Implementation in sight – the EU CHP Directive enters the last lap

The EU CHP Directive first formally entered into force in 2004, but its implementation by Member States is only being completed now, after vital technical details on calculations of energy savings have been finalized. Simon Minett reports.

The European CHP Directive is finally starting to have an impact. This Directive, brought into force in February 2004, is now in the final stages of transposition in the EU. Transposition includes assessing the potential for growth, which will set the path for development of good-quality CHP into the future in Europe.

The Member States have mostly adapted their laws to comply with the Directive and now are negotiating the final steps of the process called Comitology. Comitology involves a committee that comprises the European Commission and representatives of the Member States, with observers from European associations. This committee has for the last three years been debating the technical aspects that were left unresolved at the time of the agreement of the Directive. These items are:

  • What is a CHP plant and when does it operate in CHP mode?
  • What are the references to which the CHP process is to be compared so that primary energy savings can be demonstrated?
  • Guidelines on how to undertake a potential study.
  • Guidelines on how to undertake the assessment of CHP plants.

In February this year the European Commission published reference benchmarks that will address the above questions. Accordingly some CHP plants may fail the test for delivering energy savings, but most will pass and this will show the benefits of CHP in a clear, understandable way. This article will address the recent publication of these references and the political progress. But first, a refresher on the CHP Directive.

What is the CHP Directive?

The CHP Directive is formally called the ‘Directive 2004/8/EC of the European Parliament and of the Council of 11 February 2004 on the promotion of cogeneration based on the useful heat demand in the Internal Energy Market and amending Directive 92/42/EEC’.

In reality it is a piece of framework legislation that sets as its goal the development (and by this it means growth) of CHP in the European Union, allowing each Member State a lot of freedom to decide what is necessary to be done. The heart of the Directive is to ensure that CHP grows and that the CHP that is developed achieves demonstrable energy savings.

The Directive entered into force on 21 February 2004, when it was published in the Official Journal of the European Community. From that date the clock has been ticking and Member States have had to take the necessary steps to implement the Directive into their national legislation. Formally each Member State had a deadline of two years to undertake all the necessary changes to implement the Directive. (This is the same for most EU legislation.)

However, CHP has been a difficult child as the complicated questions were put to one side at the time of political agreement. These questions – on what a CHP plant is, what its real operation is, and what to compare it with – have proved difficult to reach agreement on. This is not surprising as they have been at the heart of arguments on CHP for years. The consequence of this delay is that no Member State has yet transposed (this is the formal term – it means implemented into national law) the Directive even though three years have now passed. Finally, however, this process is close to completion.

What does the CHP Directive do?

As the Directive is a framework, each Member State has to adapt the Directive to suit its own special requirements. This requires changing the regulatory regime to ensure fair access for CHP, improving planning and other authorization procedures and passing any necessary legislation.

In addition, the Directive sets up a long-term evaluation and reporting framework for Member States to track the progress in achieving real growth in CHP. The most important aspects of the Directive are:

  • defining what is CHP and what CHP saves in terms of energy
  • removal or streamlining of authorization procedures
  • ensuring fair, transparent grid access
  • providing a legal framework so that CHP has well founded and strong links to other Directives
  • providing a long-term regime for support to CHP, including the legal use of State aid. Thus the support systems in the EU – such as the UK’s CHP exemption from the climate change levy and Belgium’s certificate systems – can be continued in the future
  • forcing Member States to evaluate the potential for CHP, the barriers to reaching this potential, and taking substantial steps towards this potential
  • regular reporting of progress and the threat of further stronger action in the future if no progress is made.

What it does not do is compel Member States to support CHP plants with money. It also does not specify how Member States should support CHP or which sectors or sizes. It does not specify how barriers to CHP should be tackled or how much CHP is necessary in a country. However, it does set up the framework for support, and by setting the challenge to Member States to fulfil their potentials for CHP, it will require most Member States to support CHP one way or another to provide the growth path.

The Directive in itself may not change the market. The key is that each Member State is being encouraged to use the opportunities that the Directive brings to ensure that the barriers to CHP are removed and that appropriate support is put in place. Or if there is already support, that this delivers long-term sustained growth in CHP. Together with other policies in place and the increasing needs for delivering carbon reductions, Delta Energy and Environment, a distributed energy consultancy, believes that the market prospects for CHP in Europe look increasingly rosy.

