by the fuel burned. This means that the tax per MWh of fuel will be higher for coal and lower for gas fired stations and zero for biomass. The CPS will initially start in April 2013 at £16 per tonne of CO 2, rising to £30 per tonne of CO 2 in 2020.

Overall this will mean increased operating costs for electricity generators using fossil fuels, and these costs will have to be passed on to customers if current levels of profitability are to be preserved.

Under the existing CCL the fuel used and power produced by Good Quality CHP was exempt from the CCL. In respect of CHP, the Government has announced two key intentions:

  • The introduction of a specific relief from the CPS for fuel used by Good Quality CHP schemes. This mirrors the current exemption of fuel use from the CCL for Good Quality CHP schemes.
  • The removal of Levy Exemption Certificates ( LECs) from 2013.

LECs are currently issued in respect of electricity generated from Good Quality CHP schemes that are capable of exporting to the electricity transmission and distribution network. This offers a higher value for electricity to the CHP operator than conventionally generated electricity. This is because CHP electricity accompanied by a LEC entitles the end user to consume that electricity without paying the CCL. As such, it constitutes a valuable revenue stream to the CHP operator, as, in theory, it means that the end user is prepared to pay more for this electricity.

As it stands, the combined effect of the Government's proposals are expected to erode the financial case for exporting electricity from CHP, as LEC income will no longer be available. This also applies to converting existing power only plant to CHP mode - though it is likely that only part of the electricity generated would have qualified for LECs. The table below shows a summary of the impacts.

Table 32 the impact of CPS proposals

Power Station Only Power Station with District Heating
Current Arrangements No CCL on Fuel No LEC on electricity No CCL on Fuel Potential LEC on electricity
CPS Arrangements CPS on Fuel No LEC on electricity No CPS on Fuel No LEC on electricity

The net effect of these changes for a power station with district heating will depend on the fuel used (and hence the impact of the CPS at £16/tonne CO 2) and the amount of electricity that would have qualified for LECs.

Government has told industry that it is their stated aim that changes to the fiscal environment in which CHP must operate should leave CHP no worse off than under the current fiscal environment. If this is to be achieved, amendments will have to be made to the two key intentions mentioned above, and the lobbying process to make this possible is on-going.

However if this lobby is successful it only preserves the status quo - it does not add any additional incentive for heat recovery. The recent EMR White Paper does not include specific proposals on CHP. However it does note that "Legislation relating to specific tax relief for Combined Heat and Power ( CHP) will be introduced in the 2012 Finance Bill, to be followed by secondary legislation later in 2012".

Capacity Mechanism

The Electricity Market Reform ( EMR) consultation document proposes use of a capacity mechanism to maintain security of supply. With a generation portfolio that will consist increasingly of intermittent renewable plant, such as wind generation, it is important that there is additional capacity available to ensure the optimal capacity margin remains adequate.

A capacity mechanism would pay generators to keep plant available, whether they generate or not. This would mean that, instead of developers receiving all their revenues from electricity sales, generators would receive a payment that attaches value to generating capacity or resource being available. Under such a mechanism the risks associated with underestimating capacity requirements is transferred from generators to the Government. The mechanism would ensure that an adequate safety cushion of capacity is provided as the amount of intermittent and inflexible low-carbon generation increases.

A capacity mechanism helps ensure security of supply in two key ways:

  • It reduces the cost of capital by providing a regular revenue stream, thereby helping deliver greater investment in new capacity.
  • It can help achieve a higher capacity margin than an energy-only market would deliver.

The recent EMR White Paper proposes a number of ways in which the capacity mechanism could operate and consults on these options. These include:

  • A targeted mechanism, with a proposed model of a Strategic Reserve.
  • A market-wide mechanism in the form of a Capacity Market, One form of a Capacity Market is a Reliability Market.

Hence the details of mechanism are only in outline form at present.

The volume of standby capacity (and hence the level of payment) is likely to be set and monitored by a central body, expected to be Ofgem, rather than by a decentralised system.

The impact of a capacity payment on the four stations considering in this study cannot be precisely predicted, partly as the proposed capacity mechanism is not fully developed and partly as the response from each power station operator will depend on their commercial objectives.

Some potential impacts are:

  • Fossil power stations will wish to be available to run in order to earn the capacity payment. Hence the station will be burning fuel in order to be ready to run. This fuel burn can also provide waste heat.
  • Capacity payments may be higher in the winter when electricity demand is the highest. Hence fossil power stations are most likely to be ready to run when heat demand is also at its highest.
  • If the station is earning capacity payments, there may be a penalty if the station is found not to ready to run. Hence operators may be wary of connecting heat load - if this is viewed as hindering operational flexibility.

