EN 20 Combined Heat and Power (CHP)

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The share of electricity from combined heat and power in total gross electricity production in the EU-27 was 11.1% in 2005. It was significantly higher in the new Member States (16.5%) than in the pre-2004 EU-15, where it was 10.2%. In 2002, the shares were 9.9%, 15.4% and 9.2%, respectively.

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).

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).

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 2005 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 (78 TWh in 2005).

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 renewables provided only 9% of the fuel input in CHP plants in the EU-27 in 2005. Natural gas accounted for more than half of the fuel input in EU-15 (12% in the new Member States), while solid fossil fuels such as coal and lignite provided 74% of the fuel input in the new Member States (17% in EU-15).

For a long time, the statistical system did not permit the correct assessment of CHP production at European level. EU Directive 2004/8/EC on the promotion of cogeneration then obliged Member States to submit statistics on CHP to the Commission (Eurostat). However, Eurostat had already started collecting CHP statistics at the beginning of the 1990s (in the course of pilot projects). Since then, a common methodology for CHP data collection has been developed and assistance given to Member States in setting up the required statistical reporting system (Eurostat, 2007). The overall efficiency of a CHP unit is used as a measure to determine whether electricity generation is fully CHP or not. If overall efficiency is above a threshold set at 75% (85% for steam condensing extraction turbines and combined-cycle units), all the electricity generated is considered to be CHP electricity. On the other hand, if the overall efficiency is below the threshold, the amount of CHP electricity (ECHP) is calculated by multiplying the produced CHP heat by the power to heat ratio. These power to heat ratios are the actual ratios. If these actual ratios are unknown, default values can be used for several types of CHP. For several types of CHP (like: Stirling, fuel cell or organic Rankine cycles) countries can determine their own default values. These values shall be published and notified to the Commission.