Political progress

The Comitology process has been tortuously slow with wide-ranging arguments. However, finally the main items for agreement have started to fall into place:

  • On 6 February 2007 the European Commission published the decision of the harmonized reference values for CHP. This set of benchmarks will be discussed later.
  • In 2006 agreement was reached on the guidelines for undertaking studies on the potential for CHP. Most Member States have either completed or are finalizing these studies and they should be with the Commission for evaluation this spring. It remains to be seen whether the potential studies have been done well or whether countries have done a quick and superficial job on them. What will happen is that the studies will be evaluated by the Commission to ensure that there is consistency across the EU and, once approved, they will be published. In work done by COGEN Europe and additional assessments by Delta, it looks likely that the long-term potential will exceed 200 GWe of capacity, around three times today’s level.
  • Most Member States have now completed the passage of primary legislation for adapting laws to comply with the CHP Directive. In some countries a new CHP law has been developed, such as Slovakia and Greece, while most countries have adapted existing laws, such as the UK, Belgium and Denmark.
  • With the publication of the harmonized reference values, the Member States have six months from that date (by 6 August 2007) to complete a process for Guarantees of Origin for CHP. This is effectively a certificate system, which could be traded across Europe for qualifying CHP output. An organization known as the Association of Issuing Bodies has been developing an electronic register that will work along side green (renewable) certificates and white (efficiency) certificates. This process has the blessing of the European Commission and most, but not all, countries will use this system.
  • The final hurdle is the agreement of the guidelines for using Annexes 2 and 3 of the Directive. These will address the issue of what the real CHP output is. Annex 2 sets thresholds for CHP to pass 75% overall efficiency for most types of CHP and 80% for combined-cycle CHP and CHP using steam turbines with condensing elements. If a plant has an efficiency above the relevant threshold, then all the output is classed as CHP and the plant performance is tested against the references for primary energy savings. If the efficiency is below the relevant threshold, then part of the electricity is considered to be produced in non-CHP mode. This requires a scaling-back method. The debate on this methodology is still raging. However, there are signs that agreement is close. Delta expects this process to be completed before the summer, with agreement of the guidelines likely in September 2007.

The references

After an extensive investigation to support the values for the references, the Member States approved the harmonized reference values, through ‘Commission Decision of 21 December 2006 establishing harmonized efficiency reference values for separate production of electricity and heat in application of Directive 2004/8/EC of the European Parliament and of the Council (2007/74/EC)’. These reference values cover the alternatives to CHP – that is, the separate production of heat and electricity from boilers and central power stations, respectively. The principles of this approach are:

  • A CHP plant is compared with the separate production from the same fuel sources. Thus coal-fired CHP is compared with coal boilers and coal-fired power generation, gas with gas, and so on.
  • Where more than one fuel is used, the references are based on a weighted average of the energy content of the fuel.
  • A CHP plant is compared with separate production in the same year that the plant was constructed. Thus a CHP plant built in 2004 is compared with a boiler and power station built in 2004. The restriction to this is that this reference year holds for 10 years and so plants built before 1997 use the references for 1997. This is rolling 10 years, and so each year the 10-year period moves on one year, so next year this plant will be compared with references for 1998, and so on.
  • The references are based on realistic annual operating data from fully commercialized separate production.
  • The electricity reference is corrected for an average ambient temperature in the country in question. For every 1à‚°C above 15à‚°C the reference is lowered by 0.1% point and for every 1à‚°C below 15à‚°C the reference is increased by 0.1% point.
  • The electricity reference is corrected for the grid losses associated with delivering this power to the site where the CHP plant is located. Grid losses are dependant on the level of voltage connection, and the CHP plant’s electricity uses one correction for electricity used on the site and another for exported electricity. The correction factors are given in Table 1.
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Boiler references are not adjusted for each year as it was decided that boiler efficiencies have not improved over the last decade and are unlikely to improve in the next five years. Table 2 gives a selected number of the boiler references. Note that in steam systems, if condensate is returned to the CHP installation then the reference value is lower by 5% points to reflect the benefit of condensate return.

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The benchmark reference values for power production – shown in Figure 1 – have been determined for the period 1996-2011. These reference plants include power consumption at the power plant, and are based on typical operating data. Future reference values will be determined before the end of this decade.

Figure 1. Reference power plant values for central power plants. (These data corresponds to 15à‚°C ambient temperature. Corrections are made for different temperatures, with lower reference values for higher temperatures, and higher ones for lower temperatures.)
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Primary energy savings

The calculation of primary energy savings (PES) is based on the annual heat output of the CHP plant and the annual electrical output of the CHP plant.

