A proposed new directive on energy efficiency, which will replace the 2004 CHP Directive, is currently in the European policy melting pot. Now is the time for the CHP industry and its customers to play a part in the democratic process by making clear their views, writes COGEN Europe’s Fiona Riddoch.

The European Commission identified as early as 2009 that there was a gap emerging between its energy savings target and progress on energy savings in the 27 EU Member States. The Commission published its proposed Energy Efficiency Directive (EED) in June 2011 to plug the gap. The new Directive, which could come into force as early as 2013, repeals the CHP Directive and the Energy Savings Directive (ESD), and explicitly extends the scope of energy efficiency legislation along the energy supply chain. The current CHP Directive (2004/08/EC) will be repealed when the EED comes into force. The future European legislative framework for CHP is thus in the policy mixing bowl that is the Council, European Parliament and European Commission negotiation process.

The Commission’s EED proposal is for new binding measures to be adopted by the Member States to boost energy efficiency/savings across Europe. The new Directive is not a simple combination of the scope of the CHP Directive and the ESD, rather it extends the previous scope to include action across the full energy supply chain and proposes new electricity market elements. There are clear obligations on end use energy savings in buildings and in energy supply, and tighter scrutiny and additional reporting along the energy supply chain. In response to the Council’s constant protests that binding targets are not acceptable, the Commission proposes a set of binding measures, including around the development of CHP, to further encourage the development of CHP beyond the limited success of the CHP Directive.

NEED FOR A NEW ENERGY EFFICIENCY DIRECTIVE

In setting out its case for the new Directive the Commission reveals some interesting analysis of the current progress of Europe on energy efficiency and CHP. It identifies clearly that the greatest untapped energy savings potential is in the energy sector itself. This supports both the further strengthening of CHP and additional measures included in the EED along the energy supply chain – see Figure 1.

Going on to consider the effectiveness of the CHP Directive itself, the Commission concludes that: ‘The main objective of the CHP Directive is to promote the development of high-efficiency CHP as an energy saving measure. It requires Member States to establish via an analysis what their cogeneration potential is, evaluate barriers to realize this potential and report on progress in increasing the share of high-efficiency CHP. Yet focus on the Directive has been on evaluation and reporting. Only the setting up of a guarantee of origin (GO) system based on harmonized calculation methods and the priority dispatch obligation by transmission system operators can be considered as concrete operative action.’

The Commission also confirmed what has been clear from Eurostat data for some time – that CHP has not on average grown in Europe in the recent years. There is no discernible overall upward trend – rather an erratic progress which hides many setbacks and a few remarkable advances. Progress on CHP has been patchy across Europe; the Commission expresses this as 1.6% per annum (2004–2008) – see Figure 2.

Figure 1. Untapped energy saving potential across the sectors

The Commission notes the still high barriers to CHP, raising again the difficult situation surrounding connection and access to the grid for many operators and the wide range of tariff-setting processes still in operation. Operators launching a new CHP project will face very different charging schemes across Europe, with 40% of Member State transmission system operators still using deep rather than shallow charging approaches for CHP.

Figure 2. Electricity from CHP in EU-27 in TWh and required rate of increase – with CHP percentage share in gross generation

In assessing the impact of the EU Emissions Trading Scheme (ETS) on CHP, the Commission raises various points about the ETS in different phases of the scheme and notes: ‘Carbon prices alone (therefore) are not sufficient to remove market barriers unless they result in very high energy prices on a sustained basis, which is not optimal from a societal view point… A strong focus on energy efficiency and effective mechanisms to steer technological development and investment decision is key if Europe is to bring down its energy and resource intensity to the level in line with its 2020 objective and 2050 strategies on a low-carbon, resource-efficient energy system.’

The Commission goes on to point out that two thirds of electricity generation today is in fossil plants and all forecasts show this will remain at least 40% to 2030.

NEW ENERGY EFFICIENCY DIRECTIVE PROPOSALS

In its Directive, the Commission starts from the fundamental position that the 20% energy savings target for 2020 must be met. It requires EU Member States to set targets and states that if the voluntary progress thus achieved is insufficient, then mandatory targets must be considered. In the meantime, it sets out a range of obligations on Member States to implement specific energy savings measures including around CHP.

In Article 10 of the Commission’s proposal, all new electricity generating plant, all major refurbishments of existing plant and all new industrial plant over 20 MW thermal input must be CHP or connected to district heating, and local heat loads must be considered. Exemptions are allowed and criteria are proposed, including the use of a cost-benefit analysis as part of the process. Article 10 also requires Member States to produce a heat plan and requires TSOs to allow CHP plants to offer grid balancing services. In Article 12, CHP is explicitly granted the same priority access to the grid and dispatch that renewable electricity enjoys. It is the force of Article 10 and Article 12, relying on their mandatory and uncompromising nature, the Commission envisages will drive growth in CHP.

