applying the WADE economic model
A CHP plant serves a pharmaceuticals company. The UK public is becoming increasingly aware of the benefits of decentralized energy (Dalkia)
What would happen to UK power prices and emissions of carbon dioxide if all the new electricity generating capacity installed over the next 20 years was decentralized energy? And what if it were all centralized, whether fuelled by gas, coal or nuclear? The WADE economic model answers just these questions, as Sytze Dijkstra reports.
Decentralized energy (DE) has seen mixed fortunes in the UK over the past few years. While development of largescale DE – mostly industrial cogeneration – has been stagnant, microgeneration is the rising star of the UK’s energy debate. Interest in this more ‘sexy’ concept is increasing from government, industry and the media. Initiatives by local governments (such as the borough of Woking in Surrey), consultations and studies on microgeneration commissioned by the Department of Trade and Industry (DTI), and media coverage on the Conservative Party leader installing a rooftop wind turbine, have introduced DE to a wider public. However, any full consideration of DE must also include large-scale projects, as these would have a much larger impact on meeting Britain’s energy needs.
This two-sided situation coincides with the DTI’s Energy Review, considered key to a sustainable energy future for UK. Like many other countries, the UK is grappling with the question of whether new nuclear power stations are required to meet future CO2 emission targets. In this debate, DE is playing an increasingly important role. On 6 March, the Sustainable Development Commission (SDC), the government’s environmental advisor, concluded against nuclear. One of their arguments was that large-scale investment in new nuclear power would lock the country into a centralized generation model, closing all options for further spread of decentralized technologies.
Other supporters of DE include local governments, such as the Greater London Authority – which has been expressing plans to decentralize the capital’s electricity supply – and environmental groups. DE equipment manufacturers have also been participating in the consultation, but they have less clout than utilities and the nuclear industry.
The growth of giants
potential and challenges for on-site power in China and India
With China and India poised to become the world’s biggest economies over the next few decades (China overtaking the US in 2030 or so, and India around 2050) what can be said about their prospects for decentralized energy, and cogeneration in particular?
Anyone who has been to either country recently (and there’s a fast increasing chance that you have: Beijing’s Capital Airport has been the world’s fastest-growing for the last two years, business travellers and tourists are just pouring in by the plane-load, and immense terminals are under construction) can see very clearly what we read and hear with growing frequency. The speed and scale of growth, and the potential for further growth, is awesome.
With this growth comes accelerating energy demand, and greater concerns about security. A major driver for on-site power generation in both countries – probably the major driver – is supply security for energy users. In China, the generation and grid companies simply have not been able to keep up. In India, many of the State Electricity Boards, for whom ‘the customer comes first’ principle is not a major feature of their mission statements, have mismanaged growth of the sector to such an extent that many industrial and commercial energy users invest in on-site generation as a survival strategy.
At first sight, prospects in China for developers and equipment manufacturers look especially tempting. There are power shortages, plenty of energy demand growth in the industrial and commercial sectors, increasing market share for natural gas and growing political awareness for what, in China, is known as ‘CCHP’ (combined cooling, heating and power). Commercial fundamentals show otherwise, however. Gas prices are high in the east, at the end of the west–east pipelines, and supply is uncertain. Power prices are politically managed and, despite increases over the least two years in line with coal prices, they are too low to encourage CCHP. In effect, the spark-spread is ‘upside down’.
There are many other additional challenges, for example relating to interconnection and buy-back rates that can make on-site generation just too hard. The key driver for the moment remains supply security – the need to keep producing at all costs. WADE’s new China Group is in the forefront of addressing these challenges. The Chinese Government’s energy policy division, the National Development and Reform Commission, has asked WADE to submit proposals for what the new CCHP regulatory arrangements should look like. If the NDRC delivers on its commitments, some of the main problems should be relieved, if not removed.
WADE also has a new India Group. Here again, the key is to ensure that new supplies of natural gas are used as efficiently as possible in CHP plants rather than being diverted to high-waste CCGT plants, or ‘mega projects’ as they are known in India. The 2003 Electricity Act has helped to streamline procedures for some