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The reports, published as part of the requirements of the EC Cogeneration Directive, predict that over 10% of the UK's electricity will come from CHP generation by the end of 2010. It goes on to state that the economic potential exists to provide 17% of our total energy requirement from CHP.

The report on the UK's national potential for CHP examines how the opportunity to capitalise on this energy source can be harnessed and it outlines the taxation, market mechanisms and policy framework in place to support the growth of Good Quality CHP capacity.

Combined Heat and Power is a highly fuel-efficient process which sees the simultaneous generation of heat and power in a single process. This means it can produce greatly reduced levels of carbon dioxide emissions compared to the separate generation of heat and power e.g. via on-site boilers and fossil fuel power stations. As CHP is a process that can be applied to a variety of fuels and technologies, it is likely to play a crucial role in the UK's low carbon future.

The UK Progress Report shows that in 2005, using definitions in the European legislation, there were 1,502 CHP units with a total electrical capacity of 5,440 MWe (Megawatt Electrical), generating 27TWh (Terawatt Hours) of electricity and 51TWh of heat in the UK.

The latest energy projections for the UK suggest that by the end of 2010, 36 TWh of the 350 TWh of electricity supply that will be needed will come from Combined Heat and Power. This projected contribution, of just over 10% of total electricity, is from the expected development of cogeneration. However, the report identifies that this projection is not the total economic potential available in the UK, which could be up to 61TWh of electricity or 17% of the total needed by 2010. But the report says that this figure "should be regarded as an upper limit that may not be realised in practice."

The report on the UK national Potential for CHP details how the Cogeneration Directive has been implemented and outlines existing incentive schemes. The report analyses barriers to Combined Heat and Power, which include the relative prices of gas, and the national policy framework.

The UK Government has set a target of at least 10 GWe (Gigawatt Electrical) of installed Good Quality CHP capacity by the end of 2010. 'Good Quality' denotes those schemes that have met the energy efficiency criteria laid down in the UK's CHP Quality Assurance Programme (CHPQA).

Graham Meeks, Director of the Combined Heat & Power Association, commented on the study saying:
"It is certainly encouraging that the Government recognises that CHP can deliver substantial carbon savings at very little cost. But the reality is that in the absence of effective incentives to recover waste heat and build CHP plants, our leading power companies are lining up to build a new generation of less efficient, power-only plant.

"Instead of moving to a low-carbon future, our energy policies mean that we are in danger of turning back the clock to the days when Britain was the 'Dirty Man of Europe'. What is more, we could be locked into this situation for the next 30 years or more.

"Elsewhere in Europe it's a very different story. In August the German government outlined investment plans that will see CHP meet 25% of the country's electricity needs. Not only will this new energy infrastructure play a major part in meeting targets for carbon savings, but in a world of rising fuel prices and growing carbon constraints it will help to maintain the long-term strength and competitiveness of Germany's industry.

"The UK faces the same challenges, and will soon face demanding carbon saving targets under the Climate Change Act. We now have the evidence that new CHP plant can deliver cost-effective carbon savings of between 4 and 6 million tonnes by 2010, and up to 8 million tonnes by 2015 – equivalent to taking 8 million cars off the road.

"As a nation we should be looking to seize this opportunity. The energy industry is now looking to Government to provide the leadership and introduce effective incentives for investment to fulfil this potential.”

The Government offers a number of incentives for Good Quality CHP through taxation including:

• Exemption from the Climate Change Levy for all Good Quality CHP fuel inputs and electricity outputs
• Eligibility for Enhanced Capital Allowances (ECAs) for Good Quality CHP plant and machinery
• Business Rates exemption for CHP power generation plant and machinery
• A reduction in VAT on domestic micro-CHP