The International Energy Agency’s International CHP/DHC Collaborative project has now published several reports on the take-up of CHP and district heating and cooling (DHC) in countries across the world — and how effective various national support policies have been. Steve Hodgson takes a look at these national ‘scorecard’ reports.

The International Energy Agency’s project to ‘score’ the performance of major countries in terms of the effectiveness of their encouragement (by national policies) of CHP and district heating/cooling (DHC) is well advanced. The Agency (IEA) has now published final scorecards on eight countries and, as part of the same programme, assessments of policy potential for the emerging giants of India and China. Only one more country, Russia, is planned to be covered.

The whole International CHP/DHC Collaborative project was launched in 2007 as a response by the IEA to a request from the G8 countries for guidance on how those, and other, countries could devise and implement effective policies to encourage the establishment and/or growth of CHP and DHC. The many benefits of these high-efficiency technologies are well known and documented, but many countries have had rather limited success in encouraging their take-up.

The IEA decided to gather and publish data from many countries on the current application of CHP and DHC but then, more ambitiously, to gather information on national support policies for CHP and DHC, so as to establish which of these have been effective and thus encourage governments to adopt the better ones.

In an area where researchers always have it impossibly difficult to find reliably good data on CHP and DHC application, let alone recent data that can reasonably be compared across different countries, the IEA can be commended for its efforts. However, the scorecards go beyond usage data and discuss the existence and effectiveness of government support policies, and then quantify these in terms of a star rating.

‘The major finding in this work was the critical importance of government leadership with relation to establishing an important position for CHP and DHC within national climate and energy strategies,’ said Tom Kerr, Senior Energy Analyst at the IEA, and lead author of the reports. ‘We found that countries did not need to provide significant subsidies to foster development; but that it was critical to establish a responsible government agency for CHP/DHC, which can then systematically identify and address the smaller but persistent barriers preventing their development,’ said Kerr.

The project is supported by a group of over 40 partner, collaborator and network organizations (including COSPP magazine) from industry, governments and the NGO sectors around the world.

Previous articles in this series — see COSPP March/April and September/October 2008, both by the IEA’s Tom Kerr — reported on the Agency’s first report to be published by the Collaborative, CHP: Evaluating the Benefits of Greater Global Investment, and publication of the first three national scorecards for Germany, Japan and the US.

DEVELOPED COUNTRIES — MARKS OUT OF FIVE

Denmark and Finland have long been recognised as exemplary countries for the application of CHP, and district energy in particular, and win five out of five stars and can therefore each be described as: ‘a world leader in prioritizing CHP/DHC, with a clear and proven strategy for bringing about significant market development and the implementation of at least one global best-practice policy measure.’

Germany wins four stars, mainly for its recent policy support for CHP, and therefore: ‘CHP/DHC is at, or close to, the top of the list of energy policy priorities and a series of effective policies are being implemented as part of a coherent strategy. Important growth is expected in CHP/DHC markets.’

Japan, Korea, the Netherlands and the US each win three stars, although Japan wins an additional half star for its particular efforts in encouraging the application of micro-CHP and fuel cell sectors. CHP and DHC are both supported by the government of Korea through planning policy and tax incentives. Meanwhile, the Netherlands, with a high penetration of CHP, particularly in the industrial sector and often thought of as a five-star country in this context, stays at three stars due to a recent stalling of growth that came along with energy industry liberalization. The US wins its stars for a range of supportive state and federal policies dating from the 1970s and 1980s, although contemporary support is rather more patchy.


Figure 1. Annual share of district heating and thermal electricity generation from CHP in Denmark
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Three star support amounts to: ‘Clear recognition of the role of CHP/DHC, accompanied by the introduction of some measures to accelerate the market, but CHP/DHC are not high priorities compared to other energy solutions. In addition, the country lacks an integrated CHP/DHC strategy. As a result, market growth is likely to be modest.’


