Directive of the European Parliament and of the Council on the promotion of cogeneration based on a useful heat demand in the internal energy market
Date: 2002-07-22
Institutions: European Commission
Subjects: administrative procedure, approximation of laws, electrical energy, energy policy, energy production, energy supply, evaluation method, heating, security of supply

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Directive of the European Parliament and of the Council on the promotion of cogeneration based
on a useful heat demand in the internal energy market

(2002/C 291 E/10)

COM(2002) 415 final — 2002/0185(COD)

(Submitted by the Commission on 22 July 2002)

EXPLANATORY MEMORANDUM

1. Introduction

This proposal, building on the dual objectives of contributing both to security of energy supply and to
climate change polices, arises from the need for reinforced efforts to promote high-efficiency cogen-
eration (1) in the internal energy market.

In its Green Paper on security of energy supply (2), the Commission highlighted the following points:

— the European Union is extremely dependent on its external energy supplies, with imports currently
accounting for 50 % of requirements. This figure is projected to rise to 70 % by 2030 if current trends
persist.

— at present greenhouse gas emissions in the European Union are on the rise making it difficult to
respond to the challenge of climate change and to meet the commitments under the Kyoto Protocol.

— the European Union has relatively limited scope to influence energy supply conditions. Efforts will have
to focus on orienting the demand for energy in a way that respects the EU's Kyoto commitments and is
mindful of security of supply.

These observations provide strong arguments for developing new Community policies and measures aimed
at curbing energy demand and reducing greenhouse gas emissions. Even the level of greenhouse gas
emissions in EU in 1999 was the same or just below the level of 1990, it is still a great challenge to
meet the Kyoto target. Due to the efficient use of the fuel, the simultaneous production of heat and power
can offer energy savings and avoided CO2 emissions compared with separate production of heat and
power. This need for policy action on co-generation at EU level was reinforced in the Commissions
Communication on the implementation of the European Climate Change Programme (3).

Cogeneration is a highly efficient technique to provide electricity and heat for the European energy market.
Promotion of cogeneration is a part of the strategy for efficient use of energy and supplementary to the
strategy of increased use of renewables. However cogeneration is not a target in itself but can be an
efficient tool to generate energy savings and to pursue the targets of reductions in CO2 emissions by
replacing separate production of heat and electricity.

As cogeneration is linking together the production of heat and electricity, it is important to ensure that the
produced electricity and heat meet real demands. The electricity can be transmitted into a market place and
sold where it is needed, the heat however cannot easily be transported or stored, and therefore the
cogeneration process must be based in time and place of a real need for heat. The real need for useful
heat is the cornerstone of efficient cogeneration, because if the produced heat is not meeting a real
demand the advantages of cogeneration disappear. Furthermore the promotion of cogeneration should
not lead to encouragement of increased heat consumption.

(1) The terms cogeneration and combined heat and power (CHP) have the same meaning.
(2) COM(2000) 769 ‘Towards a European Strategy for Energy Supply’.
(3) COM(2001) 580 final.

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In the Commission's cogeneration strategy (1) from 1997, an overall
indicative Community target of
doubling the share of electricity production from cogeneration in total EU electricity production from
9 % in 1994 to 18 % by 2010 was set. Nevertheless, despite the promising potential for cogeneration, no
significant increase in the share of cogeneration has been seen in the past years. An overall indicative
target of 18 % provides a benchmark against which to measure progress. Once a stable framework has
been established, based on common definitions and methodologies, and the potential of Member States
assessed, the Commission could examine the possibility of indicative objectives for each Member State.

A stable framework based on common definitions and methodologies provides the best possible foun-
dation for promotion of cogeneration based on an economically justified heat demand also taking into
account the deep complexity of the matter.

2. Objective and scope of the proposed Directive

The overriding objective of this proposal is to create a framework, which can support and facilitate the
installation and proper functioning of electrical cogeneration plants where a useful heat demand exists or is
foreseen. This overall objective translates into two specific aims:

— In the short term, a cogeneration Directive should serve as an instrument to consolidate existing and,
where feasible, promote new high-efficiency cogeneration installations in the internal energy market. In
order to create a level playing field, regulatory certainty and in some cases financial support are vital
for cogeneration. This applies to the current transitional phase of the liberalisation process, where the
internal energy market is not fully completed and where internalisation of external costs is not reflected
in energy prices.

— In the medium to long term, a cogeneration Directive should serve as a means to create the necessary
framework that will ensure that high-efficiency cogeneration, alongside other environmentally friendly
supply options, constitutes a key element when decisions on investment in new production capacity
are made. By creating a supportive framework, such cogeneration can contribute to the establishment
of more diversified and energy efficient supply systems in the Community.

In order to exploit the potential for cogeneration regulatory certainty and appropriate mechanisms that
address the lack of internalisation of external costs are needed. The proposed Directive lays down a
framework, which addresses these issues through a set of common principles for the promotion of
cogeneration.

The practical application of the framework will to a large extent be the responsibility of the individual
Member States, given the heterogeneous nature of the cogeneration sector across Europe and the need to
take account of national and climatic circumstances. However the Commission could have an important
role in facilitating that EU objectives on cogeneration are met.

It is necessary to stress the importance of the different climatic and industrial conditions in Member States
for development of cogeneration providing different possibilities for using the produced heat, and taking
into account the thermodynamic efficiency of the engines and systems employed. The consequences in
practice of the thermodynamic efficiency for electricity production could be illustrated for a steam turbine.
If the heat output is needed at a temperature of 200 °C it is not possible to produce as much electricity in
the turbine as if the heat output is needed at 60 °C.

