Time to create a CHP roadmap for Europe

Fiona Riddoch

Today’s financially straitened times only increase the case for investment in high-efficiency, no-risk, technology-proven CHP schemes. But the CHP industry still needs clear policy signals, and governments also require commitment from the CHP industry. Fiona Riddoch makes the case.

Europe’s Energy and Climate Strategy without doubt needs a major mobilisation of capital if it is to succeed. The technology for carbon capture and storage (CCS) alone has high costs1. Much of the technology needed to achieve Europe’s goals for 2020 is still in development (offshore wind, storage, updated transmission and distribution which is smart grid enabled… the list goes on). All of this needs large investment and much of the investment carries significant financial risk to reflect the uncertainty of the timescales, technologies and returns from a volatile energy market.

At the same time, the financial crisis has left Europe with a depleted economy, ongoing financial uncertainty and the significant challenge of recovering economic strength. Capital is difficult to mobilise, and EU Member States face the most difficult decisions in dividing resources between competing social and economic demands. Governments need to use their money wisely.

Investments must be able to demonstrably drive economic activity but also provide sustainable economic recovery. The best solutions for Member States will be those that both support economic activity and address some to the broader societal objectives of their citizens.


Investment in different aspects of the energy structure has long-term benefits for society at large over a significant timeframe. Among all energy sector options for investment in our current circumstances, energy efficiency investments (including those in CHP) stand out as low risk, high return and broad in their economic stimulus.

Measures to improve energy efficiency have the fiscal and economic advantage of creating European employment across a range of manufacturing and project-based sectors: the construction industry, the service sector and – because the investment is local – SMEs. COGEN Europe estimates that 100,000 people are employed in the cogeneration industry across Europe at the moment, with manufacturing in 13 countries.

Investment in the energy efficiency sector also buys time as regards the tricky major infrastructure investments. A focus on energy efficiency buys time for the necessary new and renewable technologies to develop and come reliably to market, while offsetting the need for investment in more traditional centralised generating plant.

As regards societies’ heat demand, a focus on energy efficiency encourages all users to further conserve their heat resource: the producers of high-temperature heat in industry to recycle and use their waste heat; and the users of low-temperature heat to identify new more sustainable sources.

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The Wittgenstein cogeneration station and pellet plant launched by RWE Innogy and German Pellets in August Source: RWE Innogy

One of Europe’s energy objectives is explicitly to invest in energy efficiency. However, there is mounting evidence that this European target is not on track. At the end of 2008, the EU’s own assessment of its likely success in meeting a target of 20% savings from a 2005 level by 2020 was very low. The European Commission estimated that it would achieve 13%. In September 2010, a study to assess the progress of Europe towards its 2020 energy savings goal and the potential role of a mandatory target suggested that the EU needed to triple its policy effort in order to be successful. In other words, the EU is well off course on its energy efficiency objective.

The evidence, reinforced by the Ecofys and Fraunhofer report2, points to a massive scope and urgency for increasing energy efficiency in Europe. According to the report, the EU will miss its 20% energy saving target by around half3. This gap represents annual lost savings of around €78 billion (US$110 billion) for EU consumers – money that governments cannot afford to ‘leave on the table’. The report points out that Europe can still close the energy savings gap and capture these monetary savings, but it will require the EU and its Member States to be much more ambitious about energy efficiency and their energy-savings policies and investments.

The report has analysed the existing efforts of Member States, and the likely impact of current EU policy and national policy statements.By also taking into account the economic recession and policies adopted since the 2006 Energy Efficiency Action Plan (EEAP), meeting the 20% energy savings target in 2020 will still require a three-fold increase in policy impact.


Increasing the deployment of CHP in Europe will produce a guaranteed energy saving. The EU CHP Directive requires that any plant designated as high-efficiency CHP be shown to provide measurable energy savings of at least 10% from the separate generation of heat and electricity.

