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Roberto Francia talking to SETIS

28/09/2016

How is CHP contributing to Europe’s policy objectives regarding energy efficiency and the decarbonisation of the European energy sector?

Combined Heat and Power (CHP) is a valuable principle within Europe’s energy efficiency and decarbonisation policy toolkit. CHP integrates the production of usable heat and power (electricity) in one single, highly-efficient process. As a consequence heat which would have otherwise been lost can be used to satisfy heat demand directly. Saving primary energy involves significant reductions in C02 emissions.

Today, 11.7% of Europe’s electricity and 15% of its heat comes from CHP, providing a minimum of 35 Mtoe of primary energy savings and saving Europe around 200 million tonnes of CO2 per year. The EU’s total thermal energy demand consumes 60% of the primary energy resources in the EU and accounts for around 46% of its final energy use. A well designed CHP plant can reach up to 90% overall efficiency1 in suitable applications. Savings of around 20% can typically be achieved – depending on the individual plants and the reference case2. It contributes to decarbonisation targets by significantly improving the efficiency of fossil fuel based technologies, and contributing to the stability of intermittent renewable energy generation and supply. At the same time as a fuel neutral concept, the cogeneration principle can be applied to all energy sources whether renewable or carbon-based, making them more efficient and thereby competitive.

It is also a principle that gives heat customers capabilities for electricity self-production, which can support the power system and the functioning of the grid. A significant fraction of the CHP fleet, where heat buffer capabilities can be installed, can be turned to balance the intermittency of supply from renewable sources such as wind and solar.

What potential exists for increasing the proportion of cogeneration in Europe’s heat supply?

The Cogeneration Observatory and Dissemination in Europe Project (CODE 2), which was co-funded by the EU via its Intelligent Energy Europe programme, was aimed at identifying the potential for CHP across Europe by the development of 27 National Cogeneration Roadmaps. It found that in 2030 CHP could highly efficiently generate 20% of the EU’s electricity and 25% of its heat, on a range of increasingly renewable fuels. The roadmaps, revealed that, in 2030, new and upgraded CHP capacity could be saving Europe 870 TWh of primary energy per annum, representing more than the total gross inland energy consumption of the Czech Republic, Slovakia and Slovenia together. These primary energy savings are equivalent to 350 MT of CO2 savings representing 16% of CO2 emissions in the energy sector.

However for this potential to be reached, substantive policy measures need to be put in place on EU and national level. There are a number of market and non-market barriers that necessitate the development of policy frameworks which provide investor certainty, and which internalise the positive externalities that the capture of primary energy creates.

What are the main barriers to CHP deployment and what needs to be done to unlock these barriers to ensure it reaches its full potential?

Overcoming the barriers to CHP deployment requires an energy system paradigm shift on the policy level that can act as an enzyme to precipitate a similar shift in the market. In existing energy market structures, savings at the system level remain a “public good”. The fundamental barrier is that there is no market value for the primary energy savings of CHP at the system level. This significantly limits the economic incentive of market actors to invest in CHP solutions.  A lack of revenue due to low wholesale electricity prices has also led to a contraction in the production of CHP. If price signals sufficiently reflected the value of primary energy within the infrastructure of the energy market, then this barrier could be sufficiently offset.

For larger CHP installations approaches which lower the operating risk of CHP rather than capital are preferable.  However for smaller CHP units such a micro CHP, for use by SMEs and domestic consumers, access to capital is the predominant concern. Consequently, the fostering of alternative business models such as Energy Services Providers that deliver energy efficiency improvements to final customers, on national and EU level should be a central part of any pro-CHP policy framework.

The European Commission, through its ‘Heating & Cooling Strategy’, has demonstrated an intention to take a holistic approach to energy policy that puts greater emphasis on the primary energy saving potential of CHP. However, for this intent to have tangible results it should be manifested in concrete legislative reform.

The 2012/27/EU directive on energy efficiency (hereafter EED), provides a structure to make progress in terms of heat planning, with suitable measures being required from Member States to promote CHP where their analysis reveals a socio-economic benefit at the Member-State level. However, the EED has been written to allow Member States considerable latitude in how they apply Articles 14 and 15, which are the most relevant to CHP. It could also give Member States clearer and more coherent guidelines as to how they can achieve energy savings obligations using CHP in Article 7. Equally a greater attention to primary energy in the ‘energy market design initiative’ would ensure that future grid infrastructures are conceived with CHP in mind.