These considerations
three classes of cogeneration reflecting thermodynamic
considerations as well as a division of cogeneration into market segments facing different barriers to
overcome:

lead to creation of

— Industrial applications of heat, that usually require steam or hot water above 140 °C;

(1) COM(97) 514 final ‘A Community strategy to promote combined heat and power (CHP) and to dismantle barriers to

its development’.

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— Central Heating applications that require warm water between 40 °C and 140 °C;

— Agricultural applications: for example in order to heat greenhouses, the temperature of the warm water
could be below 40 °C, but in the case of heating pools in aquaculture the need is only of 15-25 °C.
Justification of useful heat at this temperature level should be considered very careful in order not to
increase fuel consumption.

The climatic differences among Member States is one of the most important factors explaining the huge
differences of penetration of cogeneration and underline the relevance of the principle of subsidiarity. This
proposal for Directive does not aim to ensure the same level of penetration of cogeneration in all Member
States. The aim is to promote cogeneration wherever an economically justified potential is identified in
order to save energy and reduce CO2-emission.

The proposed Directive builds in some respects on the recently adopted Directive 2001/77/EC on the
promotion of electricity from renewable energy sources (1). Renewables and cogeneration are in some areas
faced with similar problems such as for example lack of internalisation of external costs, the need to
provide regulatory certainty concerning grid issues and administrative procedures. However it has to be
stressed that there are important differences between cogeneration and renewable energy. Cogeneration is
not a source of energy, it is a highly efficient process to transform energy from one source usually fossil
fuel but also renewables into electricity and heat.

The proposal covers the following main elements:

— Guarantee of origin of electricity produced from cogeneration following the ‘disclosure’ requirements
on Directives concerning commons rules for the internal markets in electricity and natural gas;

— provisions obliging Member States to analyse national potentials for high-efficiency cogeneration and

barriers to their realisation;

— provisions for evaluating the experiences gained with the application and coexistence of different

support mechanisms for cogeneration used by Member States;

— provisions laying down the principles for the interaction between cogeneration producers and the
electricity grid; furthermore to facilitate grid access for cogeneration units using renewable energy
sources and microcogeneration plants below 1 MW

— provisions requiring Member States to evaluate current administrative procedures with a view to

reducing the administrative barriers to the development of cogeneration.

3. Current status for cogeneration in the EU

3.1. Problems to face

In an open market to be developed in Europe, cogeneration has to face several problems in order to take
advantage of the useful heat demands and propose the construction of new plants or carry on exploiting
the existing ones. These are mainly the following:

1. High prices for fuels, usually due to the fact that they are smaller fuel users than the large traditional

electricity producers.

2. Problems linked to the access to the electricity market, especially if they are small producers.

3. The installation costs per kilowatt are usually higher than in a large electrical plant

(1) Directive 2001/77/EC of the European Parliament and of the Council of 27 September 2001 on the promotion of
electricity produced from renewable energy sources in the internal electricity market (OJ L 283 of 27.10.2001, p. 33).

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4. The amount of operating hours of the installation will usually be lower than for larger baseload plants
because it will be linked to the real use of heat in the associated installations.
In an industrial
cogeneration plant, the working hours will be the hours that the industrial associated process works,
for example not at night hours or on weekends. In the case of cogeneration for central heating some
facilities may have to stop during summer time.

3.2. Reasons for political support

The following reasons justify a political support for high efficient cogeneration:

1. High efficiency means less fuel consumption and less CO2 and other emissions and thereby a

contribution to sustainable development.

2. Avoided losses on the electrical grid because these installations usually are close to the consumption

point on the electrical grid.

3. Increasing competition among electricity producers because cogeneration technology allows new actors

to enter the market of electricity generation.

4. Opportunity to create new enterprises, notably SME's, joint ventures and other collaboration formulas

among the stakeholders (industrial, electrical, technological and so on).

5. Facilitation of the link between the population and the territory, mainly in less favorised, isolated or

ultraperipherical areas.

3.3. Statistic overview

According to the latest cogeneration statistics from Eurostat (1) presented in Table 1, the overall share of
cogeneration electricity in total EU electricity production was 11 % (2) in 1998 compared with 9 % in
1994.

In the cogeneration statistics it is important to avoid counting in electricity, that has not been produced in
cogeneration mode. For this purpose the cogeneration statistics are developing and new methodologies
have to be adopted. This directive would establish a methodology, which only takes into account electricity
gained from cogeneration, the residual heat of which has been used efficiently.

Taking into account the previous considerations, the available statistics show substantial differences across
the EU. Denmark, Finland and the Netherlands are the countries with the highest market penetration with
cogeneration accounting in some case for more than 50 % of total electricity generation. In contrast, in
countries like France, Greece and Ireland cogeneration only plays a marginal role with contributions
around 2 %. However,
if the cogeneration share is related to the amount of thermal based electricity
production, the market shares of cogeneration in some case change significantly. Then countries like
Sweden, Austria and France report cogeneration shares of 96 %, 76 % and 23 % respectively.

Roughly 40 % of electricity from cogeneration is produced for public supply purposes, often in connection
with district heating networks. The remaining 60 % are generated by auto-producers, normally for
industrial processes.
In terms of installed capacity, the electrical capacity of cogeneration in the EU
increased with 14 % between 1994 and 1998 from 63 GW to 72 GW. In absolute terms, Germany
was in 1998 with 22 GW cogeneration electrical capacity by far the country with most cogeneration
capacity in the EU followed by Italy (9,5 GW), Netherlands (8,5 GW), Denmark (7 GW) and Finland
(5 GW).

