The contract for the two latest Rolls-Royce gas engines brings sales to 10 units in the first half of 2006 alone, says the company. End users of K-Gas engines in Italy include the municipalities in Milan, Parma and Bologna, paper mills, fisheries, ceramics plants and advanced microprocessor manufacturing.

A bright outlook, but some shadows remain

The start of 2004 may well have marked a turning point for the European cogeneration market, with Directives on electricity and gas markets, emissions trading, and the energy performance of buildings and products all playing a part. Peter Löffler reports on the new regulatory and market conditions that could unlock cogeneration’s vast potential.

In recent years, one of the EU’s policy objectives has been to develop cogeneration as a means of reducing carbon emissions, saving primary energy and enhancing security of energy supply. But the start of electricity market liberalization around 1990 had disastrous effects on the development of cogeneration, and recovery from these hard years has been slow. Now, a new picture is emerging, with the outlook for cogeneration considerably brighter.

Private sector investment in new power generation capacity in Europe is urgently needed to meet projected growth in electricity demand and to fill capacity gaps which will emerge after the withdrawal of a substantial number of old, fossil-fuelled power plant over the next few years. It has been estimated that in the EU-15 alone, the construction of at least 65 GW of new electrical generation capacity will be required by 2012, and approximately 200 GW between 2010 and 2020.1,2 But there are increasing concerns about low levels of private sector investment in new capacity. Energy market liberalization and privatization have led to lower energy prices, greater price volatility and significantly increased commercial risks for investors. Competitive markets in the energy field are, it seems, not a sufficient mechanism to ensure a smooth and gradual transformation of the power sector, nor to maintain security of electricity supply. Instead, investment is likely to follow cyclical ‘boom and bust’ patterns, where periods of under-investment and rising power prices are followed by over-investment, falling prices and company failures.