COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT pursuant to the second subparagraph of Article 251 (2) of the EC Treaty concerning the Common Position of the Council on the adoption of a Directive of the European Parliament and the Council on the promotion of cogeneration based on a useful heat demand in the internal energy market

2002/0185 (COD)

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT pursuant to the second subparagraph of Article 251 (2) of the EC Treaty concerning the Common Position of the Council on the adoption of a Directive of the European Parliament and the Council on the promotion of cogeneration based on a useful heat demand in the internal energy market

1- BACKGROUND

Date of transmission of the proposal to the EP and the Council (document COM(2002)415 final - 2002/0185 (COD)): // 22 July 2002

Date of the opinion of the European Economic and Social Committee: // 26 February 2003

Date of the opinion of the Committee of the Regions // 9 April 2003

Date of the opinion of the European Parliament, first reading: // 13 May 2003

Date of transmission of the amended proposal: // 24 July 2003

Date of adoption of the Common Position: // 8 September 2003

2 OBJECTIVE OF THE COMMISSION PROPOSAL

The objective of the proposed Directive is to increase the use of cogeneration in order to increase energy efficiency and security of supply. Cogeneration is a process of simultaneously production of heat and electricity and cogeneration can provide substantial energy savings compared to conventional processes where electricity and heat are produced separately.

The proposed Directive is a framework directive in order to address, harmonise and strengthen the role of cogeneration in the internal energy market. The proposal must be seen as supplementary to the Directives on the internal markets for electricity and gas as well as the Directive on the promotion of electricity from renewables. The proposal for a Directive on cogeneration seeks to level the playing field and harmonise the definitions of cogeneration in order to increase the transparency. The proposal does not include a harmonisation of Member States' support schemes, but it establishes a framework serving on the one hand to avoid market distortions and on the other hand to increase Member States' possibility to develop an adequate set of measures.

A cornerstone for the proposal is to ensure that only cogeneration providing real energy savings compared to separate production can be regarded as high efficiency cogeneration and should be supported.

The proposal is intended to provide for (1) a common methodology to determine high efficiency cogeneration and calculate electricity from cogeneration; (2) establishing a system of guarantee of origin for electricity from cogeneration; (3) Member State obligation to carry out analysis of potential for high efficiency cogeneration and (4) the setting of fair conditions for access to the electricity grid for cogeneration producers.

3 COMMENTS ON THE COMMON POSITION

(a) General

The Commission's proposal for a Directive to promote cogeneration is a logic consequence of a number of initiatives. In 1997 the Commission presented a strategy for cogeneration outlining the advantages of cogeneration. The importance of further use of cogeneration was confirmed in the Green Paper on security of supply as well as in the Action Plan on energy efficiency from 2000. Both the European Parliament and the Council have with resolutions in 2000 and 2001 recognised the importance of cogeneration as a way to achieve substantial progress towards increased energy efficiency and security of supply.

The Danish and most recently the Greek Presidency have treated this proposal as a matter of high priority and have consequently intensified work on it during discussions in the Council. During both Presidencies constructive co-operation and willingness to find compromises on this technically complicated file has also prevailed among Member States.

During the preparation of the first reading in the European Parliament, positions in the Parliament were continuously made known to the Council, providing useful guidance to Member States in developing and negotiating the Common Position.

In general, where the Common Position departs from the Commission Proposal it is for the purpose of clarifying and defining the scope and concepts as set out in the original text.

The European Parliament adopted 74 amendments of which 49 were accepted, accepted in principle or accepted partly by the Commission and reflected in the Commission's amended proposal of 23 July 2003.

The Common Position incorporates in substance, partially or in principle 24 of the amendments adopted by the European Parliament, all of which are acceptable for the Commission.

(b) Differences between the original proposal of the Commission and the Common Position of the Council

The process in Council resulted in changes of the original proposal from the Commission. The major differences are described in this section.

Efficiency criteria and reference values

According to the Common Position cogeneration providing at least 10% primary energy savings compared to separate production can be regarded as high efficiency. In the comparison between a cogeneration process and separate production the efficiency values of the separate production of heat respectively electricity are of major importance. In the Commission's proposal these values were intended to be set at a national level and harmonised at a later stage. However Council has proposed a process to establish harmonised efficiency reference values within a two year period. This is also in line with amendments in the European Parliament (amendment 42) and will strengthen the coherence of the internal energy market and reduce market distortions. The technical complexity of this issue and the need of adaptation to the technical development justify the proposal of establishing a Committee to assist the Commission. The Committee also got the task to review the efficiency criteria value, set out initially to 10 %, in order to ensure adaptation to technological development.

