COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 15.10.1997 
COM(97) 514 final 
COMMUNICATION FROM THE COMMISSION 
TO THE COUNCIL, THE EUROPEAN PARLIAMENT, 
THE ECONOMIC AND SOCIAL COMMITTEE 
AND THE COMMITTEE OF THE REGIONS 
A Community strategy to promote combined heat and power (CHP) 
and to dismantle barriers to its development 

Table of contents 
1. Why a Community strategy on combined heat and power 
2. Existing Community measures in support of CHP 
3. The barriers to CHP and District Heating and Cooling (DH&C) 
4. A European CHP strategy 
4.1 Objectives of the strategy 
4.2 CHP and environment 
4.3 Increased share of funding to CHP by EU. programmes 
4.4 Voluntary agreements with industry, technology procurements 
4.5 Information exchange and co-operation between Member States 
4.6 Monitoring the impact of the liberalisation of the European energy markets 
on CHP/DH 
4.7 Internalisation of external costs 
4.8 Financial instruments 
5. Conclusions 
6. References 
Annex 
1. General principles of CHP 
1.1. Description of CHP 
1.1.1. Industrial CHP 
1.1.2 District heating CHP 
1.1.3 Residential and commercial 
1.2. The economics of CHP 
2. CHP in EU. Member States. 
1. Why a Community strategy on Combined Heat and Power 
(CHP)1. 
1. In the White Paper "An Energy Policy for the European Union" 2 the Commission 
committed itself to present a strategy offering a coherent approach for the 
promotion of Combined Heat and Power (or CHP) in the European Union. This 
initiative is to ensure the necessary co-operation between the Community, its 
Member States, utilities and consumers of electricity and heat to assist in 
dismantling barriers to the development of this environmentally friendly and 
energy saving concept. 
2. Global climate change poses a major challenge to us all. In preparation for the 3rd 
Conference of the Parties in Framework Convention of the United Nations on 
Climate Change in Kyoto in December 1997, the Council adopted a negotiating 
position for industrialised countries for a 15% reduction in the emissions of the 
principal greenhouse gases by the year 2010 and at least 7,5% by the year 2005 
compared with 1990 levels. The present trend in emissions, based on the 
application of current policies and measures, indicates an increase in C02 
emissions of approximately 8% by 2010, which means that a reduction in real 
terms of 23 % may well be required. Major effort in several policy areas will be 
required, and in particular as regards energy production and use, as outlined in a 
recent Commission Communication on Climate Change- The EU Approach for 
Kyoto.3 
3. Since the efficient use of energy reduces the emission of pollutants (C02, S02, 
N20 etc.) to the atmosphere, it is recognised as the single most important policy 
objective in attaining the EU.'s stated objective of stabilising C02 emissions. 
CHP is one of the very few technologies which can offer a significant short or 
medium term contribution to the energy efficiency issue in the European Union.4 
and can make a positive contribution to the environmental policies of the EU. 
According to estimations and in comparison to separate production of heat and 
electricity, the C02 savings from 1 Mwh of CHP electricity production vary from 
132 kg to 909 kg with a reasonable average of 500 kg saved C02 per Mwh. 
However this does not mean that the development of CHP is a panacea for our 
energy management and environmental protection problems. 
4. Different studies5,6 assess the maximum technical electricity production potential 
of CHP in the EU-15 to 900-1000 Twh per year which is about four times the 
Cor : i rl Heat and Power is an intercbai^eafete term with (Degeneration 
White Paper on Energy COM (95) 682 Final 13.12.95 
COM (97) 481 final 1.10.97 
The possible use of biomass as a primary fuel source make CHP schemes even more environmentally 
friendly. The use of natural gas as input fuel in the place of coal or oil has also a positive 
environmental impact. 
5 DEA Sigurd Lauge Petersen. 2.06.97 
6 Regulation and Energy Conservation; the case of Combined heat and Power in the EU. Situation 
and Prospects. Chris Hendriks and al. Feb. 1995. 
amount of CHP produced electricity in 1994 and represents 40% of the total 
annual electricity generation in the Community in 1994. Rough estimations 
indicate that full exploitation of this potential replacing existing electricity and 
heat production plants, could reduce C02 emissions by 300 Mt per year or 9% of 
the EU-15 total of 3457 Mt in 2010 (conventional wisdom scenario)7..Despite 
this, the penetration of CHP in the EU. (expressed as the CHP electricity 
production by private and public utilities as a fraction of the total electricity 
production) had decreased in the period 1974-1990. The electricity production by 
CHP plants in the European Union is disappointing and varies significantly 
between Member States, from 1% to 40%. Only in recent years has this negative 
trend been reversed. 
% of total gross electricity generation by CHP in the EU. 
40% 
•BS3L-
GR IRL IT NL PO UK FIN SWE AUS EU 
5. New EU. initiatives are now shaping the future structure and function of 
Europe's energy industries. This changing legal framework creates a new situation 
for CHP, where there is less price stability and increased environmental concerns. 
In this new framework for the energy industry CHP should play more than a 
marginal role and it is vital that efforts to promote CHP should be consistent with 
the new industry dynamic. The Commission fully shares the Council's8 opinion 
that CHP production should be promoted as a measure "protecting the 
environment and reducing energy dependence on satisfactory economic terms". It 
also shares the Parliament's9 view "to publish as quickly its communication on 
CHP ...to encourage the use of CHP in the Member states and to eliminate 
existing hindrances...". 
6. The purpose of this communication is to propose a strategy, in the context of 
E.U. energy policy, which will facilitate the development of CHP in Europe 
and its penetration in the European energy market as an energy saving and 
environmentally friendly system of heat and power production. The 
Commission believes that this strategy has to be based on an appropriate 
combination of mutually reinforcing measures at both the Community and 
Member State levels. It must also be consistent with and take into account 
the different Community policies which will potentially be affected. 
7 European Energy to 2020. A scenario approach. EC spring 1996 
8 Council Resolution on the Green Paper for a European Union Energy Policy O. J. C327 of 7.12.95. 
9 Report on the Commission's White Paper on an Energy Policy: PE 217.771/fin 
2, Existing Community Measures in Support of CHP. 
