Micro CHP solution to E.ON Group Strategy

What is it that the CEO of Europe’s leading integrated energy company knows that you don’t?

On Wednesday this week, energy giant E.ON announced its new group strategy. Along with their plans for expansion into new markets in Russia and North America, their CEO, Dr Johannes Teyssen made particular mention of their ambitions to be market leaders in the energy world, utilising the best available technologies. Whilst restating E.ON’s long held belief in the need to consider a diversified range of energy solutions, he singled out “micro CHP for single family homes” as a key differentiated product within E.ON’s technology portfolio. He even went so far as to say that the Virtual Power Plant, incorporating micro CHP, was the way forward.

“Our objective is to do a better job (as) an expert provider of energy solutions…innovative solutions like micro CHP units…and smart grids that have the ability to combine distributed generation units to form virtual power plants.”
It is probably fair to say that the CEO of an energy company with a €64 billion turnover does not take a fanciful approach to investments in energy technology. The fact that E.ON, seen by many as one of the old energy dinosaurs, exclusively promoting “big” energy solutions such as coal and nuclear has now endorsed micro CHP as a key component of their strategy should tell us something about the potential for this technology.

Clearly micro CHP is no longer a dim and distant aspiration; it is a technology whose time has come and now forms an integral component of at least one major energy player’s strategic generation portfolio.

So, if you want to understand why E.ON believes that micro CHP is the future, take a look at this book. A free preview is available, but you will need to buy it to get the full story. They say that if you think information is expensive…try ignorance.

For the full text of Dr Teyssens speech and press release, click here

For more information on E.ON's new strategic focus, click here

For more information on micro CHP, click here

For details of the conference including micro CHP Virtual Power Plant, click here

A fair deal for microgeneration?

The speculation around which measures will survive Osborne’s sword of Damocles continues unabated. At yesterday’s Solar Power Conference, a woeful figure from DECC was on the agenda to explain the government’s position on support for PV. He opened by saying he could not pre-empt the CSR by commenting in any way on the FIT and would not be drawn on the matter. At this point I suspect that many in the audience thought he might as well pack up and leave as he was obviously just going to waffle on without substance for the next half hour, which he did…almost.
He did make the point that, as a principle, DECC did not believe PV could make any relevant contribution to the UK 2020 renewables target, and that cost-effective carbon mitigation was not really the point. It was “all about engaging and empowering individuals to make their own investment decisions in Britain’s energy future” albeit at the expense of their neighbours. (It never ceases to amaze me at how gullible the public are when it comes to getting something for nothing or their avarice when they can expect to get something at someone else’s cost). What this does not explain is why the government would want to support large scale PV farms where the likely investors are big business.
This is further compounded by the cosy relationship between those substantial, credit worthy companies, the banks and the inner circle of career civil servants. Any banker will tell you (and on this point he will not be lying), that banks and other funding institutions require a rate of return on any investment proportional to its perceived risk. One element of risk is the “bankability” of their client. So if they fund a public sector project it is generally perceived as being low risk; similarly though to a lesser extent, big corporations such as the “big six” energy companies. Now the FIT has been explicitly designed to deliver an IRR of around 8%, deliberately too low to make it worthwhile for an individual to borrow the money at usurious bank rates to fund, for example, an economically “rent seeking” PV project. But they are the very people that government policy, as espoused by DECC, is supposed to embrace!
Initially the FIT was denounced by many as a tax on everyone to fund eco-bling toys for the rich, that is, those who have adequate resources to invest in PV without recourse to borrowing; if you have money in the bank, then 8% is a really good deal! As ever in such cases, the government responded by promising some gobbledegook PAYS (Pay As You Save) scheme which would enable us all to obtain loans securitised against FIT, RHI or whatever and social housing providers started jumping into bed with big business to deliver PV to their tenants. PAYS is generally considered a dead duck by those in the know, so that leaves the following worthy causes in line to profit from the FIT stealth tax:
• Public sector bodies with mandatory renewable or carbon targets which would otherwise need to funded by direct taxation
• Corporate investors
• Banks
Now you might conclude from all this that if the axe has to fall somewhere it should be on the large scale PV projects which achieve neither value for money energy policy goals, nor engage the consumer. Indeed, for a government which proclaims “fairness” as an axiom of their entire existence, that should be the case, but…
Another speaker at the conference made the case for maintaining investor confidence not only in renewables but in the forthcoming revolution in our energy infrastructure. The numbers were convincing. If, as Ernst and Young have estimated, the UK needs to invest around £200 billion in new generation and networks by 2025, then if the investors have even the slightest wobble of confidence in the ongoing gravy train, their perception of “risk” increases and they may consequently demand higher interest rates. Even another 1% would result in an extra burden of £2 billion annually, balanced against the current cost of the FIT estimated at a mere £50 million annually. So Osborne cannot ditch the cartel subsidy on big PV without “damaging investor confidence” and costing us all even more money!
If that isn’t blackmail I don’t know what is!