(1) ‘Combined Heat and Power production (CHP) in the EU — Summary of statistics 1994-1998’, Eurostat 2001.
(2) There is discussion among experts as to whether the Eurostat cogeneration statistics overestimate the real share of
cogeneration because electricity produced in non-cogeneration mode in some cases might be counted as cogen-
eration electricity. The actual cogeneration share at Community level may therefore be somewhat lower than 11 %.
Eurostat has for the next collection of cogeneration statistics adopted a new methodology designed to better identify
real cogeneration production.

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The development in the use of fuels for cogeneration shows a trend towards cleaner fuels thus enhancing
the environmental benefits of cogeneration. Natural gas is the most used fuel in cogeneration production
with a share of 45 % in 1998 compared with 30 % in 1994. In contrast, the use of hard coal and lignite
has declined from 30 % to 20 % between 1994-1998. Renewables accounted for 13 % in 1998. Within the
Eurostat definition of renewables for cogeneration both biodegradable and non-biodegradable municipal
solid waste have until now been included. However, in the light of the definition of waste for renewables
in the Directive for the promotion of electricity from renewables, it would be coherent to establish data as
well for the biodegradable part alone.

The absence of more recent figures means, however, that the above figures should be treated with some
caution. Since 1998, the cogeneration sector has reported stagnating or even declining market trends in
several EU countries. This lack of progress in promoting new cogeneration is to large extent results from
the existence of a number of barriers, which hampers the development of cogeneration.

Table 1 — Historical data on CHP in Member States and CHP as a percentage of thermal and total electricity
generation

1994 (**)

1996

1997

1998

Member State

CHP Elec-
tricity GWh

Portion of
thermal
electricity
%

Portion of
total elec-
tricity
%

CHP Elec-
tricity GWh

Portion of
thermal
electricity
%

Portion of
total elec-
tricity
%

CHP Elec-
tricity GWh

Portion of
thermal
electricity
%

Portion of
total elec-
tricity
%

CHP Elec-
tricity GWh

Portion of
thermal
electricity
%

Portion of
total elec-
tricity
%

Belgium

2 448

8,0

3,4

3 000

9,5

3,9

3 069

10,2

3,9

3 410

9,6

4,1

Denmark

21 874

56,2

54,5

29 260

55,9

54,6

26 562

62,7

59,9

25 591

66,9

62,3

Greece

Spain

France

Ireland

Italy

Germany

47 752

13,5

819

2,2

8 537

11,1

8 506

24,5

259

1,6

9,0

2,0

5,3

1,8

1,5

37 817

10,3

886

2,3

13 390

17,5

9 864

22,0

357

2,0

6,8

2,1

7,7

1,9

1,9

36 834

10,3

968

2,5

18 567

18,9

10 663

26,2

457

2,4

6,7

2,2

9,8

2,1

2,3

41 770

11,3

981 (*)

2,3

7,5

2,1

21 916

22,2

11,2

12 660

22,7

404

2,0

2,5

1,9

26 477

14,7

11,4

31 383

16,2

12,9

40 164

20,1

16,0

44 856

21,6

17,3

Luxembourg

120

37,1

9,5

320

87,7

22,5

Netherlands

31 543

41,7

39,5

36 410

45,1

42,7

41 502

49,6

47,9

47 835

55,4

52,6

Austria

11 721

66,0

21,4

13 539

70,3

24,7

14 025

71,7

24,7

14 268

76,2

24,8

Portugal

3 111

15,1

9,9

2 845

14,5

8,2

2 949

14,1

8,6

3 288

12,8

8,4

Finland

20 312

59,0

30,9

22 536

59,3

32,5

23 051

64,0

33,3

25 128

75,6

35,8

Sweden

9 257

85,0

UK

11 619

5,0

6,4

3,6

10 241

70,9

15 108

6,1

7,3

4,3

9 301

91,4

16 762

7,0

6,2

4,9

9 544

95,5

18 644

7,4

6,0

5,2

EU-15

204 235

17,6

9,0

226 336

18,3

9,4

244 994

19,8

10,1

270 615

21,0

10,9

(*) Eurostat estimation.
(**) The German figures are for 1995.

Source:

‘Combined Heat and Power production (CHP) in the EU — Summary of statistics 1994-1998’, Eurostat 2001.

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A study on the administrative obstacles to decentralised cogeneration (1) has analysed the situation in
France, Netherlands and the United Kingdom. The study identifies economic barriers to decentralised
cogeneration such as low prices for excess electricity sold to the grid, high connection costs, high costs
of grid reinforcement charged on the cogeneration developer, high costs for use of the distribution system,
lack of recognition of the benefits to the network of
complex and lengthy administrative procedures,
embedded generation etc. Another study (2) has evaluated the impact of the liberalisation of the electricity
market on the cogeneration and district heating and cooling sector through analyses of the economic
viability of such plants. The study concludes that new efficient gas fired cogeneration technologies in
principle should be competitive to new efficient condensing power plants. However, if the electricity prices
do not reflect real costs (including internalisation of external costs), only large gas fired cogeneration plants
are competitive. If an assumed rate on environmental benefits of 10 EUR per saved ton CO2 is included in
the calculation some additional medium-sized gas fired cogeneration plants would be feasible. If the price
on the Nordic power market from May 2000 of 15 EUR/MWh is applied none of the cogeneration plants
analysed would be feasible on purely economic criteria (3).