Figure 2. Fuel used in DH and CHP plants in Finland
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Alone, languishing with two-and-a-half stars is the UK. Despite (or is it because of?) having one of the most liberalized energy systems in the world, support policies have tended to cause least cost effects to energy users and have therefore been of limited effect. A two-star country would include, according to the IEA: ‘Some minor recognition of the role of CHP/DHC, but policies are not fully effective or are otherwise insufficient to influence market development.’

Click here to enlarge image

COUNTRY-BY-COUNTRY
The IEA scorecards are short and well worth reading for anyone interested in doing CHP/DHC business in one of the countries involved. Below is a brief summary for each country, edited from the relevant scorecard.

Denmark

Denmark is one of the most energy efficient countries in the world. This was achieved in large part through a pro-active energy policy promoting energy saving, with increased use of renewable energy and technological development. The country’s energy consumption has consequently remained steady in the last 25 years, while the economy has continued to grow.

The widespread use of district heating (DH) and CHP has made a major contribution to Denmark’s drive towards efficiency and energy self-sufficiency — it is a world leader in terms of CHP share of electricity generation.

Since 1979, strong incentive policies have strongly encouraged the growth of CHP and DH. This support was triggered by the oil crises in 1973—74 and the late 1970s, at a time when over 90% of energy demand was met by oil imports. By 1997, energy self-sufficiency had been achieved. The discovery of North Sea gas played an important part, but efficiency gains and the rapid development of CHP played an important role.

The first Heat Supply Law of 1979 has been an important factor in CHP/DH market growth by creating a new public planning process that rationalised heat supply. The government’s more recent ‘Energy Strategy 2025′ builds on this track record to address the challenges of rising fuel prices, declining internal energy production, and growing environmental pressures. It aims to promote new clean technologies and increase its share of renewables and CHP through well-functioning energy markets and international co-operation.

Finland

Finland is a world leader in CHP, with high levels of development in district heating (DH), industrial CHP and use of biofuels. In 2007, CHP produced 74% of the heat needed for district heating and generated 29% of the country’s electricity. CHP’s share of thermal electricity production has been high for decades, and was 65% in 2007.

This high national level of CHP utilization has been achieved with little direct government support. In a country with a cold climate and limited resources of energy, CHP has been the natural economic choice for many applications. The main drivers of CHP have been: the need to reduce energy imports, the need to maximize economy of energy supplies and, in some cases, governmental energy taxes that increase economic attractiveness of CHP over heat-only generation. Highly economic and mainly centralized CHP has offered favourable energy prices — low prices even at the European level — to Finnish customers. Regardless of low sale prices, CHP has been a successful business to its owners, usually municipalities.

However, in the future, Finland faces challenges in exploiting the few remaining locations suitable for CHP, and increasing the use of DH further in cities such as Helsinki, where approximately 93% of building volume is already served.

Germany

In Germany, CHP represented almost 13% of total electricity generation in 2005 and is seen as a strategic technology to aid in the government’s energy and climate policy, together with district heating/cooling (DHC), which represents about 14% of the space heat market.

The 2002 CHP law has helped drive CHP with a premium payment for electricity from CHP plants being modernized and CHP plants smaller than 2 MWe. However, a new law, which aims to double CHP electricity generation by 2020, is expected to bring further benefits for all CHP ranges in 2009.

Other notable policy support for CHP in Germany includes: the use of benchmarks under the EU Emissions Trading Scheme (ETS), a CHP/DHC-friendly building code, a natural gas and heating oil tax exemption for CHP, and high feed-in tariffs for biogas CHP — which makes the German biogas CHP market one of the most active in the world. In addition, Germany offers important support for fuel cell CHP, making the country one of Europe’s hot spots.

Japan

Japan is one of the most energy efficient countries in the world. The government has supported increasingly ambitious energy targets as a strategy to reduce dependency on energy imports and to address climate change. As a consequence, CHP use has increased over the past 20 years and now provides 4% of the country’s electricity production.

