The European Union’s 2004 Directive on cogeneration should be having a positive effect on CHP development by now, but implementation by member states has been uneven. Here, Fiona Riddoch of COGEN Europe illustrates what can be achieved in three leading countries, and describes the CODE project which has been established to monitor the implementation of the Directive.

Fiona Riddoch, COGEN Europe, Belgium

Currently the electricity production in Europe from cogeneration accounts for 11 per cent of total electricity production. Denmark produces 40 per cent of its energy from cogeneration, Finland 35 per cent and the Netherlands 30 per cent.


If the share of electricity production of cogeneration rises to 18 per cent by 2020, the European Union could reduce its carbon emissions by 260 million tonnes a yearSource: European Commission
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If the share of electricity production from cogeneration increased to 18 per cent by 2020, the energy savings could represent around three to four per cent of total gross consumption in the European Union (EU). Although there is a large technical potential for cogeneration, the degree of its penetration in the heat and electricity markets is very much influenced by the framework conditions set by the national governments.

The growth of cogeneration in the mid-1990s was made possible by the adoption of supportive member state legislation, backed by long-term financial support. The adoption of Directive 2004/8/EC on the promotion of cogeneration opened a new era of active policy making across Europe. This process, however, is still on-going and it is too early to determine its effect. The degree of difference between the 27 EU member states becomes clear in their different policy and support approaches.

There are encouraging signs among the member states which have fully implemented the Directive. Germany, Spain and Belgium have all introduced new supporting laws for cogeneration, with a good financial support scheme that brings security to investors. As a result, the prospects for cogeneration in these three countries look good. In some member states, such as Austria, the combination of both the renewable and CO2 reduction target, rather than the energy efficiency target, is driving the promotion of new cogeneration.

Germany – Aiming to double cogeneration by 2020

Germany, with 21 GWe of installed cogeneration capacity, has by far the highest total electricity production from cogeneration in Europe. Historically, the fuel used for firing cogeneration plants was coal, but a gradual switch from coal to natural gas – and investment by the government to develop innovative installations – paved the way to more efficient production. However, the liberalization of the German energy market led to negative consequences for cogeneration, and many plants were forced to close down.

In April 2002, the Cogeneration Law came into force, four years after the transposition of the 1996 European Directive which forced member states to open their electricity markets to competition. It provided support for the development of small industrial units and the refurbishment of existing plants, while the number of micro-cogeneration units and biomass-fired plants also rose. Indeed, the law’s criteria for support eligibility excluded all new plant over 2 MWe.

The 2002 support mechanisms took the form of feed-in premiums; the premiums’ value decreased with time and the later the plant was commissioned, the lower the premium. Nonetheless, the Cogeneration Law did not bring consistent positive changes and was therefore amended.

As of 1 January 2009 the bonus is now capacity dependent, and all plant will have to comply with the high-efficiency requirements of the 2004 Cogeneration Directive. The new law also brings an obligation to connect all plant to the grid. All electricity produced is supported, not only that, but fed into the grid. There is also an investment incentive programme for micro-CHP units.

The cogeneration sector is also affected by the Renewable Energy Sources Act – giving additional bonuses if cogeneration or innovative technologies are used – and the Energy Tax and Electricity Tax Acts, which exempt cogeneration operators from the payment of the energy tax and for the amount of electricity they supply to the grid. In addition, there are other support schemes in the form of investment subsidies or special loans with lower interest rates. There are also support mechanisms for units within the CO2 building improvement programmes.

The German cogeneration potential study showed that over 50 per cent of Germany’s electricity could be generated in cogeneration plants. The German government has set itself a less ambitious goal – setting a target that the share of cogenerated electricity should reach 25 per cent of electricity generation by 2020.