Hence the capacity mechanism may be broadly supportive of heat recovery. However to make this certain it would be valuable to make this an explicit objective for the capacity mechanism. Otherwise the detailed elements of the proposals could have unintended consequences that could harm the prospects for heat recovery.

Given that Section 36 consents encourage power stations to examine and assess the potential for heat recovery, this is consistent with the existing policy framework.

Reform of the Renewables Obligation

The EMR proposes changes to the Renewables Obligation, changing the system of ROC payments for new generators to a new form of Feed in Tariff. The policy aim is to use long-term contracts to provide more certainty on the revenues for low-carbon generation and make clean energy investment more attractive.

For the fossil fuel power station proposals which are the subject of this study, this is only relevant to co-fired plants such as the station considered for Hunterston as this assumed to be a multi fuel station burning coal and biomass.

Under the current RO policy Hunterston would earn ROCs for the qualifying co-fired electricity and could potentially earn an uplift for operating in CHP mode, the CHP uplift. A Scottish Government Consultation on the Renewables Obligation proposed changes to the CHP uplift in 2013, as the Renewable Heat Incentive would provide an alternative means of support.

The EMR proposals discuss several models of potential Feed in Tariff. These include:

  • Premium FIT: a static payment which generators receive in addition to their revenues from selling electricity in the wholesale market. This is one of the models of FITs used in Spain.
  • Fixed FIT: a static payment which generators receive in place of any revenues from selling electricity in the market. This is the model of FIT used in Germany.
  • FIT with a Contract for Difference ( CfD): a long term contract set at a fixed level where variable payments are made to ensure the generator receives the agreed tariff (assuming they sell their electricity at the market price). The FIT payment would be made in addition to the generator's revenues from selling electricity in the market. The CfD can be a two-way mechanism that has the potential to see generators return money to consumers if electricity prices are higher than the agreed tariff. This is the model of FIT used in the Netherlands for renewables (though they call it a "sliding premium") and in Denmark for offshore wind. It provides a similar level of revenue certainty to a Fixed FIT, but by setting the level of support according to the average price preserves the efficiencies of the price signal, i.e. generators will have an incentive to sell their output above the average price as they will keep any upside.

On balance, the Government concludes that while a premium payments scheme would be easiest to implement, there are additional benefits of a CfD scheme in terms of cost effectiveness which could outweigh the additional complexities of such a scheme so this is the preferred option. The conclusion of the Electricity Market Reform consultation was to select the FiT CfD as the preferred route.

Generators will be able to opt for the Renewables Obligation (for those projects accredited by March 2017), or the new support mechanism introduced in 2013/2014 (for projects reaching financial close by then). After 2017, the RO will be 'vintaged' until 2037, i.e. support levels will not be reviewed or revised.

The impacts of these proposals on Hunterston are difficult to predict - as the level of the new FiT CfD for a co-firing CHP station is not yet known. As a minimum the proposals create uncertainty, which does not encourage investment, particularly in district heating networks which would not have been considered by developers as a core part of their proposals.

The transformation from the existing RO to the new FiT CfD will inevitably focus on those technologies such as onshore and offshore wind - as these dominate current and future renewable generation potential. Hence it is possible that the final EMR proposals will not consider the impact on emerging opportunities that are driven by heat and not electricity.

The Emissions Performance Standard

The Emissions Performance Standard ( EPS) is intended to ensure that fossil fuel power generating stations make a contribution to the UK's objectives on decarbonisation. A Government consultation on these proposals closed in March 2011, with details confirmed in the EMR White Paper in July 2011.

The EPS will set a regulatory limit upon the quantity of CO 2 emissions that are allowed to be released during the generation process. It will be applied to new coal-fired stations only and will not be applied retrospectively or to other technologies. It will operate as an annual emissions limit, enforced at an individual plant level. Following consultation the EMR White Paper sets out the case for the 450g CO 2/ kWh e standard.

The EPS is likely to increase the wholesale price of electricity and therefore improve the cost effectiveness of non-fossil generating technologies. Thus, the EPS policy, as proposed, is likely to discourage unabated coal fired generation and encourage non fossil types of generation. Other policies of course may encourage coal with CCS such as the EU- ETS.

The impacts of the EPS on CHP and heat recovery are potentially complex. Hence the EMR White Paper commits the Government to "look to avoid structuring the EPS in a way which could act as a disincentive to investment in CHP, as far as is practicable. The Government will look to explore the specific complexities and technicalities with stakeholders before bringing forward detailed regulations on this issue."

Developers of new coal fired power stations intend to implement CCS and are therefore likely to be proposing schemes which go some or all of the way to complying with the EPS.

