Europe is falling behind in its attempts to achieve its energy savings target of 20% in 2020, compared to a 2005 baseline. The European Commission reported at the end of 2008 that, at present the current rate of progress, and with the anticipated effects of the current and planned legislation, Europe would achieve not 20% but 13% savings in 2020. Europe’s energy savings strategy is floundering.

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The Madrid Barajas airport, Spain, which uses on-site trigeneration

It’s good then, that we have the option of looking for even more from cogeneration, a guaranteed energy efficiency method, to try and close the gap. Europe has been engaged since 2004 in creating a policy structure which sets the groundwork for Member States to identify, and systematically develop, the latent cogeneration potential which exists on their territory. In a world of new and still to-be-developed technologies competing for scarce resource, it would seem an ideal insurance policy for energy savings targets for Member States to invest in cogeneration.

One of the main achievements of the Cogeneration Directive (2004/8/EC) has been to codify for Europe what is meant by cogeneration. Any plant now carrying the status of cogeneration will save a minimum of 10% of primary energy compared to separate production of heat and electricity based on the same fuel. Recent reporting from Denmark suggests that, on average, a cogeneration plant installed today would achieve a 25% saving.

EU Member States stress the need for ‘proven measures’ to apply, which will lead to real energy savings and in this context the Cogeneration Directive delivers the certainty they are seeking. Moreover, these real energy savings can be delivered with confidence using a mature technology, with a well established supply chain and a strong technology base in Europe. Overall a low risk choice.

The Cogeneration Directive outlines an enabling policy framework for the European Union to expand the deployment of cogeneration in Member States. The Directive was passed by the European Parliament in 2004 and encourages the use of cogeneration in the production of heat and power as a successful and well developed technique delivering primary energy savings. The background policy objectives in 2004 were security of supply and energy savings. The climate agenda — which has grown in importance since 2004 — has added further impetus to the wider use of cogeneration as a key enabler for improving the efficiency of electricity production from fossil fuels.

The EU Member States are required under the Directive to assess the national potential for cogeneration. The reports were originally requested in early 2006 but, due to delays on the parts of both the Commission and the Member States, even now four reports remain to be submitted. However, with Member States accounting for 90% of the total installed capacity having already reported, it is finally now possible to review the overall European situation.

OBSERVATION AND DISSEMINATION

A joint industry and European Commission funded project named CODE (Cogeneration Observatory and Dissemination Europe — COGEN Europe is leading this project that is co-funded by the EU’s Intelligent Energy Europe (IEE) programme) mobilises sector-wide stakeholders to independently monitor the implementation of the Directive. The project assesses the progress being achieved through EU Member State initiatives, and will report between now and 2011 on the performance of EU Member States in implementing their obligations under the Directive. In a sequence of reports (the first of which is already available) the CODE project will summarise its findings on:

  • the identified European potential for cogeneration
  • the barriers and support mechanisms for cogeneration existing across the Member States
  • best practise and progress in Member States and
  • a draft CHP roadmap for Europe.

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Cogeneration units at a communal waste dump in Modlany, Czech Republic

The CODE project team has performed the first analysis of the Member States reporting, thus far under the Directive. Even though only 23 of the 27 Member States have so far submitted a potentials study, these countries represent 90% of the currently installed cogeneration capacity in Europe. In the first effort of its kind carried out by national governments, the findings of these Member States points to an additional economic cogeneration capacity amounting to 100 GWe which could be in operation in Europe by 2020. What is more striking is that this is not the total ‘technical’ potential for cogeneration; this is simply what the Member States have identified as being the potential for cogeneration which it is ‘economic’ to develop.

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An AkzoNobel chemical factory in the Netherlands

This is a striking finding. Until now estimates of the total available potential for cogeneration in Europe have been restricted to a small number of studies conducted either by the industry or the European Commission, but now the Member States themselves have independently identified the size of the cogeneration prize. The Member States reports show that there is a clear potential to double cogeneration in Europe.

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A CHP unit at a hospital in Krnov, Czech Republic

Even using a variety of different approaches and unconstrained by definitions of what is or is not economic, the Member States are also declaring that it would be economic to exploit it.

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Cogeneration units being checked by engineers

The Member States were asked to identify potential for cogeneration using a bottom-up approach. In practice most have used a combination of bottom-up and top-down. This potential was then modified by an assessment of what amount of the technical potential is economic. This step introduced a considerable difference in the assessment methods of different Member States, particularly in the area of what was assumed to be an economic rate of return for investment in a cogeneration project.

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Despite a considerable variation in the ‘economic’ ruler used by Member States and in the transparency of detail and assumptions used in the assessment in estimating the economic national potential, the CODE project team believes that most Member States have carried out a reasonable analysis. The conclusion which has therefore been derived must be taken seriously.

