Due to the financial benefits available, CHP can reduce whole-life costs and offer long-term efficiency gains. Such advantages make the technology of interest to companies looking to improve their bottom line.
“The manufacturing sector is the UK’s biggest energy user, accounting for 16.5 per cent of national demand,” says Nigel Thompson, sales manager – gas power solutions at Finning UK and Ireland (Finning). “Indeed, UK plants and factories use approximately 27.7m tonnes of oil on a yearly basis, making manufacturing the most energy-intensive sector in the country. Such large amounts of power inevitably lead to larger costs. According to an Association of Decentralised Energy report, industrial energy users have experienced cost rises of over 120 per cent in the last decade. Furthermore, government reports have identified that the sector uses roughly equal quanities of natural gas and electricity to power industrial processes, including the production of heat and steam.”
This high, steady and unceasing demand for power and heat means that many plants are ideally placed to implement a CHP solution. Sometimes known as cogeneration, CHP involves generating electricity while capturing the huge amounts of heat that are wasted in conventional power plants.
“By using this waste heat, CHP plants can reach efficiencies of more than 80 per cent, in comparison to coal and gas-fired plants, which struggle to exceed 40 per cent,” Thompson continues. “This far superior efficiency can result in reduced energy costs, which can contribute to a significant proportion of a plant’s spending.”
Financially attractive solution
Furthermore, CHP users’ industrial energy costs rose by less than half the national average over the past decade and the technology has also reduced users’ primary fuel use by up to 30 per cent. Taking these statistics into account, it is clear that implementing CHP technology can result in clear and well-established financial and efficiency benefits for plant owners and operators. While a CHP system can represent an expensive proposition for those looking to take advantage of the technology’s benefits, the savings generated by the system over its lifetime dwarf these original purchasing costs.
“The extent of these benefits can hinge on many different factors, including the long-term reliability and quality of the purchased system,” Thompson adds. “Site size is another major variable – while smaller facilities can probably expect to turn a profit on their system within a three-year window, larger sites can expect a return on their investment within an even shorter period of time.
“It must also be noted that more energy-intensive sectors reliant on heating and cooling manufacturing processes are better placed to immediately take advantage of the benefits offered by CHP technology. For example, textiles and clothing companies require large amounts of process and space heating, and furniture-manufacturing plants require a high proportion of electricity – in these situations, CHP could yield pronounced efficiencies and savings. If you’re interested in details, Finning experts can carry out an energy audit that will not only show you what options are available, but also how much they could save you.”
As even mid-sized CHP systems cost several hundred thousand pounds, it is vital that businesses identify solutions appropriate to their needs. Choosing a cheaper or ill-suited system can result in costly repercussions in the long run. On average, a CHP system has a 20-year lifespan – during this time, its maintenance costs alone will probably exceed initial purchasing costs, and fuel could represent as much as 75 per cent of the overall spend.
So, while an appropriate CHP system may be a substantial investment, a high-performing, appropriate model will pay for itself in the long term.
“This also demonstrates exactly why purchasers should be discouraged from seeking up-front savings over reliability,” Thompson adds. “While purchasing a cheaper, lower-quality system will look good on the immediate balance sheet, the ensuing unreliability and reduced performance can potentially lead to mounting repair and maintenance costs.
“Even in cases where initial purchasing costs prove too prohibitive, businesses may lease a CHP system from a supplier either as a hire purchase, finance lease or an operating lease. This would allow a system to be chosen based on business need, rather than balance sheet restrictions, resulting in a more appropriate and effective solution. In turn, this means owners and operators can avoid the high initial costs of an outright purchase, while still taking advantage of CHP technology’s many benefits.”
Varying energy costs and the increasing prominience of environmental factors when judging generator performance has further cemented CHP’s status as a reliable, sensible solution. CHP technology has already been implemented in 383 industrial sites across the UK, and generates a significant and ever-growing portion of energy used in the manufacturing and industrial sector.
With an increased worldwide focus on energy usage and carbon emissions, numerous governments have set up support schemes to foster the use of ‘greener’ energy solutions. CHP fits this profile – although it still produces carbon dioxide, the efficiencies created by CHP-using plants reduces the amount of energy required to keep processes running.
“As a result, plant owners and operators using CHP will see their emissions cut by, on average, a minimum of 10 per cent and potentially as much as 60 per cent,” Thompson explains. “In cases where a high quality and secure energy source system has been installed on-site, the plant’s dependence on the national grid for power is also drastically reduced.
“Taking this into account, various countries have established CHP support schemes to reduce carbon use and pollution. For instance, in the UK, the government has ‘committed to increasing the UK’s CHP capacity, because of the considerable environmental, economic and social benefits it can bring, together with its contribution to security of supply’.”
Assistance for good quality
Consequently, an extensive range of mechanisms, offers and initiatives has been set up to encourage the uptake of CHP technology in the UK. These schemes markedly reduce participating companies’ financial obligations to the government, making CHP even more financially attractive to owners and operators.
“However, such inducements are only available to systems that have been designated as ‘Good Quality’ by the CHP Quality Assurance programme (CHPQA),” Thompson explains. “In order to be applicable for the certification, the CHP system must have an electrical efficiency of over 20 per cent and deliver significant savings when compared to conventional energy generation solutions.”
Schemes available to systems certified ‘Good Quality’ include the Carbon Price Support Tax Exemption, as well as the Climate Change Levy Exemption and preferential business rates. The government’s Enhanced Capital Allowance scheme also allows businesses to write
off their investment in CHP systems against their taxable profits.
The fact that this large array of benefits is only available to high quality, reliable systems makes it even more vital for owners and operators to invest in solutions that fulfil the CHPQA’s criteria.
“Taking full advantage of such mechanisms can boost the cost effectiveness of investing in a system, further reducing its payback time and enhancing the savings it generates,” Thompson concludes. “As such, it is clear that purchasing a high-quality CHP unit can have a considerable impact on financial performance in the long-term, and owners and operators should prioritise total cost of ownership over the initial purchase price.
“Owners and operators looking to purchase or lease a CHP system should also consider purchasing an operations and maintenance (O&M) contract at the same time as installation. When specifying an appropriate contract, the purchaser should seek a trusted partner with a strong track record of delivering CHP systems, who offers a bespoke service that takes into account the unique requirements of each site. Also, though each supplier will offer slightly different terms, these contracts usually guarantee that a system will receive regular maintenance from expert engineers and that any faults are corrected as quickly as possible.”