How does the European market look to a small-scale CHP manufacturer and what are the market drivers? Here, in a personal view, Paul Hamblyn from the UK-based ENER-G plc reports an uneven but promising picture, with rising energy prices causing many end-users to think again about CHP, particularly where a good finance package can be arranged.

Today saw the final two of nine 800 kWe CHP units leave our factory in Manchester, UK, destined for a district heating scheme in Târgoviste, Romania. In itself, this event isn’t unusual – after all, units leave the factory on a regular basis – but on this occasion it marked an important milestone. They represented the end of a busy and exciting year for ENER-G. A year that has seen us build more CHP units than ever before, in over 20 years of production. While we have undoubtedly done a good job in winning contracts, the fact we have experienced such a good year also tells you something about the CHP market in Europe.

Our business is spread across Europe, with offices in the UK and Holland as well as partners in Spain and Ireland. In addition, we are also actively pursuing opportunities throughout the continent, but especially central and eastern Europe. What all my colleagues report is increased interest in CHP. In turn, we are obviously hopeful that this will result in larger order books in years to come. But what accounts for the increased interest?

More projects are getting started in Europe thanks to special financing packages
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We believe there are some important factors at work. Firstly, ongoing energy price rises. Secondly, fears over security of supply and finally, increasing awareness of the environmental impact of fossil fuels and the associated fear of climate change. In addition, these factors are further fuelled by media interest in the same stories. While those of us living in the UK will know how frequently newspapers, radio and TV feature energy or environmental issues, this is not confined to the UK. Similar levels of media interest are European-wide.

Other drivers are also influencing the market. Some of these may even have greater significance as time progresses. Perhaps two of the more important drivers are a couple of European directives: the Cogeneration Directive and the Directive on Energy End-Use Efficiency and Energy Services. While the latter is now in force, it is not due to be fully transposed until May 2008. However, the Cogeneration Directive is here today and has some interesting elements. For example, it establishes the principal of Guarantees of Origin for electricity generated from CHP. While currently not compulsory for operators of CHP schemes, its does not take too much imagination to see where this could lead in years to come – tradable certificates perhaps?

A better price for gas and electricity?

Each of the factors or drivers mentioned is having its own effect, but combined, they are definitely influencing both existing and potential customers alike as they seek to mitigate their impact. With an aim to help manage the risks to their business or operation, businesses are considering a range of options to negate the cost impact of escalating energy prices. For instance, in those European markets where energy is properly liberalized, perhaps the first move for many businesses is to look at their existing utility contracts. They are asking themselves, ‘Can we get a better price for gas or electricity?’

In the process, we are finding that the increased boardroom attention on energy is leading many energy managers or procurement departments to turn to professional advisors when re-negotiating supply contracts. As a consequence, such advisors are reporting increased interest, and one leading broker I know well, Utility Auditing Ltd, has seen larger companies implementing long-term contracts to hedge against sharp movements or big annual price hikes. Its Managing Director, Paul Backx, told me: ‘There appears to be little relief ahead in the coming year, with extreme volatility and further bullish drivers in the market, although forecasts suggest that price rises will be less sharp.’ He also reports that customers want more than just a better contract.

An 800 kWe ENER-G CHP unit being prepared for the journey to Târgoviste, Romania. This district heating renewal project has been made possible as a result of the carbon savings of CHP
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Energy-efficiency measures, such as CHP and improved metering, have all featured more on their wish list. But why is this? Economics was the answer given: ‘Two or three years ago a business might have to invest £30,000 in order to save £10,000 on a £100,000-a-year energy bill, and they would often see the three-year payback period as too long. Nowadays a business that spends more than £50,000 a year on energy would probably be looking at payback within a year.’

As we’ve already seen, energy-efficiency measures are now being taken more seriously. Companies are looking for ways to reduce their consumption in order to lower their costs. The measures being employed include the simpler no-cost actions and also the higher-cost actions too. Combined heat and power, particularly for those customers with bigger heat loads, is definitely on the agenda. Interestingly though, we have also seen a dramatic increase in the numbers of people interested in much smaller units, for example around 20 kWe.