Due to its widespread use in cogeneration production, the price of natural gas is another important
parameter influencing the economic viability of cogeneration. The opening of gas markets to competition
should in principle lead to lower gas prices. However, many cogeneration producers have during the past
years experienced fluctuating and often high gas prices due to i.a. gas prices being linked to the oil price.
Moreover, Article 18(2) of Directive 98/30/EC (4), which allows Member States to restrict the access of
cogeneration producers to the internal gas market, is another potential barrier for cogeneration. However,
the Commission's proposal for amendment of the gas Directive (5) envisages that this provision would
disappear. Ensuring access to the gas market for all cogeneration producers is important as gas fired
cogeneration allows for the highest possible fuel efficiency thus benefiting both the environment and the
Community's energy balance. From an internal market point of view it is also important to create a level
playing field where cogeneration producers and other power producers enjoy the same basic rights with
regard to access to the gas market across the Community.

As described above, barriers to cogeneration continue to exist both in the electricity and gas markets.
Many cogeneration producers have experienced increasing gas input prices combined with decreasing
electricity output prices thus putting the economic viability of cogeneration under threat. Both markets
are still in a transitional phase with asymmetric market openings across the EU, increased market uncer-
tainty, more focus on short-term decisions, and lack of internalisation of external costs. Such a market
environment is generally detrimental to smaller and less competitive operators such as cogeneration
producers. Altogether,
the current market conditions have contributed to a situation where many
existing cogeneration plants have came under pressure and where incentives to upgrade existing
capacity or invest in new capacity are significantly reduced.

4. Focused public support of cogeneration based on useful heat demand in the European internal

market

The purpose of this directive, according to the subsidiarity principle,
is to introduce a common and
transparent framework in order to focus Member States public support for cogeneration process based

(1) ‘The Administrative obstacles to the development of decentralised cogeneration’, Cogen Europe et.al. SAVE

programme 1999.

(2) ‘Evaluation of the impact of the European electricity market on the CHP, district heating and cooling sector’, Cowi

Consulting Engineers and Planners et.al., SAVE programme, 2000.

(3) It should be noted that these calculations are based on cogeneration plants with district heating with assumed
operating hours of 4 500 per year. Industrial cogeneration plants with a more constant heat demand can have up to
8 000 operating hours per year, which normally makes them economically more viable.

(4) Directive 98/30/EC of the European parliament and of the Council of 22 June 1998 concerning common rules for

the internal market in natural gas (OJ L 204 of 21.7.1998, p. 1).

(5) ‘Proposal for a Directive of the European Parliament and of the Council amending Directives 96/92/EC and 98/30/EC

concerning common rules for the internal market in electricity and natural gas’, COM(2001) 125 final.

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on useful heat demand according to the national circumstances and energy policies, in the framework of
the European competition rules. This Directive sets up common definitions of electricity from cogeneration
in order to develop the same methodological background for member state support schemes. The aim of
this methodology is also to ensure impacts on the internal electricity market from support schemes are
transparent.

As the large cogeneration installations have easier access to more favourable financing and fuel prices
direct support for production of cogenerated electricity should be concentrated to electricity produced
either in installations with a capacity below an indicative threshold value of 50 MW (e) or in larger
installations but then only the amount of electricity produced by the capacity below such an indicative
threshold. The reason for this is not to disqualify larger installations but to avoid overcompensation of the
larger installations. Larger installation would still have support for the production based on the first
50 MW, but will not receive additional support for the rest of the production. If direct support to the
production of cogenerated electricity is based on a fixed amount per MWh produced, the support should
not be applied to production above the indicative threshold value. Member States should use the following
considerations in design of support schemes:

1. Support schemes for production of cogenerated electricity should be limited to the electricity produced

in one process together with a useful heat production.

2. The economic support to the electricity production should be focused to develop the necessary
economic incentive to operate efficient cogeneration plants on the basis of economically justified
heat demand.

3. Direct support for production should in principle be focused on the share of cogenerated electricity
produced either in installations with a capacity below an indicative threshold value that should be set at
50 MW(e) or lower, or in larger installations but then only the amount of electricity produced by the
capacity below such a threshold value.

4. The cogeneration plants should be designed and sized for the actual heat demand present or foreseen

with certainty.

5. Elements of the proposed Directive

5.1. Definition of cogeneration

Cogeneration is currently defined in different ways across the Community. Some definitions are only
intended to identify and measure cogeneration for statistical purposes. Other definitions are related to
the eligibility of cogeneration for national support schemes. Sometimes such eligibility criteria are linked
with quantifications of the benefits of cogeneration measured in terms of energy savings or CO2 savings. In
addition, defining cogeneration is complicated by certain cogeneration technologies that allow cogen-
eration units to switch between cogeneration and generation of separate electricity or heat.