Government support has been an essential driver, with favourable subsidies and tax reductions for CHP. In addition, research and development funding has helped create a cluster of specialized technology companies that target primarily the residential CHP sector with micro-internal combustion engines and fuel cells. Finally, district heating and cooling is also beginning to grow.

Korea

Energy is rising on the agenda of the government of the Republic of Korea (ROK) as it tries to reconcile economic growth with increasing energy prices and stricter environmental targets. The government works closely with research institutes and private companies in creating policy and developing new energy technologies to achieve these aims. CHP is firmly embedded in energy policy, largely through its application in DHC. The government already supports CHP through its planning policy and tax incentives, and further measures are under development.


Figure 4. CHP/DH heat production (1982-2004) in the Netherlands
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The Netherlands
The Netherlands is a leading country in the use of CHP in energy supply. About 20% of Dutch heat demand is supplied by cogeneration. In the paper industry, the share of CHP heat is 60%; in the chemical industry — in absolute terms the most important CHP sector — the share is 30%. District heating and cooling have a smaller role in the heating and cooling markets. In 2006, 29% of the Netherlands’ total electricity production came from CHP and district heating plants. Rapid CHP growth in the 1990s came to an end after the liberalization of the electricity and gas markets.


Figure 5. CHP cumulative capacity growth by application type in the United States
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Today, the only area of growth is in the agricultural sector, where CHP is widely used at greenhouses. However, further growth of industrial CHP might take place in the future, with improved market conditions, a more flexible approach towards CHP operation in a liberalized market, and more stringent carbon dioxide policies. Prospects for small-scale biomass-based DH also look promising, although competition is strong between technology options.

The United Kingdom

The central principle adopted by the UK, with respect to energy policy, has been the use of markets to achieve policy goals at the least cost to the consumer and taxpayer. The UK has one of the most liberalized energy markets in the world, a major long-term carbon emissions reduction goal (80% reduction by 2050) and an innovative approach via a power puchase ‘obligation’ programme for renewable energy. The need for the generation of low-carbon heat and power was emphasised as an important element in the UK government’s 2007 Energy White Paper. This follows the 2010 target of attaining 10,000 MWe of ‘good-quality’ installed CHP set in 2000.

One challenge has been the development of mechanisms to support and encourage the development of CHP in its various forms, without adversely affecting the functioning of energy markets. While installed capacity of good-quality CHP has doubled since 1990, and was responsible for 7% of all electricity generation in 2007, growth in recent years has slowed and now amounts to nearly 5.5 GWe.

The United States

The United States has a long history of using CHP, and 8% of US electricity generation is provided by 85 GWe of installed CHP capacity, at over 3300 facilities. Large-scale district energy systems are located in many major cities, and 330 university campuses use district energy systems as a low-carbon, decentralized energy solution.

The large base of installed capacity in the US is the result of supportive federal policies in the 1970s and 1980s, including PURPA (the Public Utilities Regulatory Policy Act) which required utilities to purchase electricity from CHP plants at a set rate. A number of US states, including California, New York and other states in the Northeast, also provide incentives and recognition in environmental regulations for CHP, which has supported new development. However, the partial repeal of PURPA, as well as a wide diversity in state support, has resulted in a patchwork of CHP markets. As a result, there are important barriers that must be addressed if the US is to realize the greenhouse gas and energy benefits associated with greater use of CHP and district energy in the future.

India and China — Markets and policy potentials

The IEA has taken a slightly different approach to China and India — two of the world’s potentially largest national markets for CHP/DHC. Indeed there is a view that the real potential for serious future growth in CHP/DHC capacity globally exists mostly in the so-called ‘BRIC’ countries (Brazil, Russia, India, China) which do not have fully mature energy markets, yet have made quite some progress along the long developmental path. The argument goes that, while there is potential for further growth in Europe and the US, the large BRIC countries have the capacity for much greater, and possibly more rapid, expansion from currently low installed bases.

