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
Date: 1997-10-15
Institutions: European Commission
Subjects: EU production, EU programme, electrical energy, energy policy, heating

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% 

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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. 
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. 

These 

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 
in  the 
reduced.  The  UK  has  generally  been  a  below  average  performer 
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 

framework 

25.  The  1995  White  Paper  for  Energy  outlines  three  central  tenets  to  establish  a 
coherent 
energy  policy; 
implementing 
in  the  context  of  the  growing 
competitiveness  of  European  businesses 
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. 

a  Community 

for 

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%. 

increasing  competitiveness,.  is 

27.  One of the features  of the development of a sustainable E.U.  energy policy, within 
a  climate  of 
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. 

the  growing 

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 
emission 
the 
reduction/stabilisation. 

achievement  of  C02 

to  better  quantify 

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 

types  of  application, 

integration  of  non  conventional 

These  developments  include  improvements  to  cost  effectiveness,  adaptation  to 
fuel  process 
new 
(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 
through 
on  improving  the  performance  and  reducing  the  equipment  cost 
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 
the 
having  scope  for  advancing  technological  development  of  CHP  and 

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 

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: 

II 

• 

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 
tertiary  sectors 
in  specific 
(hospitals,sport  centres  etc.)  will  be  undertaken  in  the  context  of  existing  E.U. 
programmes. 

information  actions 

industrial  and 

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 

the 

technology  supplier  by  making  payments  related 

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 
the 
reimburses 
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 

to 

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 

in 

forward 

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 
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 

Small-scale cogeneration in non residential buildings. June 1992 

•  Cogeneration for heating and cooling in hospitals. July 1995. 
• 
•  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 
thermal 
way  through  the  electricity  production  process  and  used  to  satisfy 
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 
an 
Ireland 
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. 

auto  production  and  CHP  are  less  developed.  The  unbundling  of 

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 

Total 

gross 
electrical 
installed 

of which 
CHP 

% 

Capacity in 
MW 
14899 
10604 
114811 
9545 
44489 
107232 
4039 
64163 
18348 
8833 
69019 
14143 
35914 
16032 

Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Netherlands 
Portugal 
UK 
Finland 
Sweden 
Austria 

1805 
7496 
26184 
182 
1533 
3222 
58 
6328 
6148 
892 
3042 
4085 
2808 
3247 

E.U. 15 

532559 

67030 

IMPORTANT NOTES 

12 
71 
23 
2 
3 
3 
1 
10 
34 
10 
4 
29 
8 
20 

13 

Total 

gross 
electricity 
generation 
inGWh 

of which 
CHP 

% 

72236 
40096 
528229 
38936 
161775 
476337 
15147 
231498 
79677 
31380, 
325379 
65546 
142850 
54645 

7645 
15724 
47750 
845 
8537 
9492 
192 
26477 
31543 
3112 
11996 
| 20312 
|  9257 

11722 

2263191 

204604 

11 
39 
9 
2 
5 
2 
1 
11 
40 
10 
4 
31 
6 
21 

9 

National 
targets 
(MWe/ 
in 
2000) 
I00034 

2222 

8000 

| 5.000 
| 

| 

1 

of 

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 
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