For the purpose of this Directive, it is necessary to create a common basis for the definition of cogen-
eration. In principle, it would be desirable to lay down a single harmonised definition of cogeneration to
be used across the Community for all purposes. However, the Commission is mindful that most Member
States have already adopted different national definitions of cogeneration developed for various purposes
and often adapted to national circumstances. To take account of these two opposite concerns, this
Directive introduces a two-step approach consisting of:

1. a harmonised basic definition of electricity from cogeneration (Annex II to the Directive)

2. a methodology to define high-efficiency cogeneration (Annex III to the Directive)

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The basic definition will serve as a means to eliminate the current ambiguity resulting from the different
definitions of cogeneration. This will create certainty that the basic concept of cogeneration is understood
and measured in the same way across the Community. The basic definition will be used for cogeneration
statistics and for monitoring purposes at Community level. As a second step, the Directive provides a
methodology to be used to determine the quality (1) — expressed in terms of energy savings — of the
cogeneration production identified under the basic definition in step 1. The latter will be applied to
promotional aspects, notably certification of origin,
identification of national cogeneration potentials
and, where appropriate, eligibility for financial support.

5.2. Guarantee of the origin of electricity from cogeneration

In order to fulfil the obligations on information about the primary energy sources used on the production
of the electricity, as set up on the ‘disclosure’ provisions at the amending directives 96/92/EC and
98/30/EC concerning common rules for the internal markets in electricity and gas, this Directive sets
up a mechanism, which will ensure that producers and others with an interest in cogeneration can request
a guarantee of the origin of electricity from cogeneration.

Under the proposal the guarantee of origin must specify the fuel source used, the use of the heat generated
together with the electricity and the dates and places of production. The guarantee of origin must also
specify the national reference values used to define high-efficiency cogeneration.

It is not the aim at this stage of development of cogeneration and statistic knowledge to establish any other
connection between the Guarantee of origin of electricity from cogeneration and the system of Guarantee
of origin of electricity produced from renewable energy sources, than introducing the same procedures to
be established by Member States. The high efficient cogeneration plants using fossil fuels produce at least
5-10 % less CO2 than in the situation of separate production, while electricity from renewables produce
almost no CO2. It is therefore obvious that the ‘CO2 reduction value’ of 1 kWh cogenerated electricity is
much smaller than the ‘CO2 reduction value’ of 1 kWh renewable electricity.

It is important for reasons of transparency and for monitoring purposes that cogeneration is defined and
counted in the same way across the EU. This proposal therefore introduces in Annex II a harmonised
methodology to be used for the basic definition of cogeneration. This methodology is largely based on a
recently revised methodology used by Eurostat for collection of EU-wide cogeneration statistics (2). The
new Eurostat methodology essentially implies that in cogeneration units with annual overall efficiency
higher or equal to 75 %, the total electricity generation is considered to be cogeneration electricity. In
cogeneration units with an annual overall efficiency below 75 %, calculations must be made in order to
subtract electricity that is not produced in a cogeneration process.

To address the concerns expressed by some experts that a 75 % threshold in some cases may be too low,
the methodology set out in Annex II adds a separate threshold of 85 % to be applied to cogeneration units,
which can switch to operation in non-cogeneration mode. Such units below an overall annual efficiency of
85 % will be subjected to additional calculations to identify the actual cogeneration production. With this
approach, the risk of certifying non-cogeneration as cogeneration electricity is judged to be minimal.

(1) The term ‘quality cogeneration’ is sometimes used to describe cogeneration providing a high level of energy savings
or CO2 savings. For the purpose of this Directive the term ‘high-efficiency cogeneration’ is considered to be a more
precise indicator of what is meant when referring to the benefits of cogeneration.

(2) This revised methodology was adopted by Member States at the last meeting of the Eurostat Working Group on

Combined Heat and Power Statistics on 2 April 2001.

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5.3. Efficiency criteria

To secure that only cogeneration that offers actual benefits compared with separate production of heat and
power is promoted under this Directive, it's essential that an appropriate mechanism to determine these
benefits exists. The proposal therefore provides in Annex III a methodology for determining the benefits of
cogeneration.

The benefits of cogeneration can be expressed in terms of energy savings or CO2 savings. In most cases, a
cogeneration installation that provides energy savings will also offer CO2 savings. However, the choice of
fuel for cogeneration will have an impact on the amount of CO2 savings. The concept of cogeneration is
basically about saving energy by using the fuel input in a highly efficiency manner to generate both
electricity and heat. For the purpose of this Directive energy savings are therefore considered the most
suitable indicator to express the benefits of cogeneration. By using this indicator, the Directive focuses on
the energy efficiency characteristics of cogeneration and it remains fuel neutral thus allowing for a
fuels in the cogeneration sector. However, under the reporting requirements the
diversified mix of
Commission could make an assessment of the environmental benefits, including the CO2 emission savings.

To determine the energy savings from cogeneration, the basic definition of cogeneration as set out in
Annex II cannot stand alone because it only identifies cogeneration without quantifying the potential
energy savings. It is therefore necessary to develop additional criteria to determine the energy savings
from cogeneration production as defined under the basic definition provided in Annex II. To define
high-efficiency cogeneration the fuel used to produce a given amount of heat and power by cogeneration
must be quantified and compared with the fuel that would have been necessary to produce the same
amount of heat and power via separate generation. This implies that for the comparison assumptions must
be made as to what kind of separate production cogeneration displaces.