As this efficiency gain is calculated against separate production with the same fuel and against a high hurdle of base efficiency, in reality the saving is considerably more. Part of the gap between Europe’s current energy efficiency achievements and its target is the gap between the existing deployment rate of CHP and the real European potential. The EU Member States themselves have declared – in their CHP potentials analyses, reported under the CHP Directive 2004/08/EC – that Europe can at least double its CHP heat and electricity generation in the period to 2020.

This would supply 1000 TWh of heat and 455 TWh of electricity in 2020, and would provide 46 TWh of primary energy savings annually.

However, with the notable exception of Member States such as Spain, Germany and Belgium, where the governments have put in place strong support mechanisms, there is no growth in CHP in Europe. In fact, in the sector from 1 MW to 20 MW there is arguably a decline, with this being a clear reality in France, where only replacement of the current CHP stock is visible.

So, despite the quantified and measureable saving of primary fuel provided by CHP to the economy and the EU’s efforts to restructure, Member States’ interest and industry’s investment in this area seem to be having minimal success.

The challenge for industry and policymakers alike is: What is missing between the CHP Directive and Member State policy that would drive real growth? What really needs to be done to mobilise the wider deployment of CHP in support of the EU’s energy target and a more efficient European energy system as a whole?

For those who work in the sector, the story of CHP is the story of supportive government policy. CHP straddles two markets: heat and electricity. Its costs and benefits in providing heat are fairly well understood. Its financial attractiveness relies on the cogenerator’s ability to sell its electricity in the electricity market.

But at the moment, with a strongly amortised electricity generating base and a highly supported renewables sector, CHP electricity finds it hard to compete in off-peak. CHP gets little or no advantage on the liberalized market from its reduced national costs in primary energy, CO2 reduction, reduced transmission and distribution costs.

Also, it is not allowed to be recognised (as it should be) as baseload, which is what makes the incumbent nuclear and coal plants so attractive, and such good price performers in the electricity market.

Focusing immediate effort on CHP has two advantages for Europe’s energy strategy, which covers both its near-term and longer term energy and climate aims.

  • CHP involves no techno-logical hurdles. The CHP technologies needed to achieve Europe’s 2020 energy efficiency target are on the market today with supported supply chains and an existing European economic base.
  • All early wins on CHP help reduce overall demand, easing the path to higher penetration of renewables and delaying the need for more investment in infrastructure or generating capacity at a time of uncertainty and transition.

CHP is a foundation technology for Europe’s successful achievement of its 2020 energy savings target. It will demonstrably save primary fuel. However, what does Europe have to do to really harness this potential?


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A cogeneration plant under construction in Plovdiv in Southern Bulgaria Source: EVN


Achieving real energy savings requires a more integrated approach to energy demand assessment, thus defining the supply offerings that meet the need. There are big opportunities for energy efficiency if an integrated rather than a supply-side approach is used.

Demark has energy efficiency as a central element of its energy policy and takes a very integrated approach to heat and electricity supply, planning for heat as well as for electricity. CHP feeding district heating networks supplies 46%4 of the Danish heat market, and 43%5 of total electricity generation. The system efficiency of the electricity distribution network is more than 65% – a clear 20% better than the European network on average, reinforcing the idea that an integrated approach greatly improves efficiency.

The recent Imperial College London and University of Surrey study ‘Building a Roadmap for Heat: 2050 scenarios and heat delivery in the UK’, which assessed alternative approaches to decarbonising the electricity supply, confirms the integrated approach. It estimates that primary energy savings of 11% exist in a 2050 decarbonised electricity scenario for the UK if CHP and other integrating technologies are used.

In the French city of Dunkirk, its district heating network, built in 1985, currently delivers nearly 140,000 MWh a year to 105 customers through a distribution network of about 40 km that covers a large portion of the Dunkirk urban community. The heat is supplied from a combination of exhaust heat from the steel works and small CHP units. More than 60% of the heat supplied is recovered from the steel works and would otherwise have been vented to the atmosphere.

