Germany’s cogeneration sector is at a turning point. There was a wave of investment in modernization and replacement of combined heat and power plants by municipal energy companies and the industrial sector between 2002 and 2005 thanks to the cogeneration support law. This aimed to secure the level of cogeneration capacity in Germany and increase the share of cogenerated power in the face of more stringent competitive conditions after liberalization of the energy sector in 1998. Simultaneously, the aim was to reduce CO2 emissions.
However, since the deadline for completing investments to achieve eligibility for support expired at the end of 2005, and bonus payments for cogenerated power flow only until the end of 2010 at the latest, the question arises: ‘what now?’
‘Continuation of the development of cogeneration is not something we can take for granted,’ said energy experts Hans-Joachim Ziesing and Felix Christian Matthes in an investigation of the economics of cogeneration plant last year for municipal utility association VkU (Verband der kommunale Unternehmen). ‘Maintaining and expanding cogeneration is a central plank of German climate policy. Cogeneration’s role should also grow in view of security of energy supply problems,’ they pointed out. But for the contribution made by cogeneration to actually be expanded, ‘a clear political decision is needed.’
Unfortunately, if dilly-dallying within the federal coalition government over new cogeneration support is not channelled into a decision soon, opportunities to expand the use of CHP will be neglected as municipal and other energy companies focus on condensing power plant as replacement for their ageing existing plant. ‘It’s not just a question of whether cogeneration plant can be operated economically, but how attractive they are compared with other power station projects,’ point out Matthes and Ziesing. Already clusters of municipal utilities are jointly investing in their own electricity-only power plant or buying shares in such plant, possibly as a more attractive option than the more expensive and complex cogeneration business.
The Social Democrat party launched an initiative last December for an amendment to the cogeneration support law, but Laurenz Meyer, head of the conservative CDU/CSU parties’ committee on economy and technology, argues that all climate protection instruments – emissions trading, renewable energy support law, cogeneration support and others – should be streamlined into one. Electricity federation VDEW (Verband der Elektrizitätwirtschaft ), representing the major incumbent power companies, too, calls for an ‘overall concept’ in a ‘long-term structural approach for developing individual sites’.
‘But as this is very difficult to achieve, the initiative simply puts a brake on everything,’ criticizes the VkU.
No wonder, then, that VkU too is pushing hard for an amendment of the cogeneration support law especially after recent reviews of the workings of the existing legislation appear to show that CO2 emissions savings targets are not being achieved.
The cogeneration support law, in force since March 2002, was based on an agreement between the federal government and German industry on reducing CO2 emissions and supporting cogeneration which, in turn, was an element of a larger government-industry climate deal. Overall, Germany’s energy industry committed to reducing CO2 emissions by up to 45 million tonnes/year by 2010 (an ambitious pledge that in the meantime has been replaced by laxer European carbon trading requirements) from a baseline of 1998, and that 23 million tonnes/year of this commitment, ‘or in any case no less than 20 million tonnes per year’, should be achieved through use of cogeneration. The intermediate target was set at a 10 million tonnes/year reduction by the end of 2005, and if this were not achieved, the law required additional measures to be introduced to provide more effective support.
Two expert reports were commissioned by the federal environment and economics ministries to provide an assessment of progress so far. These were carried out by IER Institut für Energiewirtschaft und Rationelle Energieanwendung (Institute for Energy Economics and Rational Energy Use) at Stuttgart University, and jointly by Deutsche Institut für Wirtschaft (DIW) and Ökoinstitut. They came to different conclusions on CO2 emissions savings achieved by 2005. One (IER) put the figure at 8.5-10 million tonnes/year, the other (DIW/Ökoinstitut) gave a figure for the additional reductions achieved thanks to the support law of 3.3-5.0 million tonnes/year. Both agreed however that the target reduction by 2010 is unlikely to be achieved, triggering the need for improved support conditions. The ministries therefore also concluded that the 2010 target probably won’t be reached and stated that an amendment to the law will be proposed.
The powerful electricity federation VDEW, representing the major incumbent power companies, takes issue with the two studies, however. ‘Substantiated evaluations are needed,’ it says. Problems apparently include the IER study’s use of an imprecise spectrum of fuel-specific CO2 emissions (300-900 g CO2/kWh) and the DIW/Ökoinstitut’s use of 2003 data when the cogeneration law baseline is 1998.
Regardless, the Social Democrat Party has drawn up cornerstones for an amendment to the cogeneration support law for discussion with its coalition partners. These include a continuation of the current support mechanism but using efficiency criteria set out in the EU Cogeneration Directive for new plant and modernized plant, and including caps to limit the volume of support.
HOW THE CURRENT CHP SUPPORT LAW WORKS
The current cogeneration support law, on which an amendment would likely be based, requires electricity network operators to buy cogenerated power at a price agreed between the cogeneration plant company and the network operator. Under the law, the cogeneration plant company receives an additional bonus payment per kWh, the size of which varies as set out in Table 1.
The additional costs of this bonus are passed on to power customers as a component of network usage charges.
The volume of cogenerated power eligible for a bonus peaked in 2006. It will drop sharply, by some 12.3 TWh, in 2007 since old cogeneration plants commissioned before the end of 1989 are no longer eligible for a bonus payment (see Table 2).
In parallel, the total cogeneration support will fall to about €0.7 billion in 2007, compared with a peak of €0.85 million in 2005. The cogeneration levy component of electricity prices is the smallest of the various state-imposed surcharges on the cost of power (see Table 3).