Alternative calculations

The main road for determining the amount of electricity from cogeneration and calculation of primary energy savings in order to qualify as high efficiency cogeneration was in the Commission's proposal designed as a two step approach. In step one the non-cogenerated electricity was sliced off (Annex II) and the pure cogenerated output were introduced in step two in order to calculate primary energy savings (Annex III). To take into account existing schemes in Member States Council agreed on two alternatives.

One alternative (Article 12(2)) allows Member States to take the two steps in reverse order. Using this alternative the primary energy savings are calculated as first step (Annex III). Cogeneration can be regarded as high efficiency if it meets the 10% criteria even if it includes a share of non-cogenerated output. This alternative has some restrictions for cogeneration units above 25 MW. However if a guarantee of origin is issued the more exact determination of the electricity from cogeneration shall apply (Annex II).

The other alternative (Article 12(3)) allows Member States not to calculate primary energy savings for every individual cogeneration process. The term high efficiency cogeneration can be used for cogeneration processes if it on a national basis is proved that cogeneration on average fulfils the efficiency criteria of 10%. If a guarantee of origin is issued for such a cogenerated amount of electricity the primary energy savings displayed cannot exceed the default value of 10%. This alternative is valid until 2010.

These alternatives are acceptable for the Commission because they provide notably those Member States that have already an active cogeneration promoting policy to maintain some room for manoeuvre while maintaining the key objective of primary energy savings. A too strict approach for the determination of high efficiency cogeneration would require a larger degree of control and measurements and could be perceived by the sector as another set of obstacles against extended use of cogeneration. The Common Position is a balanced solution that provides a major improvement towards a more harmonised concept of cogeneration compared to the present situation.

Electricity grid system and tariff issues

The Common Position has clarified the parallelism to the Directive on electricity from renewables (2001/77/EC) as Article 7(1, 2 and 5) from that Directive also apply for electricity from cogeneration. The key message is that electricity from cogeneration must achieve fair access to the electricity grid based on transparent, objective and non-discriminatory conditions. The Common Position differs from the original proposal from the Commission but it is acceptable because the recently adopted directive on the internal electricity market (2003/54/EC) also assures the principle of non-discrimination.

Guarantee of origin

In the Common Position Council has made the proposal more precise as it is proposed that a claim for a guarantee of origin only can be raised by the producer of the electricity. Furthermore it is ensured that the amount of electricity covered by a such a guarantee is determined in accordance with Annex II and that the obligation for Member States to issue a guarantee is limited to claims covering electricity produced from high efficiency cogeneration as defined in Annex III.

Amendment of boiler efficiency directive 92/42/EEC

The Common Position includes an amendment of Directive 92/42/EEC on efficiency requirements for new hot-water boilers fired with liquid or gaseous fuels. This change is justified because the boiler directive adopted in 1992 did not foresee that small cogeneration units could fall within the scope of that Directive. The exemption of cogeneration units from that Directive (92/42/EEC) is justified and the Commission welcomes this contribution from Council.

(c) Amendments proposed by the Parliament to this proposal

The following amendments of the European Parliament are incorporated, in substance, partially or in principle in the Common Position of the Council: 3, 10, 12, 13, 15, 18, 20, 22, 24, 26, 27, 41, 42, 45, 46, 48, 58, 62, 63, 68, 69, 73, 78, 79.

The following section explains on a number of key issues how the amendments are incorporated and the viewpoints of the Commission on those amendments not incorporated.

Definitions and calculations

Amendment 69 concerning inclusion of methodologies developed by CEN/CENELEC is reflected in recital 14 of the Common Position. The Commission would welcome development of methodologies to facilitate Member States implementation of the Directive, but the Commission finds it not appropriate to create a formal link to a standardisation process, that has recently been initialised and where a broad consensus cannot be guaranteed at this stage.

The amendments 67 and 71 of the European Parliament are not incorporated as such, but they confirm that a two step approach is needed in order to 1) define electricity from cogeneration and 2) ensure that the promoted cogeneration really provides primary energy savings. The principle of a two step approach is in line with the Common Position and constitutes an important foundation for a common understanding.

The formula within amendment 71 to calculate primary energy savings is different to the one used in the Common Position. The Commission finds it more coherent to attribute the achieved energy savings to the whole cogeneration process instead of, as it is proposed in amendment 71, only to the electricity share of the cogenerated output.

Although the detailed methodology to determine the electricity from cogeneration as proposed in amendment 70 may be a possible method, the Commission finds it inappropriate to include this method as an annex to the Directive because this methodology is still not developed and is also subject to review and adjustments in the above mentioned standardisation process.