Alternative energy sources

Alternative energy sources are also beginning to feature more highly in people’s minds. While for many, this may mean small-scale renewables such as on-site wind turbines, photovoltaic or solar water heating, others are looking at alternative fuels like biogas and biomass such as the waste they produce on-site. As a result, our Norway-based Energy from Waste business, ENERGOS, has seen increased interest in its cogeneration solutions based around its gasification technology. Manufacturers like Petersen Linerboard in Trondheim have already realized the benefits of using waste to displace fossil fuel. The 25 MWh of steam provided by the on-site ENERGOS plant is used by the company in their paper-recycling process. Waste for the plant comes from its own factory and is topped up by residual commercial waste provided under contract by Norsk Gjenvinning AS. Five similar, but larger-capacity schemes are also in operation elsewhere in Europe, all of which displace fossil fuel and produce steam and/or steam and electricity.

We see a significant future for this type of cogeneration plants and we further believe that legislation across Europe is helping to support such solutions. For example, in the UK, electricity generated in an advance conversion technology like that of ENERGOS may obtain a premium price due to the possibility of attracting renewable obligation certificates on the electricity generated. Elsewhere in Europe, different mechanisms are being applied. Wallonia in Belgium uses a green certificate system to support such solutions and, for that matter, both fossil-fuelled and biomass/biogas CHP.

Moving now to consider more conventional forms of CHP and, from our perspective as a manufacturer of gas-engine-based CHP, renewable sources such as biogas is becoming increasingly of interest. Anaerobic digestion, be it at a wastewater treatment works or an agricultural site, is a significant opportunity for CHP manufacturers. In fact, biogas-fuelled units made up about 30% of our production volume this year, a figure we have seen growing over the past few years. While most of these were destined for landfill sites in countries as diverse as Spain and Poland, we also saw a number of units being used alongside anaerobic digesters.

A mixed market in Europe

So, in an attempt to mitigate the factors highlighted earlier, customers are beginning to look once again at cogeneration, and in turn this is feeding through to our business and to that of our competitors. For example, our UK CHP business, ENER-G Combined Power, has seen an increase in enquiries of over 50% in the last six months. Elsewhere the picture is somewhat different. Our Dutch business, ENER-G Nedalo, while seeing an increase in contracts won, has seen less of an impact on enquiries. Spain, on the other hand, is also seeing an increase in interest as good feed-in tariffs for CHP are driving many potential customers to investigate the opportunities presented. In Hungary, cogeneration has experienced a boom in the past few years, but recent changes to the support mechanism are causing many projects to be reviewed.

While support is being provided to a varying degree by governments across Europe, manufacturers and others too are increasingly finding ways to support potential cogeneration schemes. Innovation, particularly in how projects are financed, is helping an increasing number of projects both in the public and private sectors get off the ground. Examples of such innovation can be seen in a number of countries.

The existing energy centre at the UK’s Royal Shrewsbury Hospital, soon to have CHP thanks to an energy savings contract
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The project in Târgoviste referred to earlier is part of a multi-million-Euro scheme to renew the district heating system supplying heat and electricity to some 17,000 residents and businesses across the Romanian town. The project involves the supply of nine 800 kWe gas engine CHP units. Secured by ENER-G Nedalo in the Netherlands, the project is being undertaken for Dutch utility company Nuon. The scheme, brokered by Nuon, has allowed the project to proceed by taking advantage of the carbon savings generated as a result of installing CHP. It is estimated that the new CHP units will annually save emissions of approximately 349,209 tonnes CO2 (emission reduction units, ERUs), and these reductions will be traded by NUON on the international carbon markets under the Joint Implementation (JI) Mechanism of the Kyoto Protocol.

Closer to home, two interesting projects also go to prove how innovation can influence a project’s viability and long-term success.

The energy services route

The first is the new Islington Millennium Community in Manchester. This ground-breaking development is spearheaded by Urban Splash and is using many new ideas in redeveloping this particular part of Manchester. One particularly interesting innovation is the use of an energy services company (ESCO) to deliver energy to the 1400 homes in the development. While the community-wide district heating network powered by gas engine CHP is nothing new, the scheme that is financing and operating the scheme is.