One option would be to lay down in the Directive harmonised references for separate production of heat
and power that any given cogeneration production should be compared with. However, defining such
references is a highly complex exercise, especially for new production where empirical data is not available
and assumptions must be made about the future fuels, technologies and expected efficiencies. In addition,
the differences in the energy mix across the Community also make it difficult to establish a single
harmonised reference, which can be applied to all Member States. This has led the Commission to
conclude that at this stage it is necessary to provide a common methodology for calculating the energy
savings from cogeneration. However,
it will be up to Member States to define, on the basis of the
framework provided in Annex III, the exact national efficiency reference values to be used in the calcu-
lation. Member States will be asked to present a well-documented analysis of the choice of reference values,
which must be published and forwarded to the Commission. The Commission will evaluate the efficiency
reference values adopted by Member States and on that basis consider the scope for further harmonisation.

the efficiency criteria,

the proposal distinguishes between new and existing
For the application of
production. Electricity from new cogeneration production should — within the same fuel category —
be compared with the best new state-of-the-art power production technology that it is assumed to displace.
By comparing efficiencies within similar fuel categories, the assessment of the benefits of cogeneration
remains fuel neutral and focuses entirely on the energy efficiency characteristics of cogeneration. On the
heat side, new cogeneration should normally be compared with an indicative heat efficiency reference
value of 90 % although lower efficiency references may be used for some fuels. Altogether, new cogen-
eration production should provide energy savings of at least 10 % to qualify as high-efficiency cogen-
eration. Small-scale cogeneration and cogeneration based on renewable energy sources may qualify with a
reduced level of energy savings. Electricity from existing cogeneration should be compared with the
average efficiency of the existing national fossil-based electricity production. Nuclear and renewable elec-
tricity is excluded from the mix, as they in an actual market situation are normally not displaced by
cogeneration electricity. On the heat side, existing cogeneration should be compared with the average
efficiency of the existing national heat generation mix. Existing cogeneration production should provide
energy savings of at least 5 % to qualify as high-efficiency cogeneration.

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5.4. National potentials for high-efficiency cogeneration

Setting targets helps to quantify and subsequently monitor what the Community and individual Member
States wish to achieve in the field of cogeneration. The Commission has therefore considered whether
indicative national targets for the market share of cogeneration should be set for all Member States at
Community level. On the other hand, the national market frameworks for cogeneration across the EU are
very disparate with regard to for instance market potential for cogeneration, national energy mix, avail-
ability of fuels, industrial structure, demand for heating and/or cooling etc. This means that the conditions
for promoting a specific energy efficiency technology like cogeneration in the national heat and electricity
markets are very different. At this stage the establishment of indicative targets for each Member State
would be technically difficult. However, the Commission could examine the possibility and need for such
targets on the basis of the first reporting from Member States on the national potentials for high efficiency
cogeneration. The Commission considers that initially the focus should be on stimulating effective promo-
tional policies and measures in favour of cogeneration. The Directive will therefore initiate a compulsory
procedure aimed at activating the existing national potentials for high-efficiency cogeneration.

Member States will be obliged to carry out well-documented analyses of the national potentials for
cogeneration. To ensure that the analyses are carried out in a systematic and comparable manner,
which will allow the Commission and the general public to monitor the implementation of the Directive,
Annex IV to the Directive sets out a number of criteria and elements that must be covered in the analyses.
The criteria include inter alia a requirement to consider the likely fuels for cogeneration with special
emphasis on the scope for promoting renewable energy sources in the national heat markets via cogen-
eration and an obligation to examine aspects relating to cogeneration technologies, cost effectiveness and
timeframes.

Annex IV also requires a breakdown of the cogeneration potential into at least three main categories. The
‘Heating cogeneration’ and ‘Agricultural cogeneration’ refer to the
categories ‘Industrial cogeneration’,
different applications of
the heat output. Member States will also be obliged to make a separate
analysis of national barriers to cogeneration and to report regularly on progress towards realising
national potentials and measures taken to promote cogeneration. To allow monitoring and assessment
of progress at regular intervals reliable cogeneration statistics are necessary. The Directive therefore
introduces an obligation for Member States to submit cogeneration statistics on an annual basis to the
Commission. It is envisaged that this data collection in practice will be a continuation of the current
practice where Member States submit national cogeneration statistics to Eurostat.

5.5. Support schemes

A variety of different national support schemes for cogeneration are currently in operation or in the
process of implementation. Such schemes include inter alia direct price support (feed-in tariffs), tax
exemptions or reductions, green certificates and investment aid.

In order to reflect

While the justification for financial support of cogeneration will disapear as the external costs are fully
internalised in the market, support for cogeneration will
in many cases be justifiable in the short to
this aspect public support schemes should include the phase-out
medium term.
principle In order to realise the potential benefits from the installation and proper functioning of electrical
cogeneration plants where a heat demand exists or is foreseen, continuation and reinforcement of support
schemes in favour of cogeneration will therefore often be necessary within the limits set by the EC Treaty
and in particular its Articles 87 and 88. The Community has, however, a clear interest in ensuring that
support is successful in promoting high-efficient cogeneration. Under the Directive, the Commission will
therefore be obliged to evaluate the application of the different support schemes for cogeneration used in
Member States and to present a report on the experiences gained with the application and coexistence of
different support mechanisms.

5.6. Grid system issues

To function properly, the internal electricity market has to provide a level playing field for all existing and
potential new producers of electricity. In this context, objective, transparent and non-discriminatory rules
and procedures in relation to grid system issues can facilitate the market penetration of cogeneration.
Regulatory certainty about grid system issues is of particular importance for cogeneration given that
cogeneration producers in many cases are smaller and independent operators that are vulnerable to
costs and conditions in this field.

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Cogeneration producers are generally faced with the same difficulties as producers of electricity from
renewable energy sources in relation to grid system issues. As a consequence, this proposal in many
respects bases itself on the same provisions as those contained in Directive 2001/77/EC. This implies that
the proposal has provisions, which guarantee the transmission and distribution of electricity produced
from cogeneration. Grid connection and grid reinforcement is another area where barriers to cogeneration
in some cases exist as described in section 3. To address such barriers, the proposal contains provisions
requiring transmission system operators and distribution system operators to set up and publish standard
rules relating to grid connection and reinforcement. Such rules must be based on objective, transparent
and non-discriminatory criteria.

