Miguel Gil Mata, Board member of combined heat and power project development firm Capwatt, speaks with Diarmaid Williams on the market for CHP in Europe and a possible move into the US.
Portugal’s Capwatt is targeting expansion within the EU and may even develop 100 MW of combined heat and power (CHP) installations if conditions remain favourable. As European attitudes towards energy efficiency transform from rhetoric into action, Board member Miguel Gil Mata told Decentralized Energy he believes the company is in a good place to capitalize.
‘We believe the fundamentals of the business are there. If the EU as a whole or its more important members are embracing combined heat and power as a way forward, and energy efficiency as an absolute must in terms of the evolution of the energy landscape in Europe, it is of course good news for us.’
It’s not just the Paris driven-environmental imperative that’s at play in the company’s mindset. The other factor is the gas price. With Capwatt’s chief expertise being gas-fired CHP, it’s a key variable.
‘Mainly in northern Europe, the recent combined evolution of gas prices and electrical prices are very favourable for CHP,’ says Mata. ‘Take Germany, for example. You don’t see a relative downturn in the electricity prices. You might even see some slight upturn and you see some very competitive prices in the gas market today. There is some stability, though not absolute stability – gas is set to be low for quite some time. Recent weeks have shown that even slight recovery in oil prices is not being followed by gas prices in most of Europe, representing very good news for the CHP business as a whole.’
Mata notes that there are already cargoes leaving the US with liquefied natural gas. ‘I do not presently believe that it is particular profitable to take gas from the US to Europe, but I think it’s some sort of assurance that the gas prices in the EU will no longer be able to escalate freely as they have done in the past. There will be some kind of pressure to keep prices balanced between the US and Europe once the amount of LNG starts to pick up and the percentage of trading of gas that we are able to do by sea starts to increase.
‘It’s fairly unanimous that the gas prices in the US will stay at the low end of the scale for some time given the fundamentals and abundance of resources. I believe that gas prices will tend to some stability. Of course predicting oil prices is a very difficult exercise but we do see an open road ahead.’
Germany is in the company’s sights as an environment particularly hospitable to CHP at the moment thanks to that country’s recently announced CHP Act. Capwatt wants to provide mainly the country’s formidable industrial base with a reliable and competitive way of generating electricity and thermal energy.
The business model is simple. Potential partners are identified and approached, and a thorough analysis of the existing process is carried out before the design of a customized solution.
The company designs, finances, controls and owns the assets on a long-term basis under the mutual trust principle. Its control centre is currently being enlarged in anticipation of a growing client base beyond Portuguese borders.
Mata refers to what he calls the privilege the company had in building its acumen while developing as part of the (Portuguese retail and investment giant) Sonae conglomerate. Prior to forming Capwatt in 2008, the previous incarnation developed on-site power facilities for decades for projects involving the whole group in Portugal.
The offshoot business has now grown to the point that is no longer focused exclusively on Sonae commercial assets. Most of its power plants are outside the scope of the mother group. The plan now is to expand first in Europe and perhaps later in North America, but in a cautious and deliberate way.
‘We believe we have conquered a significant position within the Portuguese market and now realize we must expand and grow the company further. We have ambitious plans for investment but we have a conservative approach as a company so will do it with caution and slowly so as not to take too many risks in new geographies we do not know. We are determined to forge ahead in a cautious and structured way.’
Preliminary consultations are currently taking place within Germany as part of the general Europe-wide expansion strategy.
‘We would like to commit a significant amount of funds towards expansion and if we meet the opportunities to assure our criteria and safety and profitability, it’s possible to build 100 MW within five years.’
Mata envisages even eclipsing that capacity under certain circumstances. ‘Sometimes what you need is an accelerator – if you are able to make the first plant with an important industrial player that has a multi-site footprint you would probably be able to replicate it with other plants without too much difficulty – then it’s possible to imagine entering a fast track.’
|Miguel Gil Mata|
Further down the road is the enticing prospect of the US, which at first glance looks to offer an even more lucrative environment than Europe. In truth it’s more complex than that. Mata says there are challenges in that market that you don’t necessarily encounter within the EU.
‘The northeastern US region is a very interesting region in terms of fundamentals. The spark spread is very favourable and the dynamics of the economy are very good, probably even better than this side of the Atlantic. There are, of course, a great deal of extra challenges to move to another reality. The American reality, the cultural differences are very different – moreso than Germany. It has even greater profitability than you find in Germany but it is harder to move there than Germany. But we are pursuing that market very actively.’
North American challenges aside, there are enough obstacles to overcome in markets closer to home for Capwatt, particularly in the way individual markets are set up. Mata notes that markets are tending more towards a reality that you pay less for the energy commodity but more for other associated costs. He cites payments being made to renewable producers, ‘which are an absolute must for them to produce’.
‘It is an energy cost under another name. If CHP plants are not adequately regulated within these new realities they will not be able to compete because they will be facing very low commodity prices and they can be taken out of the market. For example, Gemany’s industrial consumers pay a very significant amount of money in surcharges for electricity consumption. It’s a very significant percentage of their costs. If you build a CHP plant within a factory in Germany and sell the electricity that you produce to the manufacturing plant, there is a doubt whether that plant is able to phase out that surcharge that it is paying. If you state that the manufacturing plant will have to pay it anyhow, it is in fact paying twice and there will be no incentive to build a CHP plant.
‘In other geographies other related issues may arise, and you see you are not on a level playing field when you compare CHP with the conventional solution of buying electricity from the grid.’
Mata’s other hat is his role as managing director of trade body Cogen Portugal. Within the broader COGEN Europe, his organization focuses on making the political classes in Brussels and elsewhere aware of such conundrums affecting a more effective energy efficiency drive. ‘We try to lobby as much as we can on these apparently small issues that will in fact be definitive in whether we can or cannot promote CHP successfully in Europe,’ he says.
Is the lobby being heard?
‘I think things have been worse than they are now, but we see some interesting movements and Germany in particular is making serious efforts to increase the amounts of CHP in their mix. Across Europe it is not homogenous, with lot of difference between countries.’
Diarmaid Williams is International Digital Editor of Decentralized Energy