Legislative 
1. The Community has promoted the concept of CHP since 1974 when an industrial 
expert group was set up to investigate the possibilities of improving the 
conversion efficiency of thermal power stations. Following a suggestion of this 
group a Council Recommendation (77/714/EEC) was adopted on 25 October 
1977, inviting Member States to set up advisory bodies or committees with the 
objectives of : 
a) giving an opinion on all measures likely to lead to increased efficiency in the 
supply of power and heat, 
b) identifying and eliminating non-technical obstacles to the development of CHP, 
c) encouraging CHP and heat transport schemes. 
Almost all countries set up these advisory bodies which made an effort to promote 
the idea of CHP under the difficult conditions of a non-liberalised energy market, 
at a period of low electricity prices and less environmental concerns. 
8. A second Council Recommendation (88/611/EEC) of November 1988 dealt with 
the promotion of co-operation between public utilities and auto-producers of 
electricity essentially using renewables, waste fuels and CHP. Its main purpose 
was to remove legal and administrative obstacles by introducing the following 
policy principles: 
• obligation on public utilities to purchase surplus electricity from auto-
producers, 
• fair authorisation procedures for privately owned power stations, 
• remuneration by public utilities in line with the principle of avoided costs, that 
means fuel as well as capacity costs, and 
• non-discriminatory treatment as regards supplies of electricity to the public 
grid. 
In July 1992 the Commission reported to the Council10 on the progress with this 
Recommendation. The overall conclusions were that co-operation between auto-
producers and public utilities had considerably improved, but that there were still 
constraints to be removed if CHP was to realise its potential. The relationship 
between auto producers and electricity production utilities and the lack of 
progress in achieving the internal market in electricity were considered as the main 
obstacles for the CHP development. 
9. The Energy Charter Treaty introduces a framework for energy co-operation and 
trade between the signatories. The Treaty addresses a number of issues, including 
transit of energy supplies, energy efficiency, and foreign investment in energy 
plant. The Energy Efficiency Protocol, when implemented by all partners, will 
represent an important new framework for CHP in the signatory countries. In the 
SEC (92)1411 final of 22 July 1992 
protocol, support to promotion of CHP and measures to increase the efficiency of 
District Heating are explicitly mentioned. 
10. The Directive concerning the liberalisation of the electricity internal market11 
offers the possibility to Member States to give priority to CHP plants when the 
system operator is dispatching generating installations. The new Directive 
concerning "common rules for the internal market in natural gas", under 
discussion by the Council and the European Parliament, is expected to increase 
the availability of gas at more competitive prices and so contribute to the 
economic viability of gas fired CHP plants. 
Il A new proposal for a Council Directive entitled "Restructuring the Community 
framework for the taxation of energy products"12 was adopted by the Commission 
on 12 March 1997 and offers the possibility to Member States to grant fiscal 
advantages to renewable energy sources and to cogenerated heat. 
Technological: 
12. Energy saving was among the most prominent fields in the Research and 
Demonstration programmes which the Community undertook since 1974. JOULE 
and THERMIE being the Research and Demonstration component of the Non 
Nuclear Energy programme in the context of the 4th Framework programme 
supported several activities concerning CHP. Urban heating and cooling, heat 
transport, heat storage and district heating have been priority fields of support for 
these programmes. The THERMIE programme have supported for example, in 
the industrial and tertiary sectors, 37 demonstration projects with about 27 
MECU in the period 1990-1995. Dissemination and promotional activities have 
also been supported under the THERMIE programme. This includes the 
publication of Maxi Brochures and reports, studies into emissions of NOx, co­
operation with third countries, and promotional events. 
Non-technological: 
13. The SAVE programme aims at promoting energy efficiency through policy 
measures, through pilot actions in support of Member States' energy efficiency 
infrastructures, and through a comprehensive information programme. Twelve 
CHP projects have been supported within the SAVE I programme. They 
consisted in the main of studies of the various barriers to the implementation of 
CHP. Their aim was to identify and disseminate practical ways of overcoming 
non-technical obstacles to the efficient working of the market. SAVE has also 
supported through EUROSTAT the gathering of coherent statistics on CHP 
development in the 15 Member States. 
Directive 96/92/EC O.J. L27/30.01.97 
COM (97)30 final 
14. Energy and environment have been priority sectors for the PHARE and TAC1S 
programmes which also support activities promoting energy efficiency and CHP in 
Central and Eastern European Countries and the New Independent States. Under 
the PHARE programme, the improvement of existing district heating systems in 
the cities of Central and Eastern European Countries has been supported. 
TACIS runs a wide range of energy projects in the New Independent States which 
were supported with 228 MECU during the period 1991-1995. Energy saving 
methods and co-operation with municipalities to evaluate District Heating systems 
are priority areas for this programme. 
15. The SYNERGY programme financed actions promoting CHP in four Latin 
American countries. In the framework of economic co-operation with Asia a 
project was launched to promote industrial heat and power generation from 
biomass or residues. Additionally the European Investment Bank funded several 
projects promoting CHP in the EU, and in CEEC's. In the period 1992-1996, the 
bank signed individual loans concerning CHP plants amounting 1195 MECU. 
16. All these measures were complementary to national policies promoting CHP. The 
attached annex gives a description of CHP and its development in Europe. 
3. The barriers to CHP and District Heating arid Cooling. 
17 A review of the barriers to the development of CHP in the E.U. Member States 
was carried out by Cogen Europe and the SAVE Programme in 199513. This 
section provides a summary of the highlights of that report and other work done 
on the subject. In examining the conditions which affect the development of CHP 
in each Member State, the highly heterogeneous nature of that development 
becomes obvious. Different barriers arise in different economies. These depend 
on the structure of the energy system, the nature of the demand for heat and 
electricity etc. Therefore, the governments of Member States have established 
very different policy approaches. 
18. The over-riding factor in all cases is the national policy on CHP. The cases of 
Denmark, Finland and the Netherlands indicate that sustained co-ordinated policy 
initiatives can be successful in overcoming the obstacles to growth in CHP and in 
providing a favourable framework for its development. 
19. The relation of CHP plants with the power market is still of greater importance. 
An independent cogenerator relates to the power grid in three ways. First he buys 
power from the grid to meet his peak power loads or to substitute purchased 
power for self-generated power when this is an economical option during 
particular periods. Secondly he sells his extra power production to the grid. 
