How major countries encourage CHP and district energy: Comparing Germany, Japan and the United States

The International Energy Agency has begun a project to ‘score’ the performance of several major countries in terms of their encouragement of CHP and district heating/cooling. Tom Kerr explains ” and introduces the first three scorecards

As last reported in this magazine (see COSPP March”April 08), the International Energy Agency (IEA) views combined heat and power (CHP), particularly in combination with district heating and cooling (DHC) systems, to be one of the easiest and most attractive strategies to improve energy supply efficiency and reduce greenhouse gas (GHG) emissions. The March 2008 IEA report Combined Heat and Power: Evaluating the Benefits of Greater Global Investment was the first global analysis of installed CHP capacity and potential future growth, and concluded that CHP can generate 250 terawatt-hours (TWh) per year in 2030, if supported by a strong policy framework.

According to that report, which analyzed the benefits of increased CHP use in the G8 and five other large economies, countries that invest in accelerated policies for CHP should realize the following benefits by 2030:

This analysis was followed in June of this year by the IEA’s Energy Technology Perspectives 2008 report, which assessed future energy technology scenarios for achieving global GHG emissions stabilization. Energy Technology Perspectives concluded that a global revolution is needed in ways that energy is supplied and used. Far greater energy efficiency is a core requirement.

Renewables, nuclear power, and CO2 capture and storage must also be deployed on a massive scale, and carbon-free transport developed. A dramatic shift is needed in government policies, notably creating a higher level of long-term policy certainty over future demand for low-carbon technologies, upon which industry decision makers can rely.

Unprecedented levels of co-operation among all major economies will also be crucial, bearing in mind that less than one-third of ‘business-as-usual’ global emissions in 2050 are expected to stem from OECD countries.

The combined lessons from these two studies are that there is an urgent need for technological change, that the first steps can (and must) be taken today, with proven, cost-effective solutions like CHP and DHC. In addition, a key point is that government policies ” over and above GHG emissions trading ” are urgently needed to assist in facilitating the uptake of key technologies, including CHP/DHC.

To address policy makers’ questions about the options that they have available to realize the benefits of greater CHP and DHC investment, and to identify lessons learned from the G8 and other key countries, the IEA has begun to produce a series of detailed CHP/DHC Country scorecards. Each scorecard provides:

  • an overview of framework energy and environmental policies and targets
  • a discussion of CHP/DHC policies that are currently in effect
  • an overview of current applications, including data and trends on CHP/DHC use in the industrial, commercial/ institutional and residential sectors
  • an assessment of in-country barriers to CHP/DHC growth
  • the IEA’s recommendations for further actions that can be taken to realize the benefits of greater CHP/DHC investment
  • a CHP/DHC score ” a rating of policy and market readiness ” to allow for general comparison among countries.


The first three scorecards ” for Germany, Japan and the United States ” reveal three different policy and market approaches to CHP/DHC advancement. This article will offer a summary of key lessons learned from each scorecard.


Japan’s 8.7 GW of CHP capacity delivers 4% of the country’s electricity supply, and has grown steadily from almost nothing in the 1980s to an important part of Japan’s energy supply today (see Figure 1). This growth resulted from greater investment in CHP as an industrial energy efficiency measure. Today, industrial CHP makes up 80% of total installed capacity in Japan.

Figure 1 CHP growth in Japan, 1985″2006
Source: IEA, CHP/DHC country scorecard: Japan (2008).
Click here to enlarge image

District energy is currently at a small base in Japan, but this is beginning to change, as government recognizes these systems as part of the nation’s larger Kyoto Protocol energy efficiency and GHG reduction strategies. District energy is therefore one area to watch for growth in the future.

The other key area where Japan has made its mark in recent years via a concentrated effort to establish the country as a key provider of smaller-scale commercial and residential CHP units, is using micro-turbines and fuel cells in CHP mode. There are a variety of policies in Japan for small-scale CHP units, including subsidies for high-efficiency gas-fired units, accelerated tax depreciation for small- and medium-sized businesses, and expanded research, development and demonstration of fuel cell CHP. Figure 2 demonstrates the Ministry of Economy and Trade’s (METI) achievements in stationary fuel cell CHP demonstrations.

Figure 2. Stationary fuel cell demonstration In JapanSource: IEA, CHP/DHC country scorecard: Japan (2008).
Click here to enlarge image

Recognizing Japan’s federal leadership, the IEA awarded the country three stars (out of five) for its general CHP/DHC policy efforts, with a special award of four stars for Japan’s micro-CHP/fuel cell efforts. Japan is beginning to recognize the role that CHP/DHC can play in GHG and energy efficiency targets, accompanied by the introduction of area-wide district energy and other measures to address barriers and raise awareness. However, the country lacks a national CHP/DHC development strategy, and could do more to reduce interconnection barriers and to provide recognition in environmental regulations, including those for GHG reductions.

As a result, the IEA predicts that general CHP/DHC growth in the near future will be modest. However, Japan appears ready to take micro-CHP and fuel cell CHP to another level globally, and the IEA recommends that Japan continue to exert its leadership to expand energy efficiency and GHG reduction opportunities in developing country markets.