Due to the link between electricity production and the heat demand, cogeneration producers sometimes
need to purchase additional electricity to back-up or top-up the producer's own generation. Excess elec-
tricity must also sometimes be sold, when production exceeds consumption. Special markets for balancing
and regulating power are gradually emerging. However, not all cogeneration producers are currently
eligible customers with access to such markets. Until
is
therefore necessary with specific provisions to ensure that the tariffs offered to cogeneration producers
without market access that need to purchase electricity are set according to objective, transparent and
non-discriminatory criteria. For reasons of transparency and for monitoring purposes, it is also proposed
that benchmarking analyses on tariffs offered to cogeneration both for the purchase of additional electricity
and for the selling of excess electricity are undertaken.

the electricity market

is fully opened,

it

5.7. Administrative procedures

It has been pointed out by organisations representing cogeneration developers that administrative
procedures represent a barrier to the further development of cogeneration. Such barriers can for
instance be the length of the procedure, the requirements necessary to meet, or high costs associated
with the authorisation procedure.

Directive 96/92/EC provides the basic rules in this respect, notably with regard to authorisation
procedures. Nevertheless, these general rules may not always be sufficient for smaller producers such as
for example many independent cogeneration producers for whom administrative and planning procedures
can be a serious barrier.

In many respects, harmonised rules in this area could contribute towards promoting cogeneration. On the
other hand, administrative and planning procedures vary significant across the Community reflecting very
different administrative and constitutional set-ups. Taking this into consideration and with due regard to
the principle of subsidiarity, this proposal does therefore not contain provisions for such harmonised rules.

Nevertheless, reinforced efforts to minimise administrative barriers are needed. It is therefore proposed that
Member States or the competent bodies appointed by the Member States evaluate existing legislative
frameworks with a view to reducing barriers to cogeneration, streamlining and expediting procedures
and ensuring that rules are objective, transparent and non-discriminatory. Member States will be obliged to
report the results of the evaluation and indicate, where appropriate, action taken to remove barriers.

6. Justification for action at Community level

6.1. Current political context

In the Green Paper on the security of energy supply (1), the Commission outlines the prospective energy
situation in the EU for the coming decades. The Green Paper emphasises the need to reinforce efforts to
reduce energy demand as a means to both reduce the dependence on external suppliers and to contribute
to solving climate change problems. Clear rules for cogeneration, which allows plants to work properly
with its fuel saving characteristics, can contribute to both policy objectives.

(1) ‘Towards a European strategy for the security of energy supply’, COM(2000) 769.

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The Commission in its proposal for amendment of the electricity and gas directives (1) emphasised that a
fully opened market needs an internalisation of external costs to ensure a true level playing field.
According to for example the ExternE study (2), CHP provokes with the same fuel at least two times
less socio-environmental damages compared with conventional electricity production. As long as external
costs are not fully integrated into energy prices, the Commission will promote initiatives that seek to
rectify this imbalance. Such initiatives should seek to compensate the extra costs of the cogeneration
producer compared to the costs involved in separate production of heat and electricity. At the present
market conditions such compensation should seek to rectify the above mentioned imbalance and to avoid
that the extra costs result in higher prices of the cogenerated heat and electricity compared to the
separately produced. Compensation of extra costs should be adjusted in order to reflect the need for
compensation for the different sizes of installations, types of technologies and fuels. Larger cogeneration
plants have less need for compensation than the smaller ones.

The Commission in its Communication on the completion of the internal market (3) underlined that the
creation of the internal market for electricity and gas in many respects has shown to have had positive
environmental effects in terms of e.g. increased operating efficiency and switch to cleaner fuels. However,
it was also stressed that falling energy prices might not be conducive to the development of energy
efficiency and renewables. Waiting for the internal energy market to be fully completed could involve
many risks because opportunities for cogeneration could be lost in the meantime. The Commission
therefore announced in the above-mentioned Communication that
in 2002,
proposals with respect to cogeneration.

intends to prepare,

it

Art. 2 of the EC Treaty calls for a sustainable development of the economy of the Community. Art. 6 of
the EC Treaty reinforced these objectives of sustainable development by integrating environment policy
In addition, the Commission's Communication on sustainable devel-
into other Community policies.
opment (4) presented at the European Council
in Göteborg in June 2001 identified greenhouse gas
in
emissions as a one of
Göteborg (5) adopted a strategy for sustainable development and added an environmental dimension to
the Lisbon process on economic and social renewal.

the major obstacles to sustainable development. The European Council

To address climate change, the Commission recently adopted a Communication on implementation of the
European Climate Change Programme (6), in which it announced its intention to put forward a proposal
for a cogeneration Directive in 2002. Moreover, a proposal for a Directive on greenhouse gas emission
trading (7) has also recently been adopted by the Commission. When such a market is in full operation, a
price on CO2 emissions will in effect be disclosed whereby an important step towards internalisation of
external costs will have been taken. Furthermore introduction of such a market will also be a step towards
eliminating the justification of national economic support schemes for promoting cogeneration. However,
as long as a well-functioning market reflecting the price of CO2 emissions is not in operation, cogeneration
is particularly vulnerable to competition from less clean energy producers and will therefore often need
the Council
specific promotion.
identified promotion of cogeneration as one of the short-term priority actions in the follow-up on the
action plan (9). The European Parliament called on the Commission to submit proposals for common rules
for the promotion of cogeneration (10).