Spain – Upbeat for CHP

The introduction of a new regulation for cogeneration (Royal Decrees 616/2007 and 661/2007 transposing the 2004 Cogen Directive) established a favourable financial framework for cogenerators in Spain. During most of the 1990s, cogeneration experienced rapid growth in Spain and the share of cogenerated electricity grew from 3.3 per cent in 1991 to approximately 12 per cent in 2001.

However, energy market liberalization in 1999 marked a turning point. Gas prices soared and electricity prices fell, making it difficult for cogenerators to compete on a market dominated by electricity supplied from existing depreciated power plants operating on marginal costs.

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The primary mechanisms to promote cogeneration in Spain are the different special regimes, whereby cogenerators sell their surplus electricity under relatively stable conditions. But problems remain unresolved. Most cogeneration installed is concentrated in the industrialized regions of Catalonia and Valencia in the northern part of Spain’s Mediterranean coast – and the majority of it is installed in industry. Paper, chemical, food and ceramics make up approximately 75 per cent of the cogeneration production in the country and the presence of cogeneration in the tertiary sector is still very small (7.5 per cent), representing a substantial opportunity for expansion.

As in all southern European countries, and increasingly so in the northern member states, cooling is a growing demand in Spain and trigeneration is being introduced and developed. In 2008, the number of cogeneration plants in Spain increased by 11 units, taking the total of plants in the country to 883. This growth indicates a reversal from the tendency of the last few years; but the situation is still far from the ‘golden era’ (1996–2000) when there were an average of 110 new plants installed each year.

The total installed capacity in 2008 increased 142 MWe, reaching a total of 6170 MWe, less than the 7000 MWe objective of the Action Plan 2008–2012.

Historically, cogeneration grows in recession periods. The nature of this current economic slump is special, though the number of cogeneration projects being analyzed currently is huge. In the coming years cogeneration could play a key role for industry – by promoting the overall energy sector, and for this, investments of around €450 million (US$630 million) on new CHP plants are foreseen.

Austria – The Green Approach

Cogeneration is well developed in Austria and district heating plays an important role. The country has ambitious goals for CO2 emissions reduction, therefore the government is encouraging an increase of the biomass share, switching from a strategy of promoting natural gas for cogeneration production in the past. The Green Electricity Act, amended in 2006, regulates Austrian cogeneration power generation. It supports the construction of new cogeneration units with an objective of a 2000 MWe national capacity increase by 2014.

The financial support for fossil fuel units consists of a fixed tariff of €0.015/kWh, or €0.0125/kWh for lower efficiencies, depending on the plant’s efficiency – for plants above 2 MWe. New cogeneration units running with renewable energy sources benefit from green feed-in tariffs.

Small-scale cogeneration units and micro-cogeneration units running on renewable energy sources are also covered by green feed-in tariffs. Besides the Green Electricity Act, industrial cogeneration (auto-production) in Austria is currently facing problems due to high operational costs and low electricity prices, following market liberalization.

A Cogeneration Act was adopted in August 2008. The act provides a partial financing of operation costs for existing and re-powered CHP plants, supplying public district heating systems and also providing investment grants for new fossil-fired plants. Investment subsidies of up to 10 per cent of the required investment sum are also available, decreasing with the total peak capacity of the plant. Both the Austrian Research Promotion Agency and Kommunalkredit are able to grant subsidies – they are present all over the country, and a budget of €60 million ($83 million) has been provided for this purpose until 2014.

In the near future, the possibility to expand cogeneration in Austria lies mainly in the city areas, where the government is clearly encouraging the growth of cogeneration capacity in combination with district heating. The second targeted sectors are the hospitals and public facilities, especially in areas without district heating. Other plans exist for biomass plant in connection with the wood industry.

Monitoring implementation in Europe

The Cogeneration Directive is a legal framework specifically to promote the wider use of cogeneration in Europe, however its implementation in member states lacks focus. The Directive is based on a concept of self improvement, requiring that member states assess their national potential for cogeneration, analyze barriers to achieving the potential, and then put support schemes in place to achieve the potential. A series of reports are required to focus the level of activity and monitor progress.