Micro CHP keeps FIT

So finally Osborne is about to confirm our worst nightmares and tell us just who will keep their funding and who will go to the wall. I am reliably informed (just how reliably remains to be seen on Wednesday) that the rumoured abandonment of the infamous FIT (Feed In Tariff) will not happen; not entirely surprising given the overwhelming lobbying effort of the piggies with their snouts in the trough of eco-obscenity...

The very notion that a government could review and possibly abandon a measure just six months into its precarious three year lifespan caused major ructions in the energy and investment industries alike. How could we ever hope to expect investment in any energy technology if the promises of a government were to be so lightly cast aside? Well, quite apart from the fact that we would be unutterably naive to believe anything any politician said from one day to the next, surely it is the prerogative of a democratically elected government (more or less) to modify/reverse the policies/promises of a previous administration. Why should they not decide to abandon the outrageously unfair, unjust, inequitable, pointless FIT?

Well, primarily because, in the midst of countless cost cutting exercises imposed by HM Treasury, the FIT, master of all stealth taxes, does not actually cost the Exchequer a single penny! It is an almost perfect construct, robbing us all (including the poor) to pay for the eco-bling excesses of the chattering rich, and making the energy companies (the de facto tax collectors) the bad guys! Energy bills go up (not taxes) to subsidise the most cost ineffective technologies in the vain hope that this might ultimately contribute to our 2020 targets. I am very reliably informed that £5 notes burn rather well and as a zero carbon fuel source...

But then Cameron made his silly announcement that he was going to lead the greenest government ever with about the same level of understanding of the issues as the last lot, so God help us! Government and energy policy by sound bite continues.

Feet of clay

There must be very few observers who derive the slightest pleasure from the BP oil spillage fiasco. Yet, for every cloud...there may well be a silver lining.

Not least because those who believe the discovery and exploitation of new oil resources is constrained simply by the price of oil and the related investment cost for a viable field may finally understand that there may be limits to man's ingenuity.

Perhaps more importantly though, the smug complacency of the oil giants and indeed the energy giants generally, may be brought into focus by this blatant revelation of the fallibility of those previously unchallengeable masters of the energy universe.

Only a couple of months ago Tony Hayward was on the BBC ridiculing the very notion of "peak oil", propounding his view that we would reach "peak demand" long before there was any problem with supply. Quite apart from his entirely (deliberately?) missing the point that oil is a finite resource and that therefore we must eventually arrive at "peak oil", the pathetic deference of the interviewer in the face of this guru of oil, was a potent illustration of the level of debate in the energy future. He simply assumed that an energy giant like BP must know what they were doing and likewise their CEO.

Whether or not BP have behaved in a recklessly irresponsible way in their Gulf activities is of less concern than the revelation that BP, together with all the oil companies, all the energy companies are fallible; they are not to be taken at their word and should be challenged. So when EdF tells us we should cut back on renewables because it might impair their nuclear programme or Gazprom tell us to stop wasting our time on renewables because they have plenty of gas left, we should challenge those views and the motivation behind them.

Maybe microgeneration is expensive, but its costs are clear and upfront; it is unlikely to cost billions in clean-up or decommissioning costs! So maybe the first micro CHP products such as the Baxi Ecogen are entering the market at over £6000 (incidentally less than half an equivalent PV system), it is highly unlikely that we will suddenly be presented with a £20 billion contingency cost if they fail to perform!