Thirdly he takes back-up power from the grid when his own plant is out of order. 
In most countries these transactions are not regulated in a way to guarantee the 
independent producers a non-discriminatory access to the power grid. On the first 
13 The Barriers to Combined Heat and Power in Europe, Cogen Europe. May 1995. The European 
Cogeneration Review May 1997. 
issue, the satisfactory practice of applying the general tariff conditions on the peak 
and additional electricity consumption of the cogenerators is in place in many 
areas. Remuneration of power sold to the grid remains a critical point even when 
the principle of "avoided costs" is widely accepted. For independent CHP plants a 
major problem remains the provision of back up power by the grid. Loaded back 
up power payments especially dissuade industrial and commercial investors in 
CHP 
20. The classification of different types of barriers and the consideration of their 
impact is, of course, a subjective exercise. Three broad classes of barriers have 
been defined. These are: 
Economic barriers. These include, for example, unreasonably low rates of 
remuneration for cogenerated electricity exports, high prices for grid electricity in 
case of unavailability of the CHP plant, non availability of natural gas at 
competitive prices, high rates for input fuels (e.g. natural gas), short term 
contracts and unpredictability in energy prices, hence difficulties in financing CHP 
systems and District Heating networks, lack of relevant market instruments to 
internalise external environmental costs; 
Regulatory barriers. These include emissions and planning regulations, 
bureaucratic time consuming or expensive procedures to obtain operating 
licences, etc. 
Institutional barriers. These include the attitude of utilities to the connection of 
CHP plant, delays and lack of transparency in obtaining permits, etc. There are 
very few countries where there is totally free access to the electricity network; in 
some although, access is possible but it is restricted and costly. 
As a conclusion it seems that many of the important barriers to the development 
of CHP in Europe result from the relationship between cogenerators and 
electricity production utilities. Obstacles to free access to the grid, inadequate 
payments for sales of surplus capacity to the grid and high tariffs for stand-by and 
top-up supplies are key factors impeding the penetration of CHP even in a partly 
liberalised European Energy market. 
21. Comparisons can be made between the situations in different Member States. The 
situation in France and Italy appears to be strongly influenced by the market 
dominance of the existing utilities. This market power could, of course, be 
harnessed in favour of CHP if the regulatory situation were to change. In the 
current situation, it acts as a barrier to new market entrants by distorting the 
economics in such a way as to make CHP appear to be economically unattractive. 
This situation can be contrasted with the UK where the market liberalisation is 
nearly complete, and many of these artificial barriers have been overcome or 
reduced. The UK has generally been a below average performer in the 
development of CHP, although in recent years the trend has changed significantly 
and the market has grown. The reasons were liberalisation and gradual removal of 
market barriers. Since fuel taxes do not mostly reflect the environnemental costs 
of energy production, CHP is not favoured. In some cases, the structure of the tax 
itself is unfavourable. In Finland and Sweden, for example, heat from CHP is 
taxed but the waste heat of conventional generators is not. 
Other differences in CHP penetration relate to fuel mix, but since some modes of 
electricity production do not generate C02, the impact of low CHP penetration 
on greenhouse gas emissions in different Member States varies. Sweden and 
France are examples where the nuclear and hydro capacity does not leave much 
room for CHP development. In the cases of Greece and Portugal the limited 
availability of natural_gas, presently the favoured fuel for CHP, creates difficulties 
for CHP penetration, even though CHP can also be generated in oil or solid fuel 
plants. 
Specific barriers to district heating and cooling (DH&C) 
22. The barriers examined above affect the development of CHP. However, there are 
a number of specific barriers which affect DH systems. The first is an economic 
one. Because of the distances over which heat must be transported, the cost of 
installing an extensive DH network is significantly higher than the costs of 
installing a CHP system. This may mean that the pay back period for DH can be 
more than ten years. During its operational lifetime, the DH network needs a 
steady market for the heat output, must secure fuel inputs at competitive prices 
and must be prepared to match competing sources of heat for price and 
availability. The very competitive situation of gas distribution networks also can 
act as a disincentive for investment in District Heating schemes. 
23. Trends in energy consumption indicate an increasing use of electricity and a 
stagnant market for heating. Electricity consumption is rising due to increasing 
use of domestic appliances, information technology equipment and industrial 
automation, while improved building standards and insulation result in static 
demand for heating. In these conditions existing DH networks meet increased 
difficulties to their development. New CHP plants with lower heat to power ratios 
might be needed. It appears that future developments in DH will be in reasonable 
extension to existing networks and in smaller scale systems where the distances 
over which heat is transported are limited. It will, of course, be necessary to 
optimise such installations for heat demand. Another development may involve 
small systems of only a few MWe in terms of power capacity which might 
gradually be interconnected as the heat load is growing. 
24. A key aspect for the development of DH&C systems, which are complementa^ 
are local climatic conditions; longer heating / cooling period shortens the payback. 
The technology behind district cooling is rather new for Europe and is not yet 
sufficiently economic to widely enter the market. Large scale district cooling 
systems face high capital costs for energy transfer infrastructure. The efficiency of 
existing technologies, and the high investment costs are limiting factors for the 
development DH&C concept today. 
4. A European Combined Heat and Power Strategy 
25. The 1995 White Paper for Energy outlines three central tenets to establish a 
coherent framework for implementing a Community energy policy; 
competitiveness of European businesses in the context of the growing 
globalisation of markets, environmental protection and security of supply The 
more recent Communication "An overall view of energy policy and actions"14 
reaffirmed those strategic challenges. 
26. The potential of CHP to contribute significantly, and cost effectively, to all three 
tenets of energy policy is clear. CHP as an energy saving concept increases the 
competitiveness of enterprises, is environmentally friendly and contributes to the 
safeguarding of energy supplies. Therefore, a strategy for the promotion of CHP 
represents a re-enforcement of the Community energy policy. The contribution of 
national energy policies to Community energy objectives is essential. The 
Community proposal for a promotion strategy of CHP provides guidelines for 
these policies while ensuring that the market conditions implied by the 
Community's Internal Market proposals are consistent with the application of new 
energy options. It is worth mentioning that CHP schemes also contribute to the 
competitiveness of the industrial and commercial sectors and at the same time 
generate jobs.15 16 An analysis of the employment effects due to the penetration of 
CHP in the electricity generation system in the Netherlands, based on two 
scenarios for the electricity generation system, shows that a 44% penetration of 
CHP (compared to 12% in the reference case) would increase the net employment 
for construction by 19% and the annual employment for operation and 
maintenance by 22%. 