High-grade heat product-ion is the backbone of Europe’s industrial processes6 and successful decarbonisation of the sector requires a solution for high-grade heat. Low-carbon natural gas in widely used in industry. Gas cogeneration today produces very low emissions at 200 g of CO2/kWh, i.e. cogeneration can bring emissions to the levels which CCS on coal is targeting for commercial development by 2030.

Industrial CHP is a highly efficient use of primary energy, supplying low-carbon electricity to the wider network, and using the heat ‘by-product’ to power industrial processes.

Moreover, the profile of the very large CHP units in industry is very close to what Europe requires from baseload electricity plants – providing a baseload embedded in societies’ functioning economies and able to respond to demand with more flexibility than amortised nuclear and coal assets. Large industry runs 24 hours a day. CHP in industry is a highly integrated and high-efficiency use of primary energy. Allowing CHP to run as baseload with priority dispatch along with renewables brings a whole new character to the European energy supply and presents an interesting option for a high-efficiency integrated smart power network.


CHP is a sector that responds to policy impetus. In France, the installed base expanded by 1 GW per year in the late 1990s while, in much smaller Flanders, 1100 MW were installed between 2003 and 2010. There are adequate high-heat demand sites across Europe today to at least double the CHP infrastructure. However, to encourage these current users of heat to transition also to supplying electricity is a tricky business against a background of imperfect energy markets and semi-formed liberalization.

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A biogas fermenter of a CHP plant in Cirencester, UK, to be fuelled by chicken litter and pig manure Source: Alfagy

At the moment, the only tool to bring a value to the energy efficiency of CHP is a supportive policy structure to enable this new approach to bring integrated heat and electricity to market: in other words, to make it a profitable and low-risk new venture for today’s heat-only customers.

Outreach and commun-ication are needed to make potential cogenerators aware that their existing heat demand is a potential source of additional revenue from cogenerated electricity.

The target is to draw enterprising organisations into a new business opportunity of generating electricity as an additional product in their business model. Likely entrepreneurs range from schools, hospitals, universities and leisure centres to commercial and public buildings and light and heavy industries.

There are market barriers within the existing electricity market structure that policy changes must address, and there are barriers of inadequate rigour in the enabling policies for CHP in place today.

There are market barriers that the cogeneration sector itself must overcome by investing in market development for CHP in clear sectors, enabled by the communication and policy efforts. However, the industry cannot invest without changes in government policy, and government needs clear commitment from the private sector that it will invest in this market.

CHP needs a partnership of the wider energy-efficiency community, government and industry to co-ordinate efforts to address the multiple barriers to CHP that still remain for this uniquely integrated technology in a market of single-technology supply options, and with a lack of a market for heat.

The partnership should now work together and produce a CHP Roadmap for Europe to 2020. In the current financial crisis and at this technology junction for Europe, investing in CHP and energy efficiency has never made more sense.

Fiona Riddoch is the managing director of COGEN Europe, based in Brussels, Belgium. Email: fiona.riddich@cogeneurope.eu

This article is available on-line. Please visit www.cospp.com

1. The International Energy Agency (IEA) estimates that the cost of carbon capture and storage (CCS) today stands at ‘between $40 and $90 per tonne of CO2 captured and stored depending on the power plant fuel and the technology used’ (2008 study).
2. ‘Energy Savings 2020 : How to triple the impact of energy saving policies in Europe’, Ecofys and Fraunhofer (2010), commissioned by the European Climate Foundation and the Regulatory Assistance Project, 15 September, 2010.
3. A gap of 208 Mtoe.
4. ‘Heat plan Denmark’, Ramboll Denmark A/S, Aalborg University, 2008.
5. Eurostat CHP in the EU, Turkey and Norway – 2007.
6. Steam is an important energy form in industrial applications and – according to the Commission’s ‘Energy Trends to 2030-2007 update report’ – steam’s use is projected to increase at a rate of 1.22% per year between 2005 and 2030, rising from approximately 75 Mtoe to reach about 100 Mtoe in 2030.

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