WHAT THE EXISTING LAW HAS ACHIEVED AND WHAT IT COST
The existing support law prompted 22 companies in the municipal sector to invest around €1.5 billion in modernizing cogeneration plant, raising electrical capacity by 860 MW and thermal output by 159 MW (see Table 4). A survey by the industrial power users’ association VIK revealed that industry modernized or expanded around 1 GWe of new cogeneration capacity over the period to 2005, according to the federal cogeneration association (Bundesverband Kraft-Wärme-Kopplung). There are reports that an amendment to the law would prompt industry to modernize or expand around 2500 MWe of cogeneration capacity.
The 2002 law allowed for a total support volume of about €4.5 billion to 2010 but one of the assessment reports pointed out already that the budget will be overstepped. The IER report estimates that the total will reach €5.6 billion. There is a view amongst municipal energy sector companies that the €1.1 billion overspend may be partly due to the creativity of some industrial cogeneration plant operators in achieving compliance with requirements of the law to become eligible for bonus payments.
Support applies only to the cogenerated amount of power that is fed into the electricity networks for the public supply. Industrial cogeneration plant operators may have found unusual means to increase this volume. The amount of power fed into the network for the public supply by industrial generators, most of which operate a cogeneration plan, increased to 37 TWh in 2005 compared with just 21.5 TWh in 2002, according to electricity federation VDEW (Verband der Elektrizitätwirtschaft) – see Table 5.
Recent official statistics on cogeneration in Germany are not available. Eurostat has, however, published figures for 2002 putting German cogenerated electricity production at 56 TWh in 2002. This was 5 TWh less than the 61 TWh reported for 2000 (Table 6).
BROADER FRAMEWORK FOR AMENDED LAW?
The VkU is keen that an amendment to the support law should set more generous time limits. ‘The tight schedule between 2002 and 2005 was too short for some companies to complete planning and construction, and the longer component supply times experienced today due to the boom in power plant construction must also be taken into account,’ says VkU representative Rosemarie Folle. The amended law should also ditch the current maximum limit of 2 MW for support for completely new plant. Support should go not only to new cogeneration plant at new sites but also to replacement plant at existing sites, says the VkU. The existing law aimed merely at securing existing cogeneration plant through their modernization. The amendment would have more ambitious aims.
Pushing in the opposite direction, and anxious to avoid measures that could increase the price of power, electricity federation VDEW stresses that large cogeneration plants which produce heat when needed by local customers, and otherwise dispose of it up the cooling tower, are economic without support, depending on the parameters of future CO2 certificates trading.
However, of the around 30 large power stations (all replacement plant) planned to come on stream by 2012, only six coal-fired plant (Berlin, Datteln, Hamburg, Mannheim, Mainz and Walsum) and one gas-fired plant (Bielefeld) will be cogeneration plant.
And the four major incumbents in Germany – E.On, RWE, Vattenfall Europe and EnBW – who control 80% of generating capacity, don’t want to encourage cogeneration competition, comments Klaus Traube of the federal cogeneration association BKWK (Bundesverband Kraft-Wärme-Kopplung).
Cogeneration can take off even further in Germany if there is sufficient political support (Vattenfall)
Indeed, already over 20% of power station capacity in Germany has cogeneration capability, but only 10% of total generation is cogenerated power, according to the IER study, indicating that heat uptake has been, and is, a limiting factor at large power stations sited away from centres of population. The VDEW concedes that the economics of cogeneration plant varies considerably from site to site ‘with considerable problems in the heating sector’.
RENEWABLE COGENERATION PROVES POPULAR
Meanwhile, as the conventional CHP sector awaits government action on more favourable support conditions before engaging in new investment, the renewable energy support (RES) law is encouraging growth in the renewable cogeneration sector.
The RES law allows a €0.02/kWh bonus for cogenerated electricity on top of the premium payments set out for power generated in biomass plant (up to 20 MW). Payment for cogenerated power from a 150 kWe plant commissioned this year thus amounts to €0.1299/kWh for 20 years, power from a capacity share between 151 kW and 500 kWe is priced at €0.1146/kWh, from the 501 kW to 5 MW share at €0.1051/kWh and from the 5.1-20 MW share at €0.1003/kWh. Payment rates are reduced year by year for new plant on line – see Table 7.
The payment rates are attractive enough for RWE Energy to force its biomass cogeneration business. Last December, it announced reorganization of its contracting sector to expand business ‘in particular concerning highly efficient cogeneration plant fuelled with biomass.’ Cogeneration business with plant of more than 5 MW has been placed in RWE Key Account, a division that looks after about 400 large industrial customers, some of which could have potential sites for biomass cogeneration plant. ‘We see the use of biomass for power and heat in the industrial sector as an important contribution to energy efficiency and saving resources,’ said the company. Its most recent biomass contracting project is a 7.5 MWe/22 MWth cogeneration plant under development at an industry park in the Siegen-Wittgenstein district and due for commissioning in 2009. This will supply heat to a wood pellets factory to be built at the same site. RWE already has an 8.5 MWe/48 MWth biomass cogeneration plant at the August Koehler paper mill at Kehl, a 20 MWe/61.3 MWth biomass cogen plant at Bergkamen, and a 20 MWe/65 MWth biomass cogen plant at Gropiusstadt in Berlin supplying the local district heating network.
Support for small renewable combined heat and power plant alone will not help Germany to fulfil its considerable cogeneration potential, however. A recent study for the federal economic ministry (by the Bremen Energy Institute – Bremer EnergieInstitut – and the German Aerospace Institute – Deutsches Institut für Luft und Raumfahrt) concluded that the economically feasible cogeneration potential amounts to at least 57% of total power generation in Germany. The share currently lies at just 12%.
Sara Knight is an energy writer based in Germany. e-mail: firstname.lastname@example.org