27. One of the features of the development of a sustainable E.U. energy policy, within 
a climate of increasing competitiveness,. is the growing importance of 
decentralised or localised power production. This trend will lead to new 
technological innovations and changes in electricity industry structures, and result 
in smaller scale production of electricity, often at the point of use. A coherent 
Community energy policy must take account of these trends by ensuring that both 
CHP and renewable energy sources are fully exploited as mentioned in the 
Commission Green Paper titled "Energy for the future: Renewable Sources of 
Energy"17. 
28. This strategy aims to set out the main actions and policies which are required at 
the E.U. level to ensure that the benefits which CHP can bring, in terms of energy 
saving, cost-effective environmental improvement and sustainable development, 
are fully achieved. On the basis of the analysis in the first part of this 
Communication the Commission believes that an overall Community strategy to 
promote CHP should be based on the following elements: 
14 COM (97)167 final of 23.04.97 
15 CHP : The impact on employment. CHPAThe New Economics Foundation . October 1995. 
16 Employment and energy efficiency improvement. A case study for CHP in the NL. 
17 COM (96)576 final of 20.11.96 
4.1 Objectives of the strategy 
29. In 1994 the electricity generation by CHP plants was 204 Twh18 (9% of the total 
electricity generation in 1994). With 29 GWe of new CHP installed capacity 
(conventional wisdom scenario) or 48 GWe (pre Kyoto scenario) in the period 
1994-201019 this production could reach the 11% or the 14%20 respectively of the 
total electricity generation in 2010. The Commission believes that this anticipated 
growth has to be reached and if possible exceeded. A significant effort is required 
to achieve significant results. According to analyses made, a doubling of the 
current share of CHP from 9% to 18% of the total gross electricity generation of 
the Community produced by CHP by the year 2010, is realistically achievable. 
This would imply doubling the existing installed CHP electrical capacity and 
increasing the annual load factor by 30% and would require that Member states 
remove the various obstacles to greater penetration of CHP in their energy 
systems. The environmental benefits would be significant. A rough estimate 
indicates that if a doubling of CHP share were achieved, considered as 
replacement of existing electricity and heat production plants, could reduce C02 
emissions by 150 Mt. per year or approx. 4% of the total EU C02 emissions in 
201021. 
Some industry sources consider that the potential of CHP development should be 
even further exploited, and have suggtested that as much as 30% share of CHP in 
gross electricity generation is possible by 201022. However, the Commission 
believes that it would be more realistic to aim for least the doubling of the current 
9% share of CHP until 2010. 
30. Policy objectives are important in order to give a clear signal to all market players 
of the importance which the Community attaches to a particular initiative. Apart 
from the overall Community strategy and objectives it is important for Member 
States to develop their own national strategies and objectives. The Commission 
recognises that there has been very heterogeneous development of CHP in the 
Member States,and appreciates that national objectives for CHP would be 
dependent on national circumstances and requirements. While the Community can 
play a useful supporting and coordinating role for promoting CHP, the main focus 
of the effort has to lie with the Member States. Several Member States have 
already set specific objectives for CHP and the Commission underlines the need 
for the other Member States to do so as well.. This would make possible the 
achievement of the necessary significant increase of CHP at Community 
level.referred to earlier. The CHP development in the Netherlands, Denmark and 
Finland (see annex) shows that consistent strategies and objectives can result in 
extended penetration of CHP in the energy markets. 
18 EUROSTAT see annex 
19 European Energy to 2020. A scenario approach. EC spring 1996. 
20 assuming an average load factor of 3.500 hours. 
21 Emissions: 3457 Mt. in 2010 according to the conventional wisdom scenario. 
22 "Programmes and Prospects for the European Electricity Sector", UNIPEDE 1996 
10 
31. The establishment of national objectives requires strengthened cooperation and 
the use of a common methodology, for which the Commission will provide the 
necessary guidance. These objectives should be expressed in terms of national 
electricity production and progress at national level should be reported to the 
Commission regularly. The overall development in CHP penetration at European 
level should be monitored annually. Amongst other benefits this would allow the 
Commission to better quantify the achievement of C02 emission 
reduction/stabilisation. 
4.2 CHP and en vironment 
32. Global environmental problems arising from a growing world-wide energy 
demand have to be seen in the context of an increasingly internationalised 
economy. CHP is an environmentally friendly concept of energy production 
having the potential to contribute significantly and cost effectively to the security 
of supply and competitiveness policy aims of the Community. 
The synergy between combined heat and power production and district heating or 
cooling networks should be better exploited and the use of biomass in CHP, as the 
experience of Finland and Denmark shows, could be a factor in increasing the 
penetration of this environmentally friendly option. CHP will constitute an 
important element of the Community C02 reduction policies and, as it is 
mentioned in the Council Common Position23 on the European Community 
programme "Towards sustainability", a priority. The Fifth environmental 
programme activities should also continue to promote CHP as a C02 saving 
technology through tax incentives, internalisation of external costs and benefits, 
and the setting of emission standards for combustion plants. 
4.3 increased share of funding to CHP by E.U. programmes. 
33. While it is recognised that it is for Member States to undertake the main financing 
efforts, a reorientation of E.U. programmes emphasising CHP is essential given 
the limited alternative possibilities open to the Community to rapidly decrease 
C02 emissions. CHP has a demonstrated advantage in this area specifically when 
biomass and organic waste are used as input fuel. There are also large energy 
saving potentials and C02 emission reduction possibilities through CHP in third 
countries. 
