EN20 Combined Heat and Power (CHP)
Assessment made on 01 Apr 2007
ClassificationEnergy (Primary theme)
DPSIR: Driving force
- ENER 020
Policy issue: How rapidly is energy efficiency increasing?
CHP or "cogeneration" implies that heat and electricity are produced simultaneously in one process. Use of combined heat and power can help to improve the overall efficiency of electricity and heat production as these plants combine electricity production technologies with heat recovery equipment. Increasing the conversion efficiency of power generation through the use of CHP thus helps to reduce the environmental impact of power generation. The Sixth Community Environment Action Programme contains the aim of doubling the overall share of CHP in the EU-15 to 18% of total gross electricity production.
The share of electricity from combined heat and power in total gross electricity production in the EU-25 was 10.2% in 2004. It was significantly higher in the new Member States (15.8%) than in the pre-2004 EU-15, where it was 9.5%. In 2002, the shares were 9.9%, 15.4% and 9.2%, respectively.
Despite some changes in the calculation methods (see metadata), it would appear that the EU-15 is not on track to meet the indicative target to double the share of CHP electricity in gross electricity production between 1994 and 2010 (COM(1997) 514 - final). When calculated according to the old Eurostat methodology, this required an increase of CHP electricity from 9% in 1994 to 18% in 2010.
In recent years, CHP has suffered from adverse market conditions in many EU-15 Member States. The problems encountered by CHP include: increasing natural gas prices that have reduced the cost competitiveness of CHP (the preferred fuel for new CHP plants is natural gas), falling electricity prices resulting from market liberalisation and increased competition(although these have now started to rise again), barriers to accessing national electricity grids to sell surplus electricity, and relatively high start-up costs. Until the external costs of energy are internalised in its price, cogeneration may require government support such as by providing investment support or giving tax exemptions (EC, 2005).
To date the uncertain and changing regulatory environment in many Member States as the electricity sector is liberalised, coupled with a lack of coordinated support policies for CHP, has led to an increased perception of risk and undermined confidence. Further support mechanisms will therefore be needed in the future in order to alleviate this situation. The CHP Directive on the promotion of high-efficiency cogeneration (2004/8/EC) is expected to start having an effect from 2006; it encourages Member States to promote CHP up-take and help to overcome the current barriers hindering progress. It does not set targets, but instead requires Member States to carry out analyses of their potential for high efficiency cogeneration.
A number of EU Member States have introduced laws or other support mechanisms to promote new CHP. Such measures include:
- Legal provisions prescribing a mandatory CHP oriented energy audit in the case of new installations or major reconstructions above a given capacity (e.g. 5 MW in the Czech Republic);
- Statutory duty to connect particular types of CHP to the grid and purchase their electricity (Germany, 2002), provisions obliging the utilities to provide CHP access to the networks, adopted in many new Member States;
- Fiscal measures to provide support to CHP, such as:
- capital grants (United Kingdom),
- preferential feed-in tariffs for CHP plants (Czech Republic and Hungary) or guaranteed minimum feed-in price for electricity produced by CHP plants operated by public utilities (Germany, 20001),
- tax incentives: exemptions from or lower rates of taxation (United Kingdom), exemption from income tax for the operation of CHP up to a defined capacity limit (Czech Republic and Slovakia) or lower level of value added tax (VAT) applied to district heating (Czech Republic). The recent decision by the EU to allow for lower VAT-rates for combined heat and power production may help to further promote CHP (Council of the European Union, 2006).
Despite these measures, there remain substantial differences in the level of combined heat and power across the EU-15. Countries with a high market penetration of CHP electricity include Denmark, Finland, Latvia and the Netherlands. In Denmark CHP has received strong government policy support, providing tax incentives and subsidies, and growth has been seen mainly in public supply as a result of investments in district heating infrastructure. Government support was also an important factor in the Netherlands, combined with widespread availability of natural gas, the favoured fuel for CHP. The high level of CHP production in Finland and Latvia reflects the cold climate, which leads to a significant need for heat as well as electricity. In contrast to the process of energy market liberalisation in many other countries, the strong demand for both outputs coupled with a well developed district heating network, has actually helped to stimulate investment in CHP as opposed to hindering its expansion. Poor infrastructure for natural gas2 and less demand for heat, in particular in Greece and to a lesser extent Ireland and Portugal, has historically hindered CHP development and the share of CHP electricity remains low in these countries. Combined Heat/Cooling-Power Conversion may help to overcome the problem of surplus heat production in summertime and in warmer countries such as Greece and Portugal.
Although the increase in the share of CHP in electricity production has been limited, the amount of electricity production form CHP increased during 1994 to 2004 in the majority of EU-15 countries, particularly in France, the United Kingdom and Spain. Among the EU-15, Germany currently has the highest absolute production of CHP-electricity (21% in 2004).
The use of renewable energies (biomass) in combined heat and power provides the opportunity to further improve its environmental performance, and increase progress towards targets for renewable electricity production (see EN30). However, as shown in Figure 2 renewable energies and wastes provided only 18% of the fuel input in CHP plants in the EU-15 and 2% in EU-10 in 2004. Natural gas accounted for half of the fuel input in EU-15 (10% in EU-10), while solid fossil fuels such as coal and lignite provided 77% of the fuel input in the new Member States (18% in EU-15).
According to the PRIMES energy model projections (European Commission, 2006), future CHP production capacity will largely be based on natural gas combined cycle gas turbines and small gas turbines. These projections also show that the use of biomass is expected to emerge as a significant fuel for CHP over the period to 2030 only if future ambitious renewable energy targets were to be reached.
In the longer term, market penetration of CHP in the EU-10 is predicted to accelerate out to 2030. In the EU-15 and overall in the EU-25, the share of CHP electricity production is expected to increase at a slightly lesser rate. PRIMES projections show CHP electricity production for the EU-15 increasing from 13.4% to 16.7% over the period from 2000 to 2010 and to approximately 21.6% in 2030, 24.2% for the EU-25. This is unlikely to be sufficient to meet the EU-15 indicative target of doubling CHP electricity production between 1994 and 2010 (even allowing for some uncertainty caused by the changing definitions of CHP electricity). The share of CHP generation is not significantly higher under EEA projections of a lower carbon energy pathway with a CO2 permit price, (EEA, 2005) indicating that permit price alone is not sufficient to support CHP.