Europe’s market for CHP is still to emerge from a lengthy ‘flat’ period, but the signs are good, with several positive items of Euro-legislation either now in place or on their way. And there already are local hotspots of activity; whether these are in eastern Europe or the west, they correlate closely with positive energy policies of the Member State concerned, writes Fiona Riddoch.

Across the globe, the demand for power generation is high and cogeneration is benefiting along with other segments of the power sector. The question for Europe is: will cogeneration finally emerge from the flat market of the past few years to really start fulfilling its potential? As a powerful low-carbon high-efficiency technology, the opportunities for cogeneration in the context of Europe’s current energy priorities are good, but market liberalization has hurt cogeneration and continues to do so. In this climate it will take policy action to turn the opportunities into market success.

BACKGROUND – A FLAT MARKET

Since 2000, the market performance in Europe overall has been flat. Eurostat shows that around 10% of Europe’s electricity is currently generated in cogeneration plants – see Figure 1.


Figure 1. Overview of the European CHP market. Source: Eurostat and COGEN Europe
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The bright spots in European Union (EU) market activity today are directly traceable to the successes of Member States’ government policies. These can indeed play a significant promotional and support role.


Five gas engines power the Centro Citta district heating plant in Verona, Italy (Rolls-Royce)
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At a time when primary fuel prices are rising, logic would say that an energy-efficient technology providing real primary fuel saving should gain ground. However, held back by the impact of the only partially effective market liberalization in electricity, and by ongoing fuel and power price anomalies, cogeneration has been hit in the early part of this decade by the double blow of increasingly long returns on investment and large income risk driven by market uncertainty.

Moreover, in order to expand out of traditional segments, whether geographically or by application, the barriers of the existing electricity supply structure and a lack of understanding of the technology at many levels must be removed.

MAY BE ABOUT TO CHANGE

The flat performance of the cogeneration market in Europe over the past five years may be about to change. While there is little sign that the market’s structural issues will change soon, there is a growing body of legislation driven by the EU’s energy policy goals (security of supply, climate change mitigation and competitiveness) which are creating a framework to actively promote cogeneration.

The CHP Directive will come fully into force in 2007. This Directive introduces the need for Member States to assess their national cogeneration potential, and report on barriers to growth and support mechanisms. Additionally a Guarantee of Origin process for high-efficiency cogeneration must be established.

The decentralized nature of cogeneration, with its multiple small plants, does not fit well with the still centralized business model and physical structure of the electricity sector. But pressure to change is building. Cogeneration and renewables – another of the EU’s targets for promotion and expansion – both require a more decentralized generation approach, making removal of barriers to decentralized access a necessary double policy priority.

The unavoidable statistics of CO2 emissions in the power sector casts a shadow on planned new generation capacity as long as carbon capture and storage (CCS) remains some years away and the cogeneration industry is looking to extend its market share as rapidly as possible.

The sector looks to the new raft of energy policies to prise apart the traditional supply chains and also to encourage growth in the sector.

THE EUROPEAN MAP – EAST FIRST …

Go east if you want to find the strongest activity in the European cogeneration market. Most of the new European Member States (the so-called EU-12) have had extensive experience with cogeneration. Currently, the national power sectors are also undergoing deep transformations, because of the double imperative of replacing aged equipment and developing a sustainable base, in line with European commitments (Cogeneration Directive 2004/8/EC, Renewables Directive 2001/77/EC, Climate Change and Energy Package of 10 January 2007, Spring Council conclusions of March 2007, promotion of decentralized energy, etc.).

Central and eastern European markets for cogeneration are, in reality, diverse and, like the rest of Europe, each country’s resource and supply history is shaped by local circumstances. However, those that are seeing cogeneration expansion at the moment are characterized by a strong combination of access to natural gas and a strong economic growth rate.


A CHP plant at Györ, Hungary. European CHP market activities have so far been localized in a few countries, yet favourable ` legislation should improve prospects elsewhere (Wärtsilä)
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Countries such as Turkey, the Czech Republic and Russia are showing good market activity. Independent power producers and industrial applications that require a high reliability of electricity supply are beginning to adopt cogeneration. There is considerable interest in upgrading traditional district heating schemes, and the tertiary sector, including hotels and hospitals, is showing great interest and promise.

Cogeneration as a technology is well established in the Czech Republic with 5.28 GWe of installed capacity and 13.8 TWh of cogenerated electricity in 2004. The government is supportive of cogeneration. Since 1 January 2006 a support scheme based on a feed-in premium on top of the market price of electricity has been introduced. There is also limited grant support for financing CHP schemes. The market is buoyant.

Typical of the small cogeneration applications is the 100 kWe installation of Tedom s.r.o. (Cz) at a new sports and recreation centre ‘Kravi Hora’ in Brno. The centre incorporates two swimming pools meeting factilities and sports. The site has two Cento 100 kWe units and a pay-back period of six years. All the electricity produced is consumed on-site.


A cogeneration plant for a new sports and recreation centre in Brno. The CHP market has been recently active in the Czech Republic (Tedom)
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Bulgaria is another Member State where interest in cogeneration appears to be growing. Bulgaria has 1.31 GWe installed capacity, producing about 7.3% of the country’s electricity. Cogenerated electricity has a preferential price in Bulgaria and a support gas price is available to cogenerators. Investors are increasingly finding that finance for new projects is forthcoming. Again, industry is keen to adopt cogeneration where there is a benefit in reliability.