The calculation uses the following formula:

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  • PES is the primary energy savings delivered by the CHP plant. This must be greater than 0% for schemes in the CHP Deployment Programme.
  • CHP Hh is the efficiency of the CHP plant’s heat production defined as annual heat output divided by the annual fuel input.
  • Ref Hh is the efficiency reference value for separate heat production.
  • CHP Eh is the efficiency of the CHP plant’s electricity production defined as annual electricity from CHP divided by the annual fuel input.
  • Ref Eh is the efficiency reference value for separate electricity production.

This process is illustrated by a worked example: a 3.6 MWe CHP plant using a gas turbine and a waste heat boiler supplying 7.4 MW/hour of steam for industry using natural gas. The electrical efficiency of the CHP plant is 33.5% and the thermal efficiency is 51.3%, giving an overall efficiency of 84.8%. 95% of the electricity is used on site and 5% exported to the grid, with a connected voltage of 10 kV. The condensate from the steam system is returned to the CHP plant. The plant was constructed in 2006 in Belgium.

The first test is the threshold to determine whether all the output is CHP or not. For a gas turbine CHP plant this threshold is 75%, so with an efficiency of 84.8% this plant passes. The second test is then the PES test. As the plant is larger than 1 MWe the PES must be greater than or equal to 10%.

The reference data are as follows:

  • The harmonized electricity reference is 52.4% before corrections.
  • Ambient temperature in Belgium is 11à‚°C, thus the power reference correct factor is +0.4%.
  • The grid loss correction for a 10 kV connection is 0.945 for export and 0.925 for on-site use. Thus for this plant, where 95% of the electrical output is used on-site, the aggregate correction is 0.926.
  • The corrected electrical reference is then 48.9%.
  • The harmonized boiler reference is 90% before correction.
  • The correction for condensate return is 5%, thus the corrected boiler reference is 85%.
  • Applying the formula for this plant the PES is 18.9% (pass).
  • Based on the CHP plant operating for 7500 hours per year this equates to an actual energy saving of 23.5 GWh/year.

Impact of the references

Summary data from detailed PES calculations undertaken by Delta is shown in Table 3. Projects larger than 1 MW must achieve primary energy savings of 10% or more to qualify for full support. Smaller projects just have to show positive energy savings. The plants below are examples of cogeneration plants – many plants using the technologies detailed will have different electrical and thermal efficiencies.

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The clear implication of this system of assessing the PES of cogeneration projects is that some existing schemes may fail to achieve the qualifying threshold for support from government incentive schemes, or that schemes may have to be scaled back and lose a significant proportion of these benefits. New schemes, however, can now be designed in accordance with the new rules.

One type of installation where there are potential problems is that involving a small steam turbine for pressure let-down; for example, a steam line in a factory at 40 bar needs to be let down to 10 bar. Due to the size of the steam turbines and the pressure drops, the turbines operate at low electrical efficiencies. This is undoubtedly better than using a pressure let-down valve since it puts the energy to use. These schemes are fairly extensive in many industries. The energy saving is clear when compared with the use of a valve, but such projects may still fail to qualify as the fuel input is taken to be the primary fuel for the steam system. In this case, if the fuel was natural gas, the 250 kWe scheme would have a PES of -2.1%. However, if the assumed fuel is waste heat, then the PES is 21%. This issue is still open to interpretation.

The second case which will struggle is an old gas-fired steam turbine plant. If in the 50 MWe example, natural gas is used instead of coal, then the PES is 8.92% and the plant fails the test.

Final thoughts

The path to completing the CHP Directive has been long and tortuous, but now the last steps are in sight. A well designed and operated CHP plant has nothing to fear from the assessment methodology and will be seen to deliver primary energy savings and thus to contribute to tackling climate change through carbon reductions. At last the debates on ‘what is CHP?’ and ‘what does it displace?’ are over.

The Member States are investigating the potential for increasing the share of CHP in Europe, and Delta believes that this will re-stimulate the market, which has been stagnant across Europe for the last five years or more.

Simon Minett is a Director of Delta Energy and Environment, based in the UK and Belgium.

The author has been instrumental in shaping, negotiating and providing understanding on the CHP Directive. Delta is happy to advise clients on the interpretation of these rules and the impact on existing or future CHP plants.

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