And, maybe we should stop listening to the energy giants and think for ourselves!

Sub-optimal microgeneration...including micro CHP

Microgeneration can make a significant contribution to the overall energy system, particularly as a complementary component supporting other energy sources. In the book on micro CHP the potential to optimise this interaction is discussed, pointing out the risk that ill-considered government interventions, well-meaning, but ill-advised, may result in very poorly optimised systems. As an example the FIT (Feed In Tariff) as a consequence of the quite extreme distortion of value to the microgenerator, may result in a decade of sub-optimal control of microgeneration systems.

More detailed discussion is provided in the book, but in summary the point is made that, if the FIT is set at a level significantly higher than the true value of electricity produced (which it clearly is with PV at 41.3p/kWh against a retail value of around 10p/kWh and an export value of 3p/kWh), there is no incentive for the generator to match generation to self consumption. Only when this distorting subsidy is modified will anyone make the least effort to increase self-utilisation of generation output; we all suffer as a consequence.


At Intersolar, the European solar jamboree, one company (IBC Solar) was planning to introduce to the German market in September (when the German FIT will be significantly reduced) a rather clever system which is intended to realign consumption to generation by enabling certain circuits/appliances only when the PV (or other microgeneration system including micro CHP) is generating, thus improving self-consumption of generated electricity and consequently economic value to the consumer. At a cost of around €750 it is not cheap, but at least it proves the point, that developers will come up with better designed systems, but only once the distortions of FIT are withdrawn or at least reduced.


Anyway, another good reason to buy the book on micro CHP if you really want to understand microgeneration!

Micro CHP book

I feel almost guilty not having contributed anything since January, particularly when there has been so much going on in the micro CHP world. I was quite tempted to make some comment on the FIT, so appropriately launched on 1st April 2010, but instead decided to spend my time doing something more productive.

So, here it is! At last, after what seems like an eternity I have finished the book on micro CHP. It has not been easy trying to write faster that things change, so in the end I gave up and drew a line under it. So, FIT is included in the book, but there may be references to LCBP so precipitously withdrawn only last week.

Interesting, though hardly surprising, that the programme which actually impacts the treasury (LCBP) gets pulled, but the FIT, which is a poorly concealed stealth tax which they can blame on the energy companies (who are charged with collecting the funding from customers' bills) carries on regardless.

The demise of Disenco, the launch of Baxi Ecogen (oft repeated) are both noted, but there are almost certainly things which will be wrong before you read the book. Feel free to comment and send updates. I can't promise to respond to all of them, but at least I will endeavour to incorporate them in the next edition.

You can read a few pages free of charge by clicking on the preview button.

Microgeneration has a FIT

Am I hallucinating …or did I have a fit?

A famous Japanese Buddhist monk once wrote, “If I cannot be sure that what I perceive when I am awake is real, then how can I be sure that my dreams are not?”

Perhaps it is an indication of the onset of old age, or too much after dinner cheese or possibly excessive late night drinking, but I appear to be fast losing my grip on reality. Was it just a dream, or a nightmare perhaps, that the UK government, not content with mortgaging our grandchildren’s future to bail out their fat acolytes in the City, is now determined to spend as much of our remaining money as possible to achieve as little as possible in the questionable quest for climate change nirvana?

Are they really intent upon their insane plan to introduce a FIT predicated on investing as much money as possible in the most worthless measures? And did I dream that the PV industry is whinging about only getting 35p/kWh and is lobbying against the inclusion of more worthwhile Microgeneration technologies such as micro CHP on the basis that, unlike PV, they might actually deliver significant carbon savings? Even with a proposed tariff of 15p/kWh, they fear that everybody will rush out and invest in micro CHP, and that would mean there would be less left in the trough for them.

Now, let me get this right. The government is planning not to support micro CHP because it appears to be the most cost-effective Microgeneration technology and might actually succeed in delivering significant carbon savings and would rather spend the money on PV because they know it won’t!

I dreamt the FIT would stimulate Microgeneration and deliver as much as 2% of our 2020 electricity targets and cost a mere £50 per household. It must have been a dream, because at that rate, 100% would cost us each £2,500 per year!