There are no additional targets or objectives for Member States. There is no reference to the overall savings target linked to CHP (Article 3). The planning exercise for the promotion of CHP links to requirements effecting local planning authorization, but is otherwise without quantified objective. The Commission thus came out with a strong support for further CHP deployment by simply saying all new utilities and large industrials must be CHP, staking out a strong position for negotiation. However, the method it chose in Article 10 to do this, although simple to explain, is difficult to implement in practice.

The European Parliament created for itself and pursued an aggressive timetable for delivering its position on the EED. However, the broad scope of the Directive has made this difficult to sustain. The European Parliament proposed well over 2000 amendments to the Commission text. For CHP, the Parliament declined to support the fully mandatory nature of the requirements of Article 10 – moving towards a compromise which weakens the heat planning aspects of the Commission’s proposal to a ‘roadmap’, a term lacking the force and resource application suggested by ‘plan’. The Parliament also weakened the mandatory requirements of Article 10 proposing the use of the cost-benefit analysis as the sole deciding criteria for new CHP and district heating associated with new utility and industrial plant. The methodology of the cost-benefit analysis will be developed by the Commission and should be produced by 1 January 2013. However, in the Parliament’s current proposals a positive result in the cost-benefit analysis means a new plant must include CHP or be linked to district heating as appropriate.

The Commission’s Article 12, granting equal grid access status to CHP and renewables, has had its wings clipped. Frequent references to renewables in the Parliament’s amendments to Article 12.5 stop short of creating a hierarchy between CHP and renewables, but the text is weaker than the Commission’s proposals. Article 12.5 is particularly important from the point of view of large industry-based CHP with extended operating hours driven by the industrial process. Such plants must follow the needs of the industrial process and the electrical output has a limited ability to respond to the electricity market signals. Without the guarantees of Article 12 for priority on the electricity network, investors in new plants will have to add into their calculation a quantification of the risk of having to modify generation.

The European Parliament has additionally proposed a new text which could be advantageous to CHP. There is support for action on CHP in capacities under 20 MW, an area neglected by the Commission, and explicit reference to improved operating conditions for small and micro-CHP, plus a set of new proposals in Article 12 to consider the need for a forward capacity market in electricity and to develop plans for a demand response market.

Elsewhere in the EED, the major discussion on target setting and the mandatory nature or otherwise of the target continues to be a point of significant debate between the European Commission, European Parliament and the 27 EU Member States (represented in the Council). The view remains that consensus will result in binding measures rather than a binding target. The major binding measure to achieve real improvement is emerging as Article 6, which requires energy distributors in Member States to achieve annual energy efficiency savings on end-use energy savings equal to at least 1.5% of their annual energy sales, by volume. The target is framed as end-use and, while traditionally space heat from CHP would have been included in such measures, there is a clear intention from both the Commission and the Parliament to exclude CHP from this Article.

THE NEXT STEPS

The co-decision process of agreeing a European Directive between the Council, European Parliament and European Commission will continue until at least June 2012. There is a strong desire in the Parliament to have it completed within this period, where the role of Denmark as President of the Council and a strong supporter of energy efficiency will help motivate discussions and keep the process on track.

The mood in the Council is to oppose strong action and has been since the Commission published its proposals in June 2011. The European financial crisis and major economic issues in Member States have diverted energy away from strong legislation at the European level. The Council is requiring more flexibility and less prescriptive language throughout the text. The appetite for strong legislation is minimal and the Parliament is distracted by economic affairs. The traditional pattern of the Council further diluting the parliamentary position is set to repeat itself again.

However, civil society and business also have a role to play in this democratic process. Those in the Council and Parliament, who will be debating the Directive over the coming months, need input from industry and civil society making clear their views on the key elements of the Directive. Failing to make clear at this point what the sector expects from this legislation and what the sector needs to do to grow, will result in a weakened policy environment around the sector in the years to come.

Particularly large industrial CHPs, which could be threatened by the changes in priority of dispatch, need to make their concerns known and to highlight the value of the sector in energy efficiency terms and the impact of failing to give CHP access for their electricity. It must further be made clear that CHP must be clearly linked to a requirement to action in Member States, and that any weakening in the binding nature of the articles supporting CHP growth must be compensated by strong links to the obligation and targets process.

Dr Fiona Riddoch is the Managing Director of COGEN Europe, Brussels, Belgium. Email: fiona.riddoch@cogeneurope.eu

COGEN Europe will be putting the industry view forward at its annual conference in Brussels on 3–4 May.

For more information, visit www.cogeneurope.eu

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