34. JOULE-THERMIE: While CHP and DH&C technologies are generally quite 
mature in their development, and are widely used under full market conditions, 
there is a continued need for their further technological development. The 
European Parliament has recognised this fact and asked the Commission to 
encourage the 'wider application of CHP technology'.24 
23 Common Position (EC) No 20/97 adopted by the Council on 17 April 1997. O. J. No. C 157 
24/05/1997 P. 0012 
24 Report on the Commission's White Paper on an Energy Policy: PE 217.771/fin 
11 
These developments include improvements to cost effectiveness, adaptation to 
new types of application, integration of non conventional fuel process 
(renewables, gasified coal, landfill gas, waste,. .) and improvements to combustion 
systems to meet tightening emissions standards. Without such development, the 
use of CHP may not be extended and may not be adjusted to the continuously 
changing energy market. Biomass as a fuel for CHP/DH systems deserve specific 
support. This applies also to the use of new coal cycles, and energy from waste 
technologies. Within CHP production, the short term development targets focus 
on improving the performance and reducing the equipment cost through 
development of better materials and manufacturing processes, as well as 
improving control and monitoring systems. In spite of the fact that best practice in 
design and operation of CHP systems are well developed, knowledge and 
experience are not as widely available as may should be. 
35. In the context of the preparatory work for the 5th Framework programme the 
identified25 key areas for technological development in CHP include: 
Higher conversion efficiency, leading to greater energy savings; 
Monitoring, control and optimisation of DH networks; 
Increased reliability, leading to lower maintenance costs; 
Lower emission technologies, particularly to reduce NOx emissions from gas 
turbines and reciprocating engines; 
Cost effective mini CHP, below 30 kWe ; and micro CHP to as low as 0.5 
kWe; 
Materials and construction procedures for CHP boilers as well as low cost 
pipe materials; 
Low cost pre-fabricated components for low temperature DH systems; 
CHP for use in the high temperature industries; 
CHP using renewable fuels, e.g. biomass, LHV (low heating value) fuels and 
mixed fuels; 
Alternative prime movers, e.g. Stirling engines, fuel cells. 
Solutions of the environmental problem caused by the smooth water 
technology 
n the district cooling sector the development of technologies which could lead to 
arger differential temperatures and lower flow rates in central generation and 
ransport systems, as well as the development of heat driven absorption chillers 
should be supported; they will significantly improve the economics and annual 
load of DC systems. Additionally research into the development of methods and 
instruments helping to suppress the non-technical barriers to the implementation 
of eco-efficient technologies and more generally of sustainable development 
should also be promoted. 
The Commission's proposal for the 5th Framework programme has objectives 
having scope for advancing technological development of CHP and the 
25 Improving Market Penetration for New Energy Technologies: Prospects for Pre-Competitive 
Support, DG XVII. October 1996. Henrik Lund. Confederation of Danish Industries 
12 
Commission will strengthen its support to the dissemination of best practice 
expertise via appropriate channels and programmes. 
36. SAVE II and ALTENER: The existing SAVE II and ALTENER 
programmes are designed to find solutions to overcome non-technical barriers 
which restrict the use of energy efficiency and renewable energy technologies. 
They can be used as tools to ease CHP penetration in the European market. 
SAVE II will increase its support to actions promoting CHP and more specifically 
to actions which: 
• improve awareness of financial solutions and Energy Service Company 
(ESCO) involvement26 (e.g. third party financing of CHP projects); 
• map the demand for energy services which could be met by CHP; 
• determine CHP potentials based on economic, energy and environmental 
criteria; 
• further investigate barriers to CHP and DH&C in the new liberalised 
energy_market and find ways to overcome them, taking into consideration 
social and economic factors, environmental impact and security of supply; 
• disseminate information on CHP and DH&C. International Associations 
could play a major role in this field. 
• Specific attention will be paid to the market penetration of cooling by DH 
driven cooling machines 
The ALTENER programme will continue to promote market penetration of 
biomass- fired boilers including CHP/DH&C schemes. 
37. PHARE. TACIS. Svnergy and MEDA: The EU. PHARE and TACIS 
programmes are European initiatives for the Central and Eastern European 
Countries, the New Independent States and Mongolia. They provide support to 
the process of transformation of these countries to market economies and to 
strengthen democracy. Energy is one of the main priorities of TACIS and CHP 
projects are frequently supported especially in conjunction with the existing CHP 
based District Heating networks. 
The SYNERGY programme, responds to the need for international co-operation 
in the energy sector and finances actions promoting CLIP in Latin America and 
Asia. This programme could be an important vehicle for the promotion of CHP 
applications in a wide range of third countries. 
As mentioned in the guidelines for the indicative programmes concerning the 
financial and technical measures in the framework of the Euro-Mediterranean 
partnership (MEDA), energy and environment are sectors where particular 
attention should be paid. Promotion of CHP through technical assistance and 
preparatory studies related with district cooling presents an environmental and 
economic challenge for the countries of this region. 
In ACP-EC co-operation particular emphasis is placed on energy programming, 
operations for saving and making efficient use of energy, reconnaissance of energy 
potential and the economically and technically appropriate promotion of new and 
renewable sources of energy (art. 105 of the LOME IV Convention). Promotion 
idem 
13 
of CHP could be one element in the energy development strategy of these 
countries. 
As part of an overall strategy to open up the market to CHPi the Commission will 
strengthen the CHP and DH&C actions within all these programmes. 
38. Structural Funds: Less favoured European regions (and mainly regions of 
Objective 1) can be granted Community support for the development of energy 
efficiency schemes. In Greece for instance, CHP is one of the priorities of the 
operational programme for energy. The Commission will encourage Member 
States to adopt the development of CHP as a priority of national energy 
programmes financed by the above funds. 
4.4 Negotiated^agreements with industry, technology procurements 
39. The Commission proposal for the review of the Fifth Environmental Action 
programme (a major action plan aimed at speeding the process of improving the 
environment of the Union) which was adopted by the Commission on 24th 
January 1996, indicates that special attention should be given to agreements with 
industry in order to broaden the range of instruments, and this is underlined in the 
Commission Communication on Environmental Agreements27. 
40. Agreements could be negotiated containing specific efficiency targets with those 
industrial sectors where there is a high potential of energy saving by using CHP. It 
is essential that utilities are associated with this agreement because of the 
important influence which they can have on CHP through the pricing for export or 
wheeling, and by determining the conformity of CHP with technical requirements 
for grid connection. 
41. In order to upgrade the CHP concept, the Commission will also encourage the 
• development of innovative and economic CHP schemes through the so' called 
^ technology procurement mechanisms. The idea is to bring a group of purchasers 
together, identifying potential improvements of a product or a manufacturing 
process and issuing a specification. Manufacturers are then free to send in 
tenders; these are evaluated and the selected winner is assured of a certain initial 
order. These procedures have been used successfully by Member States and 
facilitated the penetration of innovative technologies in the market. 