Instead of scorecards, the Agency has published an assessment of the current market for CHP/DHC for China and India, together with a discussion of the policy potentials with a particular emphasis on current barriers to the greater use of CHP/DHC, and how these might be overcome. Again, the following brief summaries are edited from those in the published IEA documents.

China

China is the second-largest energy consumer and carbon emitter in the world. As a result of economic development, China’s energy consumption has been growing rapidly in recent years and energy and environmental issues have become a key challenge to China’s sustainable development. As a result, the Chinese government has begun to pay unprecedented attention to energy efficiency and emissions reductions, proposing an ambitious target to reduce energy intensity by 20%.

As important energy efficiency technologies, CHP and district heating and cooling (DHC) have received a good deal of attention by the Chinese government. Over the past several decades, China has issued a series of policies to promote CHP/DHC; as a result, China has become the second-largest country in terms of installed CHP capacity. In 2006, CHP capacity in China increased to over 80 GW, providing 18% of nationwide thermal generation capacity. However, in spite of high-level government attention, China has a much greater potential for developing CHP and DHC.

India

Over the past decade, India’s economy has seen unprecedented growth, which has given rise to an increase in both energy demand and greenhouse gas emissions. The availability of clean and affordable energy and electricity has become a growing concern for the Government of India (GOI), as well as industrial, commercial and residential end users. The GOI’s Planning Commission’s Integrated Energy Policy states that lowering the energy intensity of India’s GDP is critical to meeting the country’s energy needs; accordingly, the GOI has set an energy efficiency target of 25% from current usage.

While the GOI is exploring a number of policy options to incentivize greater energy efficiency in all sectors of the economy, this [IEA] study finds that policymakers should assess in particular the potential of CHP and district cooling, and the role that these technologies can play in tackling the challenge of meeting the country’s growing energy needs — in a cost-effective and environmentally friendly manner. The country has a growing track record with CHP in targeted industries; this offers a strong base to build from in the future.

Barriers to meeting India’s energy efficiency targets include: a lack of governmental emphasis on CHP, the absence of a clear methodology for calculating carbon dioxide emission reductions from CHP/DHC, and a tax and duty structure for CHP capital equipment that is not as attractive as for other renewable energy technologies.

THE COLLABORATIVE MOVES ON

So how is policy to support CHP/DHC developing? One emerging policy instrument for reducing carbon emissions — legislation to introduce cap-and-trade emissions trading schemes — has taken root in Europe and is now spreading to several other regions of the world. Emissions trading may become the most important single instrument to control carbon emissions internationally, and there are moves to establish trading schemes in various parts of North America, Japan, Australia and New Zealand.

The considerable scope for CHP/DHC to reduce net carbon emissions is well-established, as is its role to do this quickly, using established and proven technologies. Yet legislation and policy support for CHP is inevitably complicated due to the technology’s impingement on both heat and power markets, on both energy users and suppliers, and due to the fact that on-site emissions of carbon dioxide often rise with fossil-fuelled CHP plants, while total or net emissions fall.

The danger that the design of new emissions trading schemes will fail to support CHP/DHC have been addressed by the IEA. Its 2008 publication: Combined Heat and Power and Emissions Trading — Options for Policymakers, suggests that a ‘double benchmarking’ approach to allowance allocation, i.e. one that clearly recognises both the power and heat outputs of CHP, may be the best way to ensure that the benefits of CHP are captured.

With publication of reports on 10 of the 11 target countries now achieved, the CHP/DCH Collaborative is now looking at its future activities. A meeting to be held at the Paris HQ of the IEA is scheduled for March, where the main agenda item will be future outreach activities. For more information on the Collaborative, contact Tom Kerr at tom.kerr@iea.org.


Steve Hodgson is the editor of COSPP.
e-mail: cospp.editorial@cospp.com