Cogeneration chief: Energy efficiency bill is ‘a missed opportunity’

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The EU's Energy Efficiency Directive, which has entered its final stages of negotiation, has missed the opportunity to give the cogeneration industry the incentives it needs to attract investors, according to Fiona Riddoch, managing director at COGEN Europe.

Fiona Riddoch is the managing director of COGEN Europe, the European association for the promotion of cogeneration. She was speaking to EURACTIV's Ana-Maria Tolbaru.

How do you think the negotiations on the EU's energy efficiency bill are going? Are your worries addressed by the bill?

Negotiations on the energy efficiency Directive have been overshadowed by the financial crisis which has dampened the ambition of the member states. The breadth of the Directive which includes both the old ESD(Energy Services Directive) and CHP (Combined Heat and Power) Directive is a challenge and has meant some articles got a lot less attention than others, although many hours were spent in the process.

The European Commission is committed to strengthen the position of CHP through this review but with the current text it is unclear to what extent this will happen. The provisions on planning and supporting CHP with new policy structures ( Article 10 ) which involve heat and cooling plans, based on cost benefit analysis, to identify area with strong CHP potential will depend on good implementation in member states. This is a tough way to grow a sector. Access to the grid for CHP electricity in Article 12 of the EED is looking weaker than in the original Directive which was not the Commission’s intention.

On the other hand the planning of heat and power proposed in Article 10 could wake member states up to the significant efficiency benefits of this approach in the longer term. The Directive has some forward looking provisions on demand response, some small reference to CHP under 20MW and specific provisions for micro CHP. These are positive elements.

Would you say cogeneration is a lost battle in the Energy Efficiency Directive?

Rather a missed opportunity! The Commission is clearly supportive of cogeneration as a fundamental energy efficiency tool for Europe. The EED was an opportunity to make some bold steps for the sector but the Commissin’s original text chose a high level of compulsion on member states and businesses, which in the end the parliament and particularly the COUNCIL could not agree on except in a considerably weakened form.

CHP needs to first undergo a cost-benefit analysis, before member states can decide if it should be implemented across the EU and if this process should be monitored by the Commission. Why is that?

The logic of the Directive is that member states must first look at their territory and assess where the most attractive areas for CHP are and put measures in place to encourage the building of CHPs in those areas. Each newly proposed individual power and industrial project above 20MW will also perform its own cost benefit analysis on CHP and if the member states have done their work well and the economic case is positive then new projects will be CHP.

Legislators working on the energy efficiency directive claim that cogeneration is a big part of overall energy savings. Then why do you think they have not drawn an ambitious provision for it in the text of the directive? The European Parliament has had, after all, the most ambitious version of this directive…

The member states themselves have identified over 100GWe of untapped CHP potential in Europe equating to an annual saving of 35mtoe equivalent to the total inland energy consumption of a small member state. Like the rest of the Energy Efficiency file the member states seem to find it difficult to act on their own findings on energy savings and CHP.

But there are already measures in place – renewables, plus the energy efficiency bill which could be adopted very soon. What does CHP bring as a plus that makes it worth the cost?

What CHP brings as a plus is guaranteed primary energy savings compared to separate production of heat and power. Under every assessment of return on investment CHP comes out well.

With the EED complete DG Energy must look to its roadmap 2050 and begin to consider how to properly integrate energy efficiency including CHP into its long term planning.

As Europe’s fuel mix changes in the coming years fuel neutral CHP is one of the highest efficiency approaches which can continue to contribute in the heat and power sectors. CHP should be one of the foundation energy efficiency approaches for Europe in the coming decades.

The policy element of this remains important. Existing policy and the new EED combined are likely to deliver maybe 15% savings by 2020. There is clearly still a policy gap which becomes more pressing for energy efficiency after 2020. Nor will ETS alone fix Europe’s energy efficiency issues or produce technology shifts that are needed to achieve key 2050 goals. The carbon market needs attention and fixing it will take time (with investors calling for a smooth evolution) and success is by no means guaranteed. In the absence of harmonized fossil fuel subsidies and taxation of energy products there will not be a level playing field for operators.