Never mind, all the governments of Europe are introducing the FiT on the same idiotic basis. So we shall end up with more PV in Germany than the whole of Southern Europe and will build our wind farms in the shelter of some forest or other. Now that must be dreaming!

Surely that is an isolated aberration, but no, I dreamt that the UK government had come up with the Baldrick of all cunning plans to make all our homes energy efficient and zero carbon by 2050. For over half a century successive governments have attempted with varying degrees of success to improve the UK housing stock. Maggie came up with a cunning wheeze to cut the cost of social housing provision and maintenance by selling it to someone else, so it became “someone else’s problem” and instantly ceased to exist. Gormless Gordon has devised an infinitely more brilliant scheme; he is passing responsibility to the energy suppliers not just for social housing, but for every home in the land! Now when it comes to building a power station, I would concede that the energy companies are bordering on competent, but even in my wildest dreams I cannot imagine they are much good at building houses. The Community Energy Saving Programme is just so incredible I must have dreamt it. First they work out a projected carbon saving for a range of energy efficiency measures, then they multiply each by some random number to give a “weighted” carbon saving. External Wall Insulation, for example, gets a multiplier of 3. Why? Because it is so expensive and no-one would do it based on the actual saving. The CESP then compounds this by giving an additional weighting to multiple measures applied to the same property. So, if you insulate a house and install a new condensing boiler, you will be deemed to save more carbon than if you installed the measures in different homes, when, according to the laws of nature, the opposite is true.

Again we incentivise the least cost-effective measures so the carbon savings are achieved at as high a cost as possible. Did I dream that?

Of course it also means that we will be deluding ourselves that for every tonne of carbon we are actually saving we think we are saving 6!

That’s probably why they say we are going to over-achieve our 2020 targets. Yes and whilst we are in this fantasy world we no longer need to be concerned about Climate Change. You can fool some of the people all of the time and all of the people some of the time…but you cannot fool nature. You cannot legislate the Laws of Physics; a former King of England tried that once before and look what it got him…wet feet. So whilst the dimwits who determine our benighted energy policy, or lack thereof, send King Canute to reverse the inexorable tide of climate change on the shores of Tuvalu, we sleep content, dreaming that it is all going to be alright.

But never fear, we will awaken from this nightmare to the fresh dawn of Dozy Dave and his opportunistic sound bite energy policy. I dreamt that he was going to bribe us with our own money (like that has never happened before!). I think it was something along the lines of giving each one of us £6500 of our own money to spend on energy efficiency measures for our homes. This is how it will work. Every home in the country will be entitled to this windfall, the cost of which will therefore be £6,500 multiplied by the number of households. So, first he collects the money (and if I dream correctly there will be no costs for administration, spillage or diversion of funds to other “worthwhile” causes), from “the taxpayer”, also known as the UK householder at an average cost of…um…let me see…oh, yes…£6,500. So, right hand, left hand…

But here is the clever bit! He won’t actually give it to you, it will be a loan, repayable from the income you will receive from the FIT on the electricity you generate. And that is good because the FIT is not a tax and is not taxpayers money, honestly, that’s what the PV industry tells us. It comes from…er…um…oh, yes…the electricity companies. Excellent, brilliant, just what we need; a windfall tax on those nasty electricity companies. Except that it is a pass-through cost which will be recovered from everybody’s electricity bills. No, I’m having a problem here; I need more cheese. I can’t dream that obtusely. I think that means the taxpayer!

Oh, and by the way, who do you think will provide the loans? Yes, you guessed, those philanthropic institutions who screwed the entire global economy. Anyway, not to worry, there is plenty of money around these days. In fact we have got so much that we invented a new game to amuse the finance industry. It is called “cap and trade” and is a brilliant way of saving the planet. Rather than actually doing stuff and building low carbon generating plant, we just gamble on red; we pay the Chinese not to build power stations they were not going to build anyway, so that we can carry on burning coal until the skies are black. Tuvalu goes under six feet of ocean, but what the heck, the government will all be retired and living off consultancy fees from the banks.

No, it must be a dream. Nobody could possibly devise a reality as perverse as this!