…will bounce back to 3% growth

Supported by economic revival, renewed industrial investment and changing power policies of governments, the struggling European cogeneration equipment market is on course for strong recovery. Emerging from its recent downturn, this mature market is set to experience annual average growth rates of above 3% between 2005 and 2010. So says Frost & Sullivan (F&S) Industry Analyst Rajeev MS: ‘The current decline in the market has been mainly due to the global economic recession, excess generation capacity and low demand for power due to low industrial growth. High gas prices, low electricity prices, absence of price incentives, interconnection issues with national grids and a historic lack of framework have also served to dampen the market.’

However, there are now signs that the cogeneration market is on the rebound. The ability to effectively utilize waste heat is giving cogeneration a distinct advantage over conventional thermal power generation processes where levels of heat energy wasted are considerably higher, says F&S.

Motivated by the need to save heat energy wasted during power generation, several utilities are moving to replace their conventional old power plants with cogeneration plants, says F&S. Combined-cycle cogeneration plants are a suitable choice for such repowering programmes and are creating new growth niches for cogeneration equipment manufacturers. Rising demand for reliable, high-quality and uninterrupted sources of power from critical industries (e.g. semiconductor manufacturing, software, banking and insurance) is creating new opportunities for distributed cogeneration plants.

From a policy perspective, the new EU Cogeneration Directive is likely to boost the prospects of the cogeneration sector over the next two to five years. While unlikely to offer an immediate or all-encompassing solution to existing problems, this pioneering legislative initiative is geared to break down market and institutional barriers and advance the use of this energy-efficient power-generating option, adds F&S.

Forecast to grow steadily from 2006 to 2009, annual cogeneration capacity addition is estimated to reach 4000 MW by 2010, up from 3346 MW in 2002.

Positive signs notwithstanding, a series of challenges await market participants. In some countries, for instance, cheaper power from old and depreciated power plants is posing a serious threat to the viability of cogeneration plants. Another critical challenge has come from intensifying competition and excess manufacturing capacity, which has led to price erosion and low profitability, adds F&S.

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Stress the positive

Cutting emissions brings economic gain

What are your energy predictions for 2005? The EU Emissions Trading Scheme – success or failure? Oil prices – up or down? Major electricity supply outages – where and when? Some of these are difficult issues, easy to be misread. There is one issue, however, where there is greater certainty. This is that climate change, as a global driver of energy sector policy, will gather greater momentum in 2005.

The reason? Looking back on 2004, there seemed to be more frequent, and more compelling, evidence that climate disruption is gathering pace. Anyone with an eye for the natural world, particularly in temperate regions, cannot fail to be aware of the changes of the last 5–10 years. It looks very unlikely that the scary chart, the one showing average annual global temperatures heading ever skyward, will do an about-turn.

But here is a depressing thing. The political response at one level continues to be, well, glacial in its speed. In mid-December 2004, in Buenos Aires, the UN held the latest round of its international negotiations to agree on action on climate change. These meetings are known as COPs; the latest session was COP 10. WADE, as always, participated at the session to highlight the role of decentralized energy as a cost-effective climate change solution. But the outcome of COP 10 was fairly modest: an agreement on the structure of the future negotiations to establish a post-Kyoto response. Talks about talks.

At COP 10, the ‘usual suspects’ were there, slowing the process. They included some of the national delegations and several industry groups. Their persistent refrain is that the costs of climate change response will be high, that any action must be very slow if economic growth is not to take a big hit. This is much the same as the messages put out in pre-Kyoto days, so in this sense we really haven’t come very far.

Sure, there will be some losers. But here is an encouraging thing. For the first time, WADE was not alone as an industry group suggesting that cutting emissions brings overall economic gain – through proven efficiency technologies. Most notably, the Climate Group (www.theclimategroup.org) was at COP 10, representing some big companies and stating this clearly. The Group is compiling examples of national and corporate action to cut emissions that are profitable. Examples of on-site cogeneration projects and programmes are scattered liberally though their database of examples.

Strangely, this is an issue on which the environmental groups are silent. These NGOs do magnificent work at the COPs (without them, there would have been no Kyoto Protocol) but they are missing a strong negotiating trick by implicitly accepting that reducing emissions is a costly business. A cynic might suggest that for green NGOs, ‘no pain equals no gain’.