In terms of the impact of the EPS on heat recovery:

  • The EPS means that new coal plant is certain to have CCS, at demonstration or full scale. CCS uses heat, extracted as steam from the steam turbine. This is the same method used to extract heat to serve the district heating network. Hence coal plants with CCS will not be able to provide as much heat recovery for district heating as coal plants without CCS. In all four of the cases considered in this study the stations are expected to have sufficient heat capacity to serve the CCS and the district heating network.
  • Heat used in the CCS process qualifies as useful heat under the CHP Quality Assurance programme. Hence applicants for Section 36 consents could claim that this is the sufficient to fulfil the heat recovery requirements in the Section 36 consent process. This would significantly reduce the leverage to serve other heat consumers. Hence this Section 36 guidance should clarify this point.

Overall Impact of the EMR

It is difficult to be certain of the overall impact of the EMR, as the proposals are complex, some are still under development and the specific details on how they apply to heat recovery and CHP have yet to be released. In broad terms:

  • The CPS should increase the cost of operation conventional fossil plant, which would be beneficial to the case for heat recovery and CHP. However the specific treatment of heat recovery and CHP is not yet known.
  • The capacity mechanism should be beneficial, providing additional income that is consistent with operating for longer periods to provide heat as well as power at all four sites.
  • The FIT CfD will only affect the site at Hunterston, but the intention is to provide more certainty on the revenues for low-carbon generation and make clean energy investment more attractive. Hence this element of the EMR should support the case for heat recovery at Hunterston.
  • The EPS will mean that fossil fuel power generation is less attractive an option, with coal fired generation required to fit CCS.

With the uncertainties discussed above, the net impact of the EMR proposals are very had to judge, as the level of cost or level of incentive cannot be assessed for each element of the proposals. Hence the EMR is not included in the analytical work in this study.

7.2.2 The new Industrial Emissions Directive ( IED)

The IED will place a number of requirements on combustion plant with thermal input of 50 MW or more. A number of these replicate preconditions already placed on such plant to ensure UK compliance with the existing Integrated Pollution Prevention and Control Directive ( IPPCD).

These include the requirement to hold an environmental permit (a Pollution Prevention and Control permit) should the plant wish to continue operating. The permit places conditions on the operation of the installation designed to ensure that all appropriate preventative measures are taken against pollution through the application of best available techniques and that no significant pollution is caused. Conditions within the permits for large power stations will contain controls on the quality of atmospheric emissions. These controls are known as emission limit values ( ELV).

The ELV's in place on existing plant will have been derived, where appropriate, with reference to the requirements placed on the UK under the Large Combustion Plant Directive 2001/80/ EC ( LCPD). All the above requirements are transposed into domestic legislation through the Pollution Prevention and Control (Scotland) Regulations 2000 ( PPC)

The IED will retain most of the requirement of IPPCD. It will also replace the LCPD. The main change which IED introduces for power stations is a tightening of emission standards. These new emission standards will apply to existing plant from Jan 2016.

Hence the IED could influence decisions regarding the closure of existing power stations - for example if compliance with the IED is not practical or financially viable for the existing power station. If the power station is replaced the planning consent could require heat recovery and hence lead to the installation of a heat network.

The IED provisions encourage energy efficiency. As heat recovery increases overall energy efficiency compared to electricity-only generation, plants with heat recovery will comply with this element of the IED.

7.2.3 EU Energy Efficiency Action Plan 2011

The European Commission has identified the role of district heating in its recent communication on the Energy Efficiency Action Plan 2011 [21]. This plan sets out a series of measures that the Commission has identified in order to reach the EU objective of 20% savings in primary energy use by 2020. Currently the Commission estimates that around half of this target will be met by existing measures, hence the plan sets out a wide ranging series of new initiatives to close this gap.

The Plan includes a focus on improving the efficiency of power and heat generation, with two specific

measures proposed to promote district heating:

  • The Commission will therefore propose that, where there is a sufficient potential demand, for example where there is an appropriate concentration of buildings or industry nearby, authorisation for new thermal power generation should be conditional on its being combined with systems allowing the heat to be used - "combined heat and power" ( CHP) and that district heating systems are combined with electricity generation wherever possible.
  • Addressing heat consumption in buildings will be of prime importance in the coming years. The Commission will further explore the range of available solutions, including possibilities to promote the use of district heating in the context of integrated urban planning.

Each Member State will be required to report back to the Commission on how these measures have been transposed into national law and policy frameworks. Given that the new Plan was published in March 2011, it is too early to know how UK and Scottish policy will be amended.

Both of these issues are devolved, authorisation for thermal power generation in Scotland is set through the Section 36 guidance, while urban planning is also devolved.

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