42. CHP modules of wide application will be defined and a call for tender could be 
launched where interested parties could bid low-priced and innovative CHP 
technology solutions which could be attractive to a large buyers group, e.g. 
industries, hospitals, large administration buildings etc. 
27 COM(96) 561 of 27.11.96 
14 
4.5 Information exchange and co-operation between Member States 
43. In the Council Resolution of 8th July 199628 on the White Paper for Energy the 
Commission was asked to put in place a process of co-operation between the 
Community and the Member States in order to ensure the compatibility of 
Community and national policies with the agreed common energy policies. 
44. In line with the above Resolution, the Commission adopted on 4 October 1996 a 
proposal for a Council Decision concerning the organisation of co-operation 
around agreed Community Energy Objectives29. The draft decision identifies the 
promotion of the rational and efficient use of energy resources as one of these 
objectives. 
45. In the Commission's opinion the above proposed Council Decision will create a 
framework facilitating the co-operation and the exchange of information and 
experience between Member States on CHP. An expert group acting as 
consultative committee could ensure the permanent collaboration between 
national authorities and the Commission and an information exchange on policies 
and measures concerning CHP and DH in Europe. 
Targeted information actions in specific industrial and tertiary sectors 
(hospitals,sport centres etc.) will be undertaken in the context of existing E.U. 
programmes. 
4.6 Monitoring of the impact of the liberalisation of the European 
energy markets on CHP/DH. 
46. One of the Commission's main energy policy objectives is the liberalisation of 
energy markets. This liberalisation will provide competition in the supply of 
energy, increasing transparency in pricing, improving access to electricity and gas 
networks, and promoting utility and Energy Service Companies (ESCO) 
involvement in CHP. Although the overall impact of liberalisation on CHP is likely 
to be positive, it will have different impacts on the different CHP applications30. 
The price reductions that liberalisation is likely to bring about represent both an 
opportunity and a threat to CHP. Input fuels might be available at lower cost but 
CHP produced electricity will have to compete with lowered electricity prices. 
One of the principal remaining barriers to CHP in the liberalised markets is the 
failure of energy prices to reflect the cost of environmental externalities. 
It is, therefore, essential to monitor the influence and to assess the impact of the 
new energy market rules on CHP and DH schemes and to propose, if necessary, 
appropriate measures to prevent negative effects. In this context the national 
CHP committees, created under the Council Recommendation 77/714/EEC, could 
play a useful role. 
28 O.J. no. C 224 of 1.8.96 
29 COM (96) 431 final. O.J. C 027/ 28.1.97 
30 An assessment of the impact of the liberalisation of the European energy markets on CHP, energy 
efficiency and the environment. ILEX Ass. & Ramboll. Dec. 1996 
15 
47. The monitoring of the Community achievement for progress in CHP share of the 
market, as recommended in this Strategy, would entail annual statistics gathering. 
The Commission, will require Member States to continue to report statistics 
annually and, through EUROSTAT, will ensure that a common statistical basis is 
used for this survey. 
4.7 Internalisation of external costs 
48. As it was already mentioned the use of market instruments to accomplish 
environmental objectives will require the use of methodologies which internalise 
the environmental costs of energy supply. In the context of the Fifth 
Environmental Action programme31 the internalisation of external costs and 
benefits in the energy sector through tax incentives is a key priority for the 
integration of the environment into other Community policy areas. Energy taxes 
could act as a stimulus reinforcing CHP's already existing competitiveness in the 
field of electricity and heat production. The Commission in its proposals for 
restructuring the framework of taxation of energy products32, gave consideration 
to the energy and environmental benefits of CHP, and proposed tax exemptions. 
Further support of CHP plants using biomass as input fuel should also be 
envisaged. It has been indicated that the internalisation of external costs offers an 
effective means of reflecting environmental challenges within the internal market, 
without prejudice to the rules of the Treaty governing State Aid. 
CHP is a means of improving energy efficiency and of reducing pollutant 
emissions and as such the principle of internalisation of costs could stimulate the 
use of CHP technologies. The imposition on the energy distributors of a purchase 
obligation for electricity produced by CHP plants is a concept which could be 
examined in the context of the additional measures needed for the reduction of 
C02 emissions to 2010. 
The Commission will further examine ways in which it can integrate the energy 
and environmental benefits of CHP in its taxation policy. 
4.8 Financial instruments 
49. Third party financing was developed to help companies finance investment 
without affecting their balance sheets. A user of an efficient and environmentally 
friendly concept such as CHP does not finance the initial outlay. Instead he 
reimburses the technology supplier by making payments related to the 
performance of the technology installed. Other forms of TPF include energy 
services contracts provided by energy service companies (ESCOs) or utilities 
which through CHP can offer new services to their customers. A wide variety of 
arrangements are possible. Under these contracts an energy service provider, 
which can be an energy utility, agrees with the user on the site needs for heating, 
lighting, power etc. It is the responsibility of the contractor to find the most 
economic method of providing these services, which often involves installing 
cogeneration plant. This investment is made and managed by the ESCO, who 
31 COM(95)647 final O.J. C 140 / 14.5.96 
32 COM (97) 30 final OJ C139/6.5.97 
16 
covers it in the charges for the energy services. The efficiency of cogeneration 
means that these charges will be lower than the previous site energy costs. In this 
scenario, all sides of the financial deal profit. Different Community programmes 
can promote this financial scheme stimulating activities and co-ordinating 
interested parties. 
The European Investment Bank (EIB) in the period 1992-1996 supported CHP 
with loans amounting 1195 MECU. This effort is important and EIB should 
strengthen its support to CHP projects in industry and the tertiary sector. 
5. Conclusions 
50. The Commission is of the opinion that the CHP share in E.U. energy production 
should be increased significantly in order for the EU to achieve its energy policy 
objective of improving energy efficiency and its environmental objective of 
reducing greenhouse gas emissions. The strategy put forward in this 
communication is essential, if the Community is to increase significantly its total 
gross electricity generation by CHP by at least doubling the current share by the 
year 2010, and if it is to seriously promote Combined Heat and Power (CHP) and 
District Heating and Cooling (DH&C). While there is scope for action at 
European level, the major responsibility for promoting CHP has to lie with the 
Member States. The Commission therefore calls on Member States to evaluate 
policies for removing_obstacles to CHP penetration and to base their national 
strategies and objectives for promoting CHP on this evaluation within a 
coordinated Community strategy framework. 