On a Member State level it is evidenced from our 2016 National Cogeneration Snap Shot Survey on the European CHP market, and policy environments and from the findings of CODE 2, that there is a strong perception of fragmentation and uncertainty in CHP legal frameworks across Member States. For investor confidence to be improved, states should avoid actions that create unpredictable or unbalanced market conditions. Germany has introduced a fully-fledged CHP law, as a well-integrated component of its overall energy and environmental policy. This was regarded by the German respondents of our Snap Shot Survey as being a significant factor in unlocking CHP potential in the country.

A stronger political commitment to CHP is an important pre-condition to foster the comprehensive legislative approach necessary for its full potential to be reached.


©iStock/jenoche

What is micro-CHP and what does it have to offer in terms of domestic heating and cooling?

Micro-CHP refers to the small-scale production of heat and power for commercial and public buildings, apartments and individual houses. To this end the EED defines ‘micro-cogeneration units’ as those with maximum capacity below 50 kWe. It is an energy efficiency solution for homes and small businesses, that can address the decarbonisation and energy efficiency objectives of buildings today and in the future, while empowering consumers to become active actors in the energy markets. Micro-CHP technologies have high potential to reduce energy bills for users and improve their environmental footprint, while delivering important energy savings, CO2 emission reductions and grid services at the energy system level.

In a home of average energy use in Germany or the Netherlands, fuel bill savings of between 26% and 34% were found to be achievable between 2015 and 2020 respectively by using a micro-CHP compared to using a condensing boiler and electricity from the mains3. There are around 100 million boilers installed in residential buildings across Europe, 64% of which were inefficient non-condensing boilers in 2012. Micro-CHP is well suited to replace a large proportion of the inefficient heating appliances installed in European homes today. Moreover, the latest additions to the micro-CHP family – fuel cell micro-CHPs - have low “heat-to-power ratios”, which makes them particularly suited for new buildings with lower heat demand, while still being adaptable enough to cater to existing buildings also.

Micro-CHP transforms European households into energy 'prosumers', giving them greater control over their energy bills. This also allows households to participate in the market, through ‘demand response’4 , enabling buildings to change their electricity production and demand to suit grid conditions. Because micro-CHP production patterns coincide most of the time with peak power demand, CHP can “step in” when the wind is not blowing or the sun is not shining. In addition, micro-CHP can be aggregated together as a “virtual power plant”, which can be dispatched when intermittent renewables are not generating, helping to reduce grid operating costs as well as additional grid infrastructure investments.

Demand side participation is specified in both the EED and Directive 2009/72/EC, concerning common rules for the internal market in electricity. In the pre-amble of the former it is stated that demand response can help achieve a more optimal use of power systems (making a more efficient use of generation assets and existing power grids). Residential and commercial CHPs are ideal not only for providing ancillary services and reliable capacity to the grid operators but also for this purpose because those individual ‘prosumers’ can also take part to demand response programmes and reduce their electrical consumption while exporting the power that would have originally be self-consumed.

Micro-CHPs in the higher size range (above 10-20 kWe) are generally cost-effective when installed in large buildings and small businesses (e.g. hotels, spas, farms); future growth in this segment is linked to the need for more awareness about these technologies5. The challenge for the lower size micro-CHPs, designed for small buildings (e.g. family houses), is reducing product cost through economies of scale. Projects like ene.field6, Europe’s large scale fuel cell micro-CHP field trial, are demonstrating that the industry is committed to reducing product cost and bringing fuel cell micro-CHP closer to mass commercialisation. Momentum is building up with the market launch of several fuel cell micro-CHPs by European manufacturers, while engine-based micro-CHPs have already been available to customers for a few years. In this context, for micro-CHP potentials to be reached, the industry’s efforts will need to be matched by high level political commitment to reward the customer for the environmental and energy security benefits provided by these technologies.

In addition to pre and early commercialisation support, needed at both the EU and national levels, there are still some regulatory barriers that can hamper further market penetration of micro-CHP. Grid connection can be quite burdensome in some countries, despite the Energy Efficiency Directive recommending a simplified “fit and inform” procedure.

European industry is a major consumer of heat. How can CHP contribute to supplying European industry with low-carbon, cost-effective heat?