SCOPE FOR AT LEAST A 50% INCREASE

Most EU Member States have reported at least a potential for a 50% increase in cogeneration capacity over today’s level, and a large number have identified the potential to double the aggregated size of their cogeneration installations. The applications identified exist in industry, commerce, the built environment and agriculture, with this wide range of applications distributed roughly 50%/50% between industrial heat and space heating applications.

There is a definite trend to extrapolate the future opportunity from known past successes in the Member State reports. Hence in countries which have a strong history of district heating and a lesser experience in industry, the potential is seen very much in expanding district heating, with less opportunity in moving more cogeneration into industry to produce industrial process heat. In countries such as the UK, where there is a history of industrial cogeneration and virtually no district heating, the additional potential is all seen as being in industry and small commercial developments. In Germany, which has a strong tradition in both, both segments are seen as ripe for cogeneration expansion.

Only those countries with an already high penetration of cogenerated electricity in their current energy supply system, such as Denmark and Finland, have tended to report limited possible expansion. In several reports, Member States highlighted an inability to quantify the potential for the newer cogeneration technologies such as micro CHP and trigeneration. The early stage of both these markets, and the lack of public data on their likely commercial development, is highlighted by Member States which refrain from judging an economic potential at this stage.

BARRIERS TO INVESTMENT

However, the positive identification of potential comes hand in hand with a less cheerful list of barriers to achieving these economic potentials. Although it is difficult to assess from the reporting what the hierarchy of barriers is, and hence what is their relative priority, common themes emerge in the reporting, highlighting the next challenges in developing the market and policy around cogeneration.

Many reports highlight barriers arising from the overall uncertainty of return on cogeneration investment today. A general reduction in the price of electricity in the market at this point of its evolution, plus an increased volatility in the price of primary energy, are clearly highlighted by several Member States. This combination creates a decreased margin for the electricity sold and an increased uncertainty in return on the overall investment.

The result is that, in reviewing cogeneration investments where — as always — there is competition for investment funds, investors will be increasingly cautious and more than ever demanding when it comes to rates of return. The financial crisis has added the burden of higher interest rates to all investments and cogeneration is no exception.

The financial barriers are even higher for district heating applications, particularly in new Member States. All new Member States which consider improvements of existing district heating schemes as the basis of the economic potential have raised economic factors as a significant barrier. These schemes are typically 20-30 years old, many distribute heat, i.e. do not yet use cogeneration, and are in need of investment in the existing pipes and infrastructure. Beyond this, the building structure they serve requires serious improvement to bring them up to acceptable standards, thus fully defining the actual heating load they represent to the scheme.

The economic challenge of new cogeneration project investment is added to the additional factors of capital cost for pipework and infrastructure and the uncertainty of the heating load.

POLICY REQUIREMENTS

If Europe is to take advantage of the energy efficiency benefits offered by cogeneration there is a need to create a policy environment which addresses the economic issues challenging cogeneration particularly:

n Removal of legislative and administrative barriers which add unnecessary cost to cogeneration projects

n Creating an environment of electricity delivery which allows cogeneration to supply electricity ahead of higher carbon and less efficient electricity production in the market, i.e. priority of dispatch

n Support schemes which are adequate in terms of energy unit price bonuses and long enough in duration to encourage wider use of the technology in both industrial and built environment applications.

A further significant group of barriers relate to administrative and bureaucratic procedures applicable to cogeneration projects, and particularly relating to connection to the grid. Grid connection issues come in several forms. The early project stages of feasibility studies and identifying grid connection possibilities are still difficult in many Member States. Information is not centralized and not necessarily accessible. Response times to enquiries are variable. Contractual costs and penalties are not standardized, particularly at the distribution system operator (DSO) level and in some countries the system operators are weighting the contracts with costs which should arguably be spread across several beneficiaries over time.

The administrative and bureaucratic overheads added to the economic challenge will certainly deter any but the well prepared investor.

Hence, if Europe is to take advantage of the energy efficiency benefits offered by cogeneration, there is a need to create a policy environment which addresses the administrative and bureaucratic issues challenging cogeneration particularly:

n require transmission system operators (TSOs) and DSOs to make available the necessary feasibility study information covering technical and economic issues around new connection

n ensure that information on connection costs for new distributed generation is transparent, published, regulated to allow for the full lifetime of the investment, and suitable to the size of proposed investment

n require TSOs and DSOs to provide both of the above in a reasonable time frame for investment decisions and successful project outcomes.

The Member State reports have concluded that there is the potential for Europe to double its installed cogeneration capacity by 2020. These reports have also listed additional barriers requiring policy action. The European Commission will no doubt study the conclusions of the CODE project with interest.

Fiona Riddoch is the Managing Director of COGEN Europe, Brussels, Belgium.Email: fiona.riddoch@cogeneurope.eu

REFERENCE

1 Future COGEN study, IEE funded project 2002; EU Commission Strategic Energy Technology (SET) Plan 2007 DG TREN

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