This Communication responds to the Council's and the European Parliament's call 
for Community measures promoting CHP which, as the Council has recognised, 
"protects the environment and reduces energy dependency, on satisfactory 
economic terms". On the basis of the reactions from the other European 
Institutions to this proposed strategy, and taking into account the final outcome of 
the Kyoto negotiations, the Commission will consider how best to propose and 
implement an Action programme to promote CHP. 
51. The Commission invites the Council, the European Parliament, the Economic and 
Social Committee and the Committee of Regions. 
• to consider the proposals contained in the present Communication and come 
forward with further suggestions for actions both at Community and Member 
State level; 
• to confirm the general strategy put forward under chapter 4 above and 
promote the development of strategies at national level; 
• to collaborate with the Commission in the realisation of future actions for the 
promotion of CHP. 
17 
5. References 
1. 1994,1995,1996 Cogen Europe Conferences proceedings. 
2. A strategy for the promotion of cogeneration and district heating 
CogenEurope report. Nov. 1996 
3. Euroheat and Power position Paper "Comments and proposals for an E.U. strategy 
for CHP/DH'. Dec. 1996 
4. Seminar Euroheat and Power 2.10.96 Brussels 
5. Saving Energy with CHP: Feasible, not self evident. A. Martens. VITO 
Sep. 1996 
6. EURELECTRIC. General Position Paper on Cogeneration Feb. 1997 
7. CHP Programmes. Part of the future E.U. Climate strategy. Ture Hammar. DEA. 
Feb. 1997 
8. A UK strategy for CHP June 1996. 
9. Production décentralisée d' électricité a partir des énergies renouvelables et de la 
cogeneration. Institut d'économie et de politique de l'énergie. July 1995 
10. CHP in IEA Member Countries. IEA Oct. 1994 
11. THERMIE programme brochures and reports 
• Cogeneration for heating and cooling in hospitals. July 1995. 
• Small-scale cogeneration in non residential buildings. June 1992 
• Cogeneration in the agrofood sector. Dec. 1994 
• A review of cogeneration equipment and selected installations in Europe. 
Dec. 1993 
• Industrial cogeneration in Europe. May 1992. ESAP, CETA 
12. SAVE programme 
Institut Wallon, CENERG Guide de la cogeneration. Feb 1997. 
The barriers to CHP. COGENEUROPE May 1995. Review May 1997 
18 
ANNEX 
1. General principles of CHP 
1.1 Description of CHP 
CHP involves the simultaneous production of thermal and electric energy from the 
same primary fuel source. For a given application, this is achieved through one of a 
number of different electricity generation technologies in which heat is diverted part­
way through the electricity production process and used to satisfy thermal 
requirements. From a thermodynamic perspective, CHP offers efficiency advantages 
relative to the available alternatives. 
The efficiency gains represented by CHP may be significant, but will vary depending 
upon the technology and fuel source employed and displaced by CHP systems. An 
efficient CHP plant can convert approximately 85-90% of the energy content of the 
fuel into useful energy. Although a small part of the heat will be lost before the heat 
reaches the consumers the total efficiency will remain in the area of 80% or more. 
Conventional electric production systems typically convert 30-40%, with new 
combined-cycle gas turbine systems capable of up to 55%. In the case that the heat 
demand will be covered by heat generation plants with an efficiency of 90% the total 
efficiency for the separate production of electricity and heat will be up to 70%. 
The development of CHP/DH offers high energy conversion rates and lower 
emissions of C02 which is the most important greenhouse gas. Another opportunity 
that CHP offers is the development of decentralised forms of electricity generation 
providing high efficiency and avoiding transmission losses. Summarising, optimised 
CHP/DH is an environmentally friendly method of energy production reducing fuel 
need and increasing competition in generation; for this reason it could be considered 
as a vehicle promoting liberalisation in energy markets. 
1.1.1. Industrial CHP 
CHP is a technique in use from industry for more than 50 years. What is necessary for 
the user is to have medium or high demand for thermal energy (steam, hot water, hot 
gases, cooling etc.) over prolonged periods of time (more than 5000 hours/year). 
Power generation industry, manufacturing industry (chemicals, paper industry, iron 
and steel, ceramics, motors, food, textile, timber, bricks and heavy clays etc.) and 
service industry (hospitals, sport centres, hotels) are areas where CHP systems are an 
option for the investors. 
Industrial CHP installations can operate for 8000 hours/year or more. Therefore, in 
industrialised countries, the heat potential in industry is large enough to enable CHP 
to provide a significant proportion of the baseload demand for electricity. 
AÎ 
1.1.2. District heating and cooling (DH&C) CHP 
District heating or cooling means centralised production and distribution of thermal 
energy. The heat is produced in thermal plants, and is circulated through a pipe 
network to the users in the form of steam or hot water. The DH&C system can be 
thought as the sum of the production facilities and distribution / return network. The 
most common competitor to DH are individual heating systems. A considerable 
number of DH schemes continue to be supplied by heat only boilers. However DH 
has become is a major application of CHP and extensive large systems have been 
developed in Scandinavia, Germany and central/eastern Europe. These are mostly 
owned and operated by municipal authorities and can be fed by waste incineration 
plants and other means including geothermal heated heat pumps. In addition, district 
cooling offers considerable potential in Europe. With recent developments in engine 
and gas turbine technology, there is now great potential for the development of more 
localised DH/CHP systems - sized to meet the heat demand - and serving smaller 
heat distribution networks. The penetration of CHP in DH is different in the Member 
States, rising from 22% in France to 92% in the Netherlands 33 (percentage of DH 
systems running in CHP mode). 
In several Member States electricity consumption for cooling produced by 
compression equipment can reach 50 % of total electricity consumption in summer. 
The coexistence of District cooling and Heating systems can achieve significant 
reductions in costs by transforming part of the electricity consumption into heat 
consumption and increasing the working time of the CHP/DH systems. 