European Industry is indeed a major consumer of heat: industrial consumption reflects 37% of Europe’s heat demand. One of the key virtues of CHP is its appropriateness for efficiently meeting this demand. Industrial processes demand large amounts of heat, making them ideal for high-efficiency cogeneration. CHP is embedded in many sectors including food, agriculture, ceramics, chemicals, refining and paper and in the supply chain of many more industries including packaging, food processing and the automotive sector.

CHP also provides industry with alternative business models that give entities more control over their energy supply at local level. Instead of consuming electricity in a passive way and being subject to fluctuating electricity retail prices, industrial plants are able to generate their own power and heat. These benefits allow industries to boost their productivity by reducing the cost of heat by up to 30%7. The savings obtained through cogeneration may be reinvested in the production process and make European industry more competitive.

Just as Cogeneration technologies are ideally placed to satisfy industry’s energy demand, industry is well positioned to transfer cogenerated electricity supply onto the grid. Industries using CHP have much to offer electricity networks in addressing issues of capacity and predictability of supply. Industrial CHP electricity is reliably available with scheduled maintenance times, and plant capacity is normally modest in size compared to central generation, allowing industries to play a role in aggregated supply.

Is the CHP sector as well-established in Europe as in other regions of the world? In terms of policy support, is there anything that Europe can learn from other regions?

The US is behind Europe in terms of the total CHP share in annual national power generation (9% in the US and 11.7% in the EU where it is in decline). While there are several European countries that the US out performs, on average the market and policy climate in the EU appears to be more conducive to CHP investment. However comparisons between the US and EU’s heavily regulated and highly taxed business and energy environment are difficult to make. In the US, fuel prices and tax credits are more influential on CHP investment levels and their energy policy-makers operate under different mandates and political conditions.

Greater political commitment to CHP in the US is evidenced on a state level with at least 8-10 US states having advanced CHP policy frameworks. Equally, a growing number of states, 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. On a federal level President Obama’s Executive Order 13626 of August 2012, ‘Accelerating Investment in Industrial Energy Efficiency’, calls for 40 gigawatts (GW) of new, cost-effective CHP by 2020.  We would like to see similar leadership on a European level, given the comparatively advanced state of the EU cogeneration principle and its manufacturing base. What is interesting about the USA’s approach is that it is especially targeting barrier removal. For industry this is a key element of what is needed.

In Japan, industrial CHP makes up 80% of total installed cogeneration capacity. However, the most practicable lessons, that the EU should take from Japan are from its more recent polices on small-scale CHP units. These include, direct 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. The IEA has reported an overwhelming increase in installed stationary fuel cell CHP. Europe should look to the consistent methodologies and coherent funding criteria that were applied in Japan to support committed industry in bringing micro-CHP fuel cell technologies closer to mass commercialisation.

The 2004 CHP Directive and subsequent EED have set up a solid foundation for Member States to further harness the energy savings and CO2 emission reductions potential of CHP. Ambitious and consistent implementation of the existing EU legislation is the first step in addressing the barriers that the CHP industry faces today. Further CHP deployment will also depend on the EU energy and climate policy framework taking a more integrated approach towards the energy system, exploiting synergies between heat and electricity and addressing supply, transmission, distribution and demand together.

The multi-jurisdictional presence of the CHP industry has been increasing steadily. A plurality of countries at different stages of industrial and commercial development have been seeing the virtues of CHP in terms of its contribution to energy efficiency, and decarbonisation. Maintaining the transnational dialogue is key to building up the global CHP market.

1 Up to 90%, or even higher if flue gas condensation is installed

2 Commission Staff Working Document: Review of available information on an EU Strategy for Heating and Cooling pp 44-45.

3 Figures based on 2015 Delta-ee modelling. Further details in the publication “The benefits of micro-CHP. A summary of the fundamentals and benefits of micro-CHP for Europe”, produced by Delta-ee for COGEN Europe.

4 Demand response is the ability of domestic net-consumption of electricity to respond to real-time prices (net-consumption = consumption - production).

5 CODE2 has developed a Smart CHP App and “How to guides” for installing CHP in businesses.

6 The ene.field project receives funding from the European Union's Seventh Framework Programme (FP7/2007-2013) for the Fuel Cells and Hydrogen Joint Technology Initiative under grant agreement n°303462. More information at www.enefield.eu

7 This Figure comes from internal COGEN Europe evaluation.