Centrax Limited (UK) is installing two Rolls-Royce powered generator sets at Polimeri PLC, a chemical producing company located in Devnya, about half an hour from the tourist area of Varna on the Black Sea coast. The company makes acids (including caustic soda, hydrochloric acid, liquid chlorine, ethylene dichloride, salt compounds, ferric chloride and others).

The company has decided to be less dependent on the supply of thermal energy from the local utility and will now install two 501-KB7 generator sets. The balance of plant also includes two waste heat recovery boilers for the production of superheated steam at two different operating pressures, ductwork, de-aerator, exhaust stacks and water treatment plant for both boiler feedwater and water injection, all of which will be maintained by Centrax under a long-term Comprehensive Maintenance Contract.

… AND WEST

Looking at western Europe, only two countries – Italy and Belgium – currently stand out for their level of market activity.

In Italy, 5.11 GWe qualifies as installed CHP electrical capacity. CHP is mainly found in industry, the chemical industry being the most important sector, ahead of the paper and refining sector.


The Inesco CHP plant incorporating two HRSG units in Zwijndrecht, Belgium. The country’s CHP market is very active, thanks to green energy and energy efficiency support schemes in various regions (Aalborg Engineering)
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During the 1990s CHP electricity, combined with district heating, was considered and treated as renewable energy, while the decree transposing the CHP Directive envisages a re-organization of white certificates in order to make them more profitable. In fact, the price of electricity sold to the grid is determined by the Government using an advantageous formula reflecting avoided fuel and plant construction costs. In addition, recent legislation introduced grants and fuel tax breaks for small-scale CHP units.

This favourable regulatory framework, together with a simplification and facilitation of administrative procedures, will provide a boost for the development of new cogeneration plants, particularly the market for engine-driven generators running on liquid bio fuels.

Wärtsilä is providing a 75 MWe liquid biofuel power plant to the Italian city of Acerra, near Naples. The E60 million turnkey contract was awarded by Fri-El Acerra Srl, an independent power producer formed through a joint venture between Italy’s Fri-El SpA and Energies Nouvelles of France.

The engineering, procurement and construction contract includes not only the supply of four Wärtsilä 18V46 gensets with combined cycle in order to maximize electricity production, but everything else, from the supply of a fuel unloading area to grid connection systems. An operation and maintenance agreement is also under negotiation.

When installed, the plant will replace two gas turbines and run on palm oil that, in part, will be cultivated from plantations owned by Fri-El. It is expected to be on line and supplying power to the grid in October 2007.

STRONG POLITICAL BACKING

In Belgium, strong political backing for a decarbonization of the economy has been driving the cogeneration sector over the past four years or so. While each Belgian region has come up with its own support framework, the country as a whole is clearly one the fastest growing markets for cogeneration in the European Union, despite having only a little over 1.3 GWe of installed CHP capacity. This is so much so that the appointed cogeneration project ‘facilitators’ are having a hard time keeping up with the pressing demands for their (free) services.

While Wallonia has indexed support to the amount of avoided CO2 emissions and the Brussels region has followed this approach, Flanders has designed its support scheme around the central notion of primary energy savings. The differences are plain to be seen: while the Walloon and Brussels system reward smaller installations with green certificates, the Flemish system awards all efficient schemes with WKK (i.e. CHP) certificates.

The common feature between these schemes is that the more efficient the installation, the greater the level of support. In addition, renewables-based systems are very highly rewarded, with a wood-fired 5 MWe system receiving up to E184 worth of green certificates per MWh of electricity produced (as opposed to exported). Needless to say, this has created a surge in demand that many local actors are struggling to satiate.

There is one important lesson to take home from the Belgian examples: none of this would have come into existence without the long-term visibility guaranteed to investors. In each case, long-time horizons have been given and the regional governments have been keen to back their certificate schemes with investment grants, tax breaks and other means of indirect support such as transparent and fair grid access conditions. As a result, Flanders can boast nearly as many large new projects as the rest of the EU-15 combined, while Wallonia has become a hot area for both small-scale biomass CHP equipment suppliers and distributors.

SALES ARE EXPANDING SIGNIFICANTLY

European manufacturers are witnessing a relatively good market period. Currently sales are expanding significantly in markets to the east, Russia and the fast-emerging economies of eastern Asia and India. However, the examples of Italy, Czech Republic and Belgium show that, where the policy and support framework is favourable, it is possible to rapidly stimulate cogeneration in industry, the tertiary sector and of course district heating and power generation.

It is for this reason that cogeneration manufacturers and service providers are watching closely for the imminent implementation of the CHP Directive.

The European Commission is pushing for full implementation of the Directive this year, including the reporting on national potentials for cogeneration, barriers to cogeneration and support measures for the sector. The industry sees this process as an opportunity to trigger the kind of boost to cogeneration which could move cogeneration in Europe into a real growth phase.

Fiona Riddoch is the Managing Director of COGEN Europe, Brussels, Belgium
e-mail: fiona.riddoch@cogen.org