• a price linked to the current market price (as a minimum, the average baseload price at the power exchange)
  • an additional CHP premium that is legally fixed for different types of plant and technology, and which will gradually decrease over time
  • the compensation for avoided network costs, discussed below.

A CHP plant at Wolfring uses biogas to fuel its gas engines. The existing CHP law requires distribution system operators to buy electricity from cogeneration
GE Energy Jenbacher

While distribution system operators (DSOs) are required to connect all these plants to the grid and to accept their entire output, plant operators are not required to sell their output to the DSO. Instead, plant operators can cover their own demand when prices are high, or can negotiate their own contracts at prices above the respective rate, if they can the find buyers. Under the EEG, plants do not even need a contract with the DSO in order to sell their output.

Both renewables covered by the EEG and CHP plants covered by the CHP law have priority access to the grid. The remaining DG plants do not have priority and hence have to find a third-party customer by themselves for their output, to be supplied via the grid. Such grid access and electricity purchase follow conditions:

Swing policy towards DE

Industry is pivotal in the climate debate

First, a revisit. In the last issue, this column described the International Energy Agency’s influential economic modellers, and the good news that they recognize the massive scale of network investment required if the world proceeds with a central generation model. This explains why greater future investment in DE will provide lower-cost energy for consumers. Alas, as I outlined last time, those clever modellers have not yet made that leap of economic logic because they continue to think of generated rather than delivered electricity.

Worse, since the last issue, the IEA has published, in partnership with the Nuclear Energy Agency, a report titled: Projected costs of generating electricity. Unfortunately, nowhere does the analysis take into consideration the costs of transmission and distribution. It is as if the meat eaters of Europe were told that the cost of producing a 400 g steak in Argentina was a lot less than at the nearby farm. It is a quite meaningless piece of information. They want to know what it costs to get it on their plate.

Despite the incomplete picture it paints, the new analysis is illuminating. In parts, it is even quite entertaining. For example, it says that the very lowest costs of generation are derived from nuclear power (the report is unclear as to how waste management and decommissioning costs are included). I’ll pause while you regain composure. Take a little water if you wish. Consider a 10-minute lie-down. Better now?

Yet, despite the fact that network costs are ignored, the report states that ‘in countries which provided cost data for CHP plants and power plants generating electricity only, with the same type of fuel, CHP generated electricity is cheaper except in very few cases’. Clumsily put, but it shows that even this incomplete and slightly one-sided report comes to view CHP as one of the very best economic solutions.

This brings us to what was to have been the main theme of the editorial in this issue. The Climate Group is a very interesting new organization (www.theclimategroup.org). I am fairly sure that, alongside WADE and its members, it is unique in arguing that reducing carbon emissions in the most cost-effective way can simultaneously reduce energy costs. The Group’s project examples are packed with decentralized cogeneration schemes. Here is a genuine ‘win-win’ opportunity that has eluded environmental groups, industrial organizations and governments throughout the world.