It is always refreshing to receive feedback from readers, whether positive or negative. Firstly, it shows that we do actually have some readers; and also, it gives me something to write about. Michael Backe of Senertech a German manufacturer of micro-CHP units recently responded to the June Upfront column which talked about Spain’s plans for adding new capacity in the face of looming emission trading schemes.
Mr Backe grabbed my attention with the comment: “Come on, there are more things than big power plants in the open countryside. Why not produce the power and heat where it is required – without immense line or heat losses which we cannot afford? With small CHP units you can meet all these targets and still meet Kyoto CO2 obligations. The dream of clean, reliable power at low cost can be accomplished now. Why wait until 2005?”
This is a fair point. Certainly with the rolling blackouts across Europe last year, the security argument is sound. Nonetheless, the CHP market on the whole has had mixed fortunes over the last decade. Further, its near term future remains uncertain for a number of reasons. In Europe, CHP was certainly on a roll in the 1990s but then fell away – although you could argue that not many large combined cycle power plants were being built either.
But while in recent times we have seen rapid growth in wind power (due to favourable market incentives) and large CCGT plants in markets like Spain and Italy, CHP has continued to flounder. For example, figures recently published in the UK revealed that 35 more CHP schemes were closed last year than were opened. In the face of low wholesale electricity prices, capacity remained at 4879 MW, still below the year 2000 target of 5000 MW set by the government. Climate change targets in the UK require CHP capacity to double to 10 000 MW by 2010.
The revival of CHP across Europe will depend on a few key things, the most important probably being the Emissions Trading Directive and the CHP Directive. Simon Minett, managing director of Cogen Europe noted: “The principal driver for CHP at the moment is the introduction of emissions trading which could be good or disastrous depending on how it’s done country by country. We have started to see some of the member states such as Ireland working towards the implementation of the CHP Directive. But while it is easy to do in a small country such as Ireland, it is more difficult to implement in a larger country such as Germany.”
While these developments should have more of a positive rather than negative influence on CHP, on the negative side the major problem is gas prices. These are still heading up and oil prices are still high. How fuel prices will interplay with emissions trading will be crucial. No doubt most power plants want to burn gas because of low carbon content but the question is: will high fuel prices ultimately push up power prices? “You can run the model and get different results. There are a lot of positive things but there is a lot of uncertainty in the short term,” said Minett.
Looking at the individual countries shows a mixed picture for CHP. There could be a renaissance in Spain where the new government is more positive about meeting its climate change obligations. Belgium and The Netherlands have certificate schemes coming in which will promote CHP. Portugal has been an interesting market for the last ten years. It has shown steady growth largely because of good legal arrangements to promote the use of CHP. It has adopted a tariff structure which recognises the environmental and grid benefits of CHP. Italy, meanwhile, has plenty potential but an unclear liberalization process does CHP no favours.
Indeed market rules continue to be the major barrier to CHP growth. Michael Brown, Director of WADE (World Alliance for Decentralized Energy) commented: “Governments and regulators need to get the hang of developing a regulatory system which doesn’t just favour the incumbent central power generators i.e. the market they are more familiar with because that is what we’ve had for the last 50-odd years. They need to get their heads around new cost effective technologies and develop the regulations to accommodate them. This will lead to a reinforcement of CHP.”
And so Mr Backe, in response I would say micro-CHP flourishes in Germany because of adequate incentives and significant heat demand. In Spain, I ask you: is there adequate heat demand at the domestic level to see a significant micro-CHP market? I would also note that the technology is still in the early stages of commercialization. As power markets pickup, CHP – large and small – should also pickup. Much depends on the relationship between electricity and gas prices. But I agree, as a rule we shouldn’t automatically sweat the small stuff; because it’s all small stuff.
Junior Isles, Publisher & Editorial Director