The Government’s flagship scheme to secure Britain’s electricity supplies risks missing out on savings of £750m a year by sidelining an emerging power technology which also produces heat.

By blocking  the efforts of combined heat and power (CHP) within the UK’s capacity market auction the scheme is “failing business” by making it more expensive to cut carbon emissions, according to a new report.

Around 2,000 factories and businesses have so far adopted CHP to cut an estimated £375m from their total annual bills. But the Association for Decentralised Energy (ADE) has claimed the structure of the auction is putting the brakes on further benefits.

Fresh data from the Association for Decentralised Energy (ADE) has revealed that giving CHP the same support as traditional gas plants could more than double its capacity from around 5.5GW to 13GW in a major boost for the UK’s bid to secure investment in low carbon energy and boost post-Brexit productivity.

CHP plants generate power in the same way as traditional gas power plants but they also capture and supply heat, making them more efficient and less carbon intensive. Some run on renewable fuels such as biomass or biogas which makes them even cleaner.

The UK uses CHP for only 6pc of the energy mix but in European countries including Denmark and the Netherlands CHP makes up between 30-50pc of energy demand.




The UK lags European countries in the roll out of CHP plants Credit: ADE, IEA

Encouraging a UK CHP boom would bring savings of £700m a year by 2030 and cut the same amount of carbon emissions as removing one out of every 14 cars from British roads, the ADE report said.

“The economy depends on competitive business. Those businesses need to decarbonise cost effectively to remain competitive in the future,” said the ADE’s Tim Rotheray.

The figures have emerged in the wake of fresh concerns over the Hinkley Point C and Moorside new nuclear power plants which threaten to leave a gap in the UK’s energy supplies by the middle of the next decade.

“By installing CHP, thousands of businesses across the UK could help lighten the load of the cost of the energy transition while delivering much needed new capacity, helping to balance the grid and reduce network investment costs,” Mr Rotheray added.

Business energy costs are on the rise, having climbed by almost 120pc since 2004, posing a major threat to UK productivity and the Government’s industrial strategy.

The report argues that the Government should allow CHP to fairly compete in the auction which awards contracts to winning bidders to provide power for the UK in the future. In addition policy makers should dismiss calls to scrap the carbon tax and keep it in place to incentive investment in CHP.

Critics of the UK’s carbon tax, which is higher than in Europe, have warned that UK industry will lose out to European competitors because it adds £36 to the average bill. But the ADE argue that by extending the tax through the 2020s the uptake in CHP will more than offset the higher levy and also help reduce emissions overall.

A Government spokesman said it welcomes the participation of CHP in the capacity market to help secure affordable energy supplies. He declined to comment on whether the technology could play a bigger role.

“CHP has won capacity market agreements in each of the past three main auction rounds,” he said.