Harmonised reference values

Amendments 42 and 63 concerning development of harmonised reference values for separate production and the establishment of a Committee to assist the Commission are reflected in Article 4 and 14 of the Common Position. The amendments on this issue underline that the considerations of the Parliament are along the same line as in Council. The Commission can accept to establish such a Committee and see it as a valuable forum to deal with such complex issues.

Micro-cogeneration

A number of amendments (23, 34, 38, 41, 52, 54 and 83) from the Parliament are seeking to give specific support to micro-cogeneration. The Parliament wants to limit the definition of micro-cogeneration to units below 50 kWe where as the Common Position in Article 3 and 8 as well as in Annex III acknowledges the need to address small scale cogeneration defined as cogeneration below 1 MWe. The Commission can accept the 1 MWe definition because a too low capacity limit could cause unwanted constraints in a longer perspective. The Council is in favour of providing Member States the possibility to facilitate grid access especially for small scale cogeneration units (Article 8) and can accept that small scale cogeneration can be regarded as high efficiency as long as they give primary energy savings although they would not necessarily meet the 10% criteria. The Commission finds it important on the one hand not to promote small scale cogeneration units just because they are small, and on the other hand to try to remove obstacles relatively more burdensome for the smaller units.

Targets

The Parliament has in amendment 43 proposed that the Community and each Member State shall achieve a cogeneration output of at least 18% of the total electricity output by 2012. The Common Position does not include targets for the Community or for each Member State. The 18% figure was introduced in the Community strategy to promote combined heat and power from 1997 and was based on another and less strict definition of cogeneration and on a pre liberalised market situation. The Commission cannot recommend using the outdated figure of 18% as an indication of a future level of contribution of cogeneration. The Parliament has agreed upon the need to carry out thorough analysis of the potential for high efficiency cogeneration and the outcome of these analyses will in fact serve as objectives or benchmarks for the national cogeneration strategies.

Other elements

The Common Position reflects the considerations made by the Parliament in amendment 15 as the reference to a capacity threshold for public support has been deleted (Recital 24). The Commission can accept this change of the original proposal as it is stressed that public support must respect guidelines for state aid for environmental protection and thereby harmful market distortions are avoided.

The Parliament has in amendments 18 and 22 proposed to delete the division of cogeneration into three classes. These amendments are fully incorporated in the Common Position in Article 3 and Annex IV and acceptable for the Commission because it provides a simplification of the proposal and since the different application of cogeneration can be incorporated into the general approach.

Finally the Parliament has proposed to shorten the implementation period in order to speed up the process and gain earlier benefits from increased use of cogeneration. The Commission would in principle welcome a quicker implementation, but the Member States have in Council pulled in the opposite direction. The common understanding of the need to provide harmonised reference values has some implications also as regards the timing of implementation. Two years for establishing the harmonised reference values is a relative short period and this process has an impact on the establishment of the system of guarantee of origin as well as the finalisation of the analyses of national potentials. The Common Position reflects that the proposal can be implemented within the 2 years set out for transposition.

4 CONCLUSION

The Commission considers that the Common Position adopted [by the Council on 8 September 2003] is generally faithful to the spirit of the Commission's proposal of 22 July 2002, which itself was tabled in response to concerns expressed by the Council and the European Parliament regarding the need for action to be taken to promote cogeneration as an efficient instrument to reach substantial energy savings and increased security of supply.

The Commission believes that the Common Position has succeeded in retaining the spirit and intention of the Commission proposal and of a substantial part of the amendments of the European Parliament. A workable and acceptable balance has been reached in defining cogeneration in order to reflect both a certain degree of harmonisation needed to contribute to a levelling of the playing field and a certain national flexibility to incorporate the very different realities cogeneration is facing throughout the Community.

The Common Position has enriched the Commission proposal via inclusion of a Committee to assist the Commission on technical issues and to play an important role in reviewing aspects of the Directive, which needs to be updated in accordance with the technological development.

As regards the issue raised by the European Parliament relating to establishment of targets for further exploitation of cogeneration the Commission agrees with the intention behind this position because it is important to urge Member States to ensure and develop the role of cogeneration. The Common Position addresses this issue, as Member States are obliged to carry out analysis of national potentials for high efficiency cogeneration including a separate analysis of barriers preventing further use of cogeneration. The Commission regards these analyses as crucial for future measures and expects that the analyses will constitute de facto objectives for the national efforts. The Commission finds it also important to note that these analyses must be published and thereby the reports will inevitably be challenged and discussed within the sector.

The Commission therefore recommends this Common Position to the European Parliament.