1.1.3 Residential and commercial 
These CHP systems are used in hotels, sport and leisure centres, hospitals and multi-
residential accommodations. They are smaller units comprising a diesel engine which 
has been converted to run on natural gas, a generator and a heat recovery system, 
generally housed in a container. The diesel engines can also be dual- fuelled. The heat 
recovery is via the engine's cooling circuits and its exhaust. To ensure a high 
availability of electricity there must be a simultaneous use for the heat or heat storage 
facilities. A method increasing the use of recovered heat is to produce cooling using 
absorption chillers. This allows the CHP system to run during the summer months, 
when the lower demand for heating would otherwise reduce the opportunity for 
system operation. 
For larger building complexes, gas turbines and larger reciprocating engines are used, 
as in industry. 
1.2. The economics of CHP 
The energy user wants cheap energy. CHP will therefore be promoted only if it offers 
cost benefits in comparison to separate heat and electricity generation. 
CHP in IEA Member States / Paris October 1994 
to 
Factors that govern the economics of CHP projects are mostly analysed in three 
interrelated groups: load factors, plant characteristics and terms of trade with the 
outside energy markets. A CHP plant has maximised benefits when it is sized 
according to heat demand. Suitable and available heating and cooling loads are 
therefore prerequisite for the CHP development. 
Patterns of heat and electricity demand and annual operating hours set the technical 
and economic limits for the technological choices. The type of technology, the scale 
of the plant, and the type of prime mover all depend on the loads one will have to 
face. Plant characteristics such as capital cost, operating and maintenance expenses, 
efficiencies, etc. of course have their impact on the profitability of CHP projects. But 
what makes CHP projects particular is the interrelation with the energy markets. On 
the one hand the market for fossil fuels set the price conditions for the prime mover 
(natural gas, oil or coal in most CHP plants), the energy input being a major cost item 
of all CHP plants. On the other hand one of the CHP outputs, i.e. heat or steam, 
competes with single heat or steam raising facilities also fired with fossil fuels. 
While CHP provides an undoubted cost-effective energy option in the right 
circumstances, the investment requirement for CHP systems can represent challenges. 
Obtaining finance for a CHP installation is a barrier which has to be faced by many 
potential users. Some users are also reluctant to invest their own funds, or borrow 
funds, to invest in energy production as this is seldom a core part of their normal 
activities. Financial instruments as Third Party Financing (TPF) can be used for CHP 
investments in industry and in the tertiary sector. 
2. CHP in E.U. Member States 
A geographically and vertically fragmented structure of the electricity industry 
favoured in the past the industrial auto production but it mainly eased the activities of 
heat and electricity distributors, as in Germany . The CHP development in this 
country, where it plays an important role, was based on the existing heat and 
electricity networks of local distributors, which were supported after the oil crisis of 
the seventies. In Denmark where municipal heat networks also existed CHP was 
developed by the managers of these networks supported by local distributors and in 
the case of big cities by local producers-distributors linked to the municipalities. In the 
Netherlands where the heat networks are less developed, gas and electricity 
distributors developed industrial CHP units based on the benefits from gas savings. 
On the other hand in monopoly energy markets as in France, Belgium, Greece and 
Ireland auto production and CHP are less developed. The unbundling of an 
electricity system in production, transport and distribution sectors may favour the 
development of CHP and may offer opportunities to interested parties to search for 
profit opportunities as we can actually see in the United Kingdom. 
The circumstances for the development of CHP in the 15 Member States of the E.U. 
are very different. Not only the climate and the population density vary considerably, 
but also factors like fuel prices and availability, competitiveness of the electricity 
provided on the grid, industrial structure and environmental considerations are quite 
different; specific factors such as the presence of large natural gas resources in the 
Netherlands and heat distribution networks in Denmark also play an important role. 
m 
In the following table the present situation of CHP development in the 15 countries of 
the European Union is presented: 
Total gross electrical installed capacity (MW) and total gross 
electricity generation in 1994 (GWh) in E.U.-15. Source : 
EUROSTAT 
Countries 
Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Netherlands 
Portugal 
UK 
Finland 
Sweden 
Austria 
E.U. 15 Total gross 
electrical 
installed 
Capacity in 
MW 
14899 
10604 
114811 
9545 
44489 
107232 
4039 
64163 
18348 
8833 
69019 
14143 
35914 
16032 
532559 of which 
CHP 
1805 
7496 
26184 
182 
1533 
3222 
58 
6328 
6148 
892 
3042 
4085 
2808 
3247 
67030 % 
12 
71 
23 
2 
3 
3 
1 
10 
34 
10 
4 
29 
8 
20 
13 Total gross 
electricity 
generation 
inGWh 
72236 
40096 
528229 
38936 
161775 
476337 
15147 
231498 
79677 
31380, 
325379 of which 
CHP 
7645 
15724 
47750 
845 
8537 
9492 
192 
26477 
31543 
3112 
11996 
65546 | 20312 
142850 | 9257 
54645 
2263191 11722 
204604 % 
11 
39 
9 
2 
5 
2 
1 
11 
40 
10 National 
targets 
(MWe/ 
in 
2000) 
I00034 
2222 
8000 
4 | 5.000 
31 | 
6 
21 | 
9 1 
IMPORTANT NOTES 
1. Data for GR and IRL are provisional and concern 1993 
2. In Germany for units operated as pure CHP during part of the year, the total installed capacity is 
recorded, but only the electricity generated during the period of pure CHP operation is included in 
the figure of 47.750 GWh for 1994. This explains the big difference between the 9% pan 
of electricity generation and 23% in installed capacity. 
3. In Denmark CHP units operated over part of the year in cogeneration mode, have been included 
in the installed capacity. However only part of electricity generation (i.e. cogeneration mode) 
during that period of time is included in the electricity generation figure of 15724 GWh. The total 
electricity generation from CHP units was 32734 Gwh. 
Investment plan for the Belgian Electricity sector foresees 1000 MWe in new CHP plants before 2005. 
IV 

ISSN 0254-1475 
COM(97) 514 final 
DOCUMENTS 
EN 02 10 12 15 
Catalogue number : CB-C0-97-544-EN-C 
ISBN 92-78-26021-5 
Office for Official Publications of the European Communities 
L-2985 Luxembourg