In Germany, CHP represents almost 13% of electricity generation and is seen as a strategic technology to aid in the government’s climate change and energy policies. Federal laws, including the 2002 CHP Law, with a premium payment for electricity from CHP plants that are modernized, and for smaller (less than 2 MW) plants; and a new CHP Law, which aims to double CHP electricity production by 2020, provide a solid foundation for further growth in CHP in Germany. In addition, the country is a leader in the local use of district heating with CHP systems, with local utilities (Stadtwerke) investing heavily in CHP/DHC schemes.

Finally, Germany has exerted real vision in expanding the use of biogas CHP via feed-in tariffs, making the German biogas CHP market one of the most active markets in the world. As a result of this support for biogas CHP, Germany has seen this technology grow dramatically over the past seven years (see Figure 3).

Figure 3. Biogas capacity in Germany (2000″2007)
Source: IEA, CHP/DHC country scorecard: Germany (2008).
Click here to enlarge image

In addition to these strong policies, the German government has also led the way in addressing other barriers to greater use of CHP. For example, the German National Allocation Plan 2, under the European Union’s Emission Trading System, allocates emission allowances to CHP for both heat and power outputs (also known as double benchmarking), based on the emissions from separate heat and power. This innovative approach takes into account the overall emissions savings of CHP compared to the alternative. Germany also joins Japan in its support for micro-CHP and fuel cell CHP, with a supportive policy and subsidy structure.

Based on Germany’s demonstrated leadership in CHP and DHC development, the IEA has awarded Germany four stars (out of five) for its efforts to address barriers. CHP/DHC is at or close to the top of the list of energy and climate policy priorities and a suite of effective policies is being implemented as part of a comprehensive strategy. Important growth in CHP/DHC markets (and resulting emissions reductions) can therefore be expected in Germany.


While the United States (US) has the largest installed CHP electrical capacity at 85 gigawatts (GW) which provides about 8% of US electricity generation (see Figure 4), this was the result of a federal law in the 1980s (the Public Utilities Regulatory Policy Act- or PURPA), combined with active State policies in a handful of markets in the late 1990s and in this decade, including California, New York and other Northeastern states.

Figure 4: CHP cumulative capacity growth by application type in the US
Source: IEA, CHP/DHC country scorecard: United States (2008).
Click here to enlarge image

There clearly has been a transition from federal to state policy leadership in the US over the past several years, as the federal government has shifted from active CHP mandates like PURPA to voluntary approaches, including the US Department of Energy’s Regional Applications Centers, which focus on demonstrating CHP applications and tailor their offerings to each region’s needs, and the US Environmental Protection Agency’s CHP Partnership, which facilitates projects and offers recognition for the GHG reduction benefits of CHP.

A handful of US States has begun to build from this federal activity level to foster new CHP investment, through a variety of policy measures. Figure 5 shows that only a handful of states have significant CHP capacity. This is a direct result of government action in these states.

Figure 5. US states with large amounts of CHP capacity
Source: IEA, CHP/DHC country scorecard: United States (2008).
Click here to enlarge image

For example, the State of Connecticut uses output-based air emissions regulations that relate air emission to the productive output of a process; thereby encouraging fuel conversion efficiency as an air pollution control measure. This sort of approach (also called double benchmarking) can be used to distribute allowances in GHG emissions trading schemes. In addition, to address a key barrier to CHP and other decentralized generation, the State of New York was one of the first states to establish standardized interconnection requirements for CHP units.

Finally, a growing number of states, including the State of Pennsylvania, have established tradable renewable portfolio standards that include CHP (or waste heat recovery), which mandate that energy providers meet a specific portion of their electricity demand through renewable energy and/or CHP.

The IEA has recognized the past federal leadership and the current state innovation by awarding the United States three stars (out of five) for its CHP/DHC policy efforts. There is a clear recognition of the role of CHP/DHC, accompanied by the introduction of some measures to address barriers. However, the country lacks a national CHP/DHC development strategy, and could do more to reduce interconnection barriers and to provide recognition in environmental regulations, including those for GHG reductions. As a result, the IEA predicts that CHP growth in the US will be modest.


It is clear that these three large industrialized countries have taken very different paths toward their goal of realizing the GHG and energy benefits of increased use of CHP and DHC.

In the coming months, the International Energy Agency plans to issue additional country scorecards for other G8 countries, as well as major economies like China and India. These efforts are a part of the IEA’s International CHP/DHC Collaborative (see Box). It is the IEA’s hope that these country scorecards will provide policy makers and industry with valuable lessons, while we also work to tackle the more difficult problem of revolutionizing the way that energy is supplied and used.

Tom Kerr is a Senior Energy Analyst with the International Energy Agency, Paris, France.

The International CHP/DHC Collaborative

The International CHP/DHC Collaborative was launched in March 2007 to help evaluate global lessons learned and guide the G8 leaders and other policy makers as they attempt to assess the potential of CHP as an energy technology solution.

The Collaborative includes the following activities:

  • collecting global data on current CHP installations
  • assessing growth potentials for key markets
  • developing country profiles with data and relevant policies
  • documenting best practice policies for CHP and DHC
  • convening an international CHP/DHC network, to share experiences and ideas.

Participants in the Collaborative include the Partners, mentioned in the acknowledgments, as well as the Collaborators, a group of over 40 government, industry and non-governmental organizations that provide expertise and support. The Collaborative Network, the larger group that is informed about meetings, publications and outreach, has almost 300 participants.

If you are interested in participating in the Collaborative or want more information, please visit

No posts to display