Conceptually an ESCO is fairly straightforward. In return for a long-term contract to supply the tenants and occupiers with energy, the ESCO – in this case EcoCentroGen – will provide funding towards the design and construction of the community heating scheme. In addition, it is also responsible for the ongoing operation and maintenance of the plant. While the capital outlay is undoubtedly high, the rate of return justifies and still enables it to undercut the traditional utilities.

Financing arrangements and contract forms for these types of projects inevitably vary from contract to contract. However, the principal of an ESCO is becoming more and more common across Europe, and as a result we are seeing this area of our business increasing, both as equipment supplier but also as an ESCO ourselves.

Another example of innovation influencing a project’s future comes in the form of an energy savings contract, implemented along the lines of a public-private partnership (PPP) by Telford and Shrewsbury Hospital Trust, this time with ENER-G Combined Power Ltd.

This project is allowing the Trust to put into action an upgrade programme for its energy generation, distribution and control infrastructure at their Royal Shrewsbury Hospital site. Centred on the installation of a 1 MWe CHP plant, the scheme also includes boiler refurbishment, new chilled water plant, upgraded or new heating and chilled water distribution mains, energy-efficient lighting and a new site-wide building energy management system (BEMS).

A key aspect of the project is its financing. In addition to a capital grant secured under the UK government’s Community Energy Programme, we have arranged further funding for the scheme and will deliver all the equipment, services, operation and maintenance. The scheme will also provide significant energy savings to the Trust who in return will pay us a quarterly service charge. In addition, because we are so confident the savings will be achieved, we shall also make up any shortfall in the energy savings, should the agreed targets not be met. Without the innovation of this contract, the scheme would probably not have proceeded.

Technical advances

While the financial innovations are helping CHP schemes come to fruition, some technical advances are also beginning to have an impact.

Gas engine electrical efficiencies have been gradually rising. This, coupled with improved reliability, is leading to improved savings and better economics for potential projects. A number of engine manufacturers have delivered efficiency gains including Perkins and Caterpillar, two suppliers we often use in our CHP sets. Some Perkins units can now achieve electrical efficiencies in the region of 38% and some Caterpillar units as high as 40%.

So what does all this add up to? In our opinion it points to better times for CHP manufacturers in Europe. While CHP across Europe will always remain somewhat at the mercy of energy prices, we feel that other factors are beginning to influence the opportunities that exist, most notably the rise of the ESCO, the different project financing options they bring to potential projects, and also the demand for alternative fuels. As manufacturers of small-scale CHP units, we stand to benefit from these influences. However, as always, we need to keep our eyes open and be ready to respond to the winds of change that almost inevitably will blow through the CHP market over the years to come.

Paul Hamblyn is Head of Group Market Development at ENER-G plc, Manchester, UK. Fax: +44 161 745 7457 E-mail:

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Finance packages work for small-scale CHP

Selection, installation and operation of small-scale CHP can often be a daunting prospect for potential customers. In addition, even with the prospect of improving paybacks, customers often lack the initial capital to invest in a scheme. For some time CHP providers have offered finance packages that allow customers to enjoy the benefits of CHP without needing to find the upfront money and worry about the unit’s operation. One such scheme is ENER-G Combined Power’s Discount Energy Purchase (DEP) agreement.

DEP has proven to be a successful option with approximately half of all ENER-G’s UK installed capacity covered by such an agreement. Customers range from local government to the private sector, and units delivered extend across the whole scope of supply, from tens of kilowatts to a few megawatts. The aim of a DEP agreement is to provide energy, normally electricity at a lower price than that from the grid. In return for buying the electricity generated at an agreed rate, the customer is provided with a fully installed CHP solution with the added bonus of heat energy being recovered for use in heating, hot and chilled water applications. In addition, ENER-G also operates and maintains the unit as part of the package.

Many manufacturers offer similar options and the concept is well established and proven. With the financing of cogeneration schemes remaining one of the key issues facing the industry throughout Europe, we can expect to see such schemes evolving in the years to come.