The European Union is enthusiastic about Energy Efficiency and has set itself a challenging target of 20 percent reduction in primary fuel use by 2020. This should signal mobilisation and expansion throughout the energy efficiency markets as governments move to fulfil obligations. Combined heat and power doubles the efficiency of traditional power station electricity generation by simultaneously providing a use for the heat produced by the generation process. Cogeneration is the most effective, lowest cost, most available solution for reducing primary energy use in the electricity sector. It is a tried and trusted technology but it is an industry which has hardly grown in Europe over the past 10 years.
Cogeneration plants provide 10 percent of Europe’s electricity supply today. Cogeneration is used widely in the chemicals and paper industry and in food processing and aluminium smelting. The technology can be incorporated into district heating plants and it is increasingly being used in universities, hospitals and leisure complexes to meet the heat load needed and supply electricity. Recent technology developments have produced a range of micro turbine designs targeted at the traditional domestic heating boiler market and which are currently making an impact in Germany, Japan, the Netherlands and the UK.
Europe is home to a score or more cogeneration equipment manufacturers, the largest of whom sell world wide. Europe boasts two economies, Denmark and the Netherlands, where over 40 percent of their electricity is generated using cogeneration, almost doubling the fuel efficiency in this sector and reducing its primary fuel use by one third. Cogeneration saves Europe over 100 million tonnes of CO2 emissions per annum right now and could double that contribution in 15-20 years of development. So why is cogeneration not the first efficiency technology adopted by the EU to meet its 2020 climate and energy goals?
Energy Efficiency has been one of the key objectives of the last three presidencies of the European Union. 20 percent Energy Savings by 2020 is a main target of the EU’s climate change abatement strategy. While there is a lot of publicity for end user energy efficiency activity-efficient light bulbs, switching off equipment and insulating houses – there is little visibility for the energy efficiency potential in the electricity generation sector. The heat and electricity sectors account for well over a third of Europe’s CO2 emissions. The electricity system is operating at around 35 percent – 40 percent efficiency: a shockingly low performance figure when technology to improve it, simply by also using the heat from production, exists.
The European Union’s policy until now has been to rely on the sector itself to reform its efficiency profile, goaded by the increasing carbon costs as the Emissions Trading Scheme kicks in. The first and second rounds of ETS are struggling to demonstrate success and meanwhile the large utilities seem to be ignoring the potential of energy efficiency savings, and the advantages of decentralised supply. The large utilities can become openly competitive to large energy users who wish to use combined heat and power plant within their business, offering preferential power rates making the investment plan less attractive. The utilities prefer to cite the future, hoped for, success of Carbon Capture and Storage rather than take steps today to reform their operations. The result is no sign of significant efficiency improvements in the power generation sector, rather a strong tendency to keep business as usual.
Frost & Sullivan estimate that the Western Europe Cogeneration Equipment Market could reach revenues of $1.39bn by 2013, but even at that it would still be underperforming. What is holding the sector back from expansion? After an upsurge in the 1980s and 90s driven by concerns about oil price and security of supply, cogeneration found itself disadvantaged by the process of liberalisation of the European Energy markets. Cross subsidies within the energy market, plus overcapacity in the electricity supply industry, uncertainty of future pricing, partial liberalisation, combined with the very short term returns required from capital investments, and the bureaucracy of decentralised grid connection, has meant that the cogeneration industry faces multiple hurdles in the market place. Even where an investment is acceptable on a rate of return basis the uncertainty in the energy market as a whole plus the bureaucracy visited on the customer as the project moves forward is enough to deter many new investors.
Things could be changing. As EU countries study their energy efficiency commitments in detail there is increasing evidence that cogeneration is moving up the political agenda. First signs of a shift took place early in 2007 when the IEA (International Energy Agency) admitted that it had perhaps neglected the potential of cogeneration thus far and wished to redress that oversight, establishing a collaborative project working with industry and other groups to develop a view on the potential of the technology world wide. Meanwhile, Germany as part of fulfilling its commitments under the CHP Directive 2004/08/EC, published its estimate of the national potential for cogeneration in January 2007, claiming that a staggering 50 percent of its electricity could be supplied in cogeneration mode.
In May 2007 the German Environment Ministry announced that they aimed for a doubling of cogeneration by 2020 and in June 2007 the G8 summit in Heiligendamm included in its final statement that countries should “adopt instruments and measures to significantly increase the share of combined heat and power (CHP) in the generation of electricity”. These public statements show a significant shift in public policy support for cogeneration. There appears now to be a growing awareness within the political arena of that cogeneration has a significant role to play in Europe’s Energy Efficiency campaign. Although publicly low key about cogeneration, the European Commission has since 2004 worked to put in place a significant piece of legislation which could address the major structural and policy issues inhibiting significant cogeneration deployment.
The CHP Directive 2004/08/EC, introduced originally with security of supply and primary fuel reduction in mind, is now in force, and provides the policy framework necessary to move cogeneration forward. However the Directive on its own will not achieve cogeneration market success. For that to happen there needs to be a corresponding marketing and sales effort from the industry itself.
Cogeneration is not a concept in the public mind, in the way a wind turbine or solar energy is. Cogeneration is viewed as awkward and technically complicated by policy makers, who are perplexed by the apparent complexity of the technology. No one can introduce the word cogeneration into a conversation today without following it with a brief explanation of what the term means. There is a big educational, outreach and promotional exercise to be done; in short, market development and market making are required.
Cogeneration is a low-risk well-understood route to take for the European Union to achieve its goal of 20 percent primary fuel saving by 2020. To grow cogeneration within Europe’s evolving energy policy will require that industry and governments work together to make the most of what is a win-win-win solution for energy user’s, energy and equipment suppliers, and society at large by taking advantage of the measurable benefits energy efficiency environmental protection and economic growth which the expansion of cogeneration offers.
COGEN Europe is Europe’s umbrella organisation representing the interests of the cogeneration industry, users of the technology and promoting its benefits in the EU and the wider Europe. The association is backed by the key players in the industry including gas and electricity companies, ESCOs, equipment suppliers, consultancies, national promotion organisations, financial and other service companies.