However, transposition of the Directive is not complete across the EU. Only 14 member states have fully transposed the Directive, 12 have still not submitted a potentials study, identified barriers to the growth of cogeneration, or put in place a system of verification of the efficiency of cogeneration – called a Guarantee of Origin. The European Commission is now at the point where it will start taking legal action against member states for non-compliance.

The slow rate of implementation suggests that cogeneration, despite its legal status under the Directive, is not receiving the time and attention to policy in certain member states. It seems that, with finite funds and manpower under pressure in an increasingly high-profile energy and climate debate, the member states are opting for action on the areas where they have adopted binding targets to succeed: on renewables and on CO2 reduction.

Of the three European goals – 20 per cent increase in energy efficiency, 20 per cent CO2 reduction and 20 per cent renewable energy – only the energy efficiency target, the one which most directly involves cogeneration, is not binding. Member states faced with such a situation, concentrate on the binding targets first and do enough, perhaps even a minimum, to get the other targets fulfilled.

About the author

Fiona Riddoch currently holds the position of managing director of COGEN Europe, Brussels, Belgium. e-mail: fiona.riddoch@cogeneurope.eu. COGEN Europe is leading the ‘CODE’ project to monitor the implementation of the Directive in the EU member states and observe the process of assessment, action and verification – see box opposite.

Without a binding target, the Cogeneration Directive is subject to slow implementation and lacks leadership. The CODE project will act to focus the attention of policy makers, in 27 member states and Brussels alike, on the need for action.

In addition, COGEN Europe is producing a report called ‘Overview of CHP in Europe,’ which provides an outline of the different policies in the member states and lists all financial and regulatory support. The report will available by the summer. For more information, visit www.cogeneurope.eu.

This article appeared in the July/August issue of Cogeneration & On-Site Power.

Cogeneration Observatory and Dissemination Europe (CODE)

CODE is an EU-wide independent assessment of the progress of the CHP Directive. The project partners and COGEN Europe members will encourage the rapid and effective implementation of the Directive and independently review the member states’ progress and success of implementation.

CODE will highlight and publicize clear ‘best practice’ where it occurs, and draw attention to areas of poor performance or practical difficulties in implementation.

The project aims:

  • to support the implementation of the Directive
  • to enhance local/regional capacity for the successful development of cogeneration projects, by developing clear case study data on successful cogeneration projects under the new Directive framework on a regional basis
  • to raise awareness and provide information through high-profile European-wide information, know-how transfer among cogeneration associations, suppliers, local and regional energy agencies and other networks
  • accelerate the market penetration of cogeneration technologies through producing a European Cogeneration Roadmap, based on national potentials studies
  • showcase good practice and potential growth in key market sector.

COGEN Europe will work on a regional basis with its consortium partners (operating in a regional structure) and its national member organizations, to review and comment on the member states’ reports from the industry perspective.

Four regional groups will be established whereby member organizations will co-operate in gathering and analysing the responses of the 27 governments to the Cogeneration Directive. A central database will be created with a summary of member states’ responses, under the reporting action measures required under the Directive, along with the response itself.

At the regional level, case studies of best practice projects in the geography will be collected. Regional groups will report on the successful and struggling initiatives, and the legislation and support schemes around the Directive. The main outputs will be:

  • country-specific information on Directive implementation, containing a critical assessment of the progress made by each country towards its stated national potential goals
  • a set of regional focus groups experienced in the operation and implementation of the Directive in their region, and able to assist manufacturers and potential end-users in its application
  • a handbook of case studies representative of the most successful policies and approaches, organized by region
  • analysis of barriers and success factors for promoting the development of cogeneration through the Directive
  • access for interested parties to a central database of information, plus a network of local specialists
  • a high efficiency Cogeneration Roadmap for Europe, to 2020.

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