ETS has a central role in GHG reduction and carbon prices are an important tool however higher prices are not enough by themselves to drive the necessary transition of efficiency in the power sector. A full suite of complementary policies is needed . Well crafted energy efficiency policies can deliver low-cost savings in predictable time scales.

You claim that introducing cogeneration at national level wouldn't bring electricity prices up for a while. At least until the initial investment is recouped?

The support given to CHP in member states is typically low compared to the subsidies for other forms of electricity generation, and CHP is one of the most cost effective carbon reduction initiatives Europe can take.

The initial investment in CHP will normally pay back in a reasonable time frame but, this is still often to long for company’s investment plans. Hence the need for support.

There is also a need for a stable p policy structure around CHP so that the risk of the investment can be determined. Thereafter the key factor in the return on investment is the relative price of the fuel and electricity. It is this latter which drives the profitability of CHP when operating.

So it is a win-win situation…

At the member state level yes. For the individual cogenerator it depends on their specific application, its size and whether the cogenerator is able to recover the value of the high efficiency benefits of its electricity production through the market and member state support, if available.

Could you give me more examples of countries using it and how and what are the advantages they are already experiences?

Finland Sweden and Denmark use a lot of CHP. This is largely in district heating and they are very happy with it. The Netherlands is a very high user and the CHP is largely in industry and greenhouses. On average 11% of Europe’s electricity today is generated in CHP mode as is 15% of its delivered heat.

CHP is most actively supported in Germany parts of Belgium, Slovenia, Spain and increasingly in Italy which have put in place structures for supportive policy around the industry.

The advantages are lower overall primary energy consumption (a lot of this fossil fuel) and lower electricity grid losses as electricity is used by the host generating it. CHP encourages decentralized generation allowing more players to enter the electricity market and also encouraging a more integrated thinking about how to supply energy as a whole to citizens.

What are the main setbacks then – why have member states avoided or neglected talking about CHP obligations in their negotiations on the Energy Efficiency Directive?

CHP is an energy efficiency solution for the integrated supply of heat and power. Member states still plan policy very much for one or the other of these supplies and find it difficult to handle policy involving both.

How costly is cogeneration – in terms of the initial capital needed? Can it be done privately or does it need state subsidies? How long is the return on the initial investment?

Cogeneration is not hugely costly to build in terms of capital investment. However CHP is heat led in other words your main customers need for heat drives the time at which electricity is generated so there is an investment risk on the electricity generated unless it has grid access. This is where supportive, well designed policy can make the difference between an investment or not. If the policy structure is good and there is a return on investment for the CHP then investors will be encouraged to invest.

Do you feel there has been any progress on CHP during the latest negotiations?

Until the ink is dry on the text and we have reflected fully on its implications it is hard to say. There has been progress through, requiring more consideration in practice of CHP in member state planning around energy. Similarly for construction of plants above 20MW. The possibilities of new electricity markets and services is interesting. Member state action on small and micro CHP must now be considered. The CHP sector feels at the moment that there is still much to do both at the European and the member state level for CHP to really contribute at a high level to Europe’s energy efficiency objective.

Can you tell us a bit more about the specific benefits that the EU is missing out on by not introducing CHP?

Europe needs to save 20% of primary energy by 2020 and to redouble its efforts on energy efficiency thereafter if it is to achieve its overall energy and climate goals. Roughly one third of all of Europe’s primary energy consumption goes directly into the electricity generating sector who then generate and distribute electricity at around 40% overall efficiency. If we want to reduce imports of fossil fuels and cut carbon then energy efficiency in the power sector is vital. CHP is part of that efficiency story.

CHP helps Europe in three key ways:

Firstly High efficiency CHP saves at least 10% of primary energy (and with modern installations up to 25%) compared to separate production of heat and power. It is fuel neutral and works as well on renewables as on fossil fuel. Europe should be considering CHP as one of the main pillars of energy efficiency in the transformation sector out to 2050.

Secondly planning for CHP is integrated energy planning. Integrated planning identifies opportunities for high efficiency and for more regional and city involvement. A more integrated approach to energy planning could help Europe achieve its 2050 goals.

Thirdly Europe is arguably the centre of global CHP, expertise, engineering and knowledge. At a time where Europe aspires to sustainable growth CHP is one of the sectors Europe is right to foster for the future.

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