In response to the Commission's energy efficiency action plan (8),

(1) ‘Proposal for a Directive of the European Parliament and of the Council amending Directives 96/92/EC and
98/30/EC concerning common rules for the internal market in electricity and natural gas’, COM(2001) 125 final.

(2) ‘ExternE — Externalities of Energy’, EC, DG Research, Brussels, 1999.
(3) ‘Completing the internal energy market’, COM(2001) 125 final.
(4) ‘A Sustainable Europe for a Better world: a European Union Strategy for Sustainable Development’ COM(2001) 264.
(5) ‘Presidency Conclusions — Göteborg European Council 15 and 16 June 2001’: SI(2001)500.
(6) COM(2001) 580 final.
(7) ‘Proposal for a framework Directive for greenhouse gas emissions trading within the European Community’,

COM(2001) 581.

(8) ‘Action Plan to improve energy efficiency in the European Community’, COM(2000) 247 final.
(9) Doc. 13407/1/00 ENER — COM(2000) 247 final.
(10) Resolution on the Action Plan to improve energy efficiency in the European Community, A5-0054/2001.

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In the recently revised Community guidelines on state aid for environmental protection (1), provisions were
included, which allow under certain conditions financial support to cogeneration. In order to qualify under
the guidelines, the environmental benefits of the concerned cogeneration scheme must be documented.

6.2. Additional impact of action at Community level

Member States are becoming increasingly interdependent in the field of energy, notably as regards the
internal energy market and the common commitment to reduce greenhouse gas emissions following the
ratification of the Kyoto Protocol. Policy decisions on cogeneration in one Member State can have an
impact on the energy markets in other member States. Member States are also faced with common
competition rules of the Treaty,
including the recently revised Community guidelines on state aid for
environmental protection, which also define the national room of manoeuvre in the field of cogeneration.
In addition, the current lack of progress in the cogeneration market demonstrates that it is doubtful that
the potential for cogeneration can be realised via initiatives at Member State level alone.

This has led the Commission to conclude that cogeneration policies at Member State level need to be
complemented by legislative action at Community level. This Directive will create the necessary legislative
framework whereby efforts at all levels can be concentrated on promoting high-efficiency cogeneration.
The Directive will serve as a means to reduce the current market uncertainty surrounding cogeneration and
provide important stimuli
for cogeneration in individual Member States by establishing a coherent
Community framework. Given the need to take account of the different national circumstances for
cogeneration and to respect the principle of subsidiarity,
it will to a large extent be left to Member
States to decide how to operate within this overall Community framework for cogeneration.

Legislative action at Community level will ensure that a set of common principles for the promotion of
cogeneration is developed. The definition of high-efficiency cogeneration is an example of an area where
Community action is necessary to ensure a coherent methodology for promoting cogeneration so as to
avoid market distortions. Moreover, common principles for high-efficiency cogeneration can also ensure
that financial support for cogeneration is prioritised in such a way that support is allocated to the most
efficient production.

It is also of common Community interest to work towards the creation of a level playing field within the
framework for
internal energy market. Establishing an objective, non-discriminatory and transparent
cogeneration producers in relation to grid system issues is an important question with a clear
Community dimension. Creation of a level playing field is also relevant from a competition point of
view as it could contribute to ensuring a certain number of market players in the internal energy
market. Community action in favour of independent, and often small-scale, power producers such as
cogeneration could thereby indirectly contribute to stimulating competition in the internal electricity
market.

From a security of energy supply perspective, the Community also has an interest in promoting high-
efficiency cogeneration as an element in its overall strategy to reduce energy demand. Promotion of
cogeneration using indigenous energy sources such as bioenergy, waste and geothermal energy is
particularly important in this context.

In respect of the future Community a Directive on promotion of cogeneration provides the Candidate
Countries with possibilities to improve security of supply based on the existence of large heat markets and
existing support programmes.

Finally, cogeneration can due to its high fuel efficiency and reduced environmental impact contribute to
Community policies on sustainable development, notably in relation to the need for increased use of clean
energy and measures to reduce energy demand. In the context of climate change, the Community has a
clear interest in putting forward concrete proposals aimed at reducing the emission of greenhouse gases. A
Directive on the promotion of cogeneration will therefore be one of the elements in the package of
measures needed to comply with the Kyoto Protocol to the United Nations Framework Convention on
Climate Change and any policy package to meet further commitments.

(1) ‘Community guidelines on State aid for environmental protection’ (OJ C 37, 3.2.2001, p. 3).

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7. Impact of the proposed Directive

7.1. Potential energy savings

In its summary report on cogeneration statistics, Eurostat presents the following calculation of the
estimated primary energy savings achieved by different types of cogeneration plants in the years 1994
to 1998.

Table 3 — Energy savings calculated for different cycles in the EU, TJ

1994 (*)

1996

1997

1998

Combined cycle

139 349

240 175

309 744

385 842

Total backpressure steam turbine

329 604

321 296

326 528

278 328

Condensing steam turbine with heat recovery

83 645

258 982

247 361

236 937

Gas turbine with heat recovery

79 041

91 287

128 305

149 877

Internal combustion engine

36 684

71 375

103 506

124 823

Others

Total EU-15

1 068

4 015

2 585

138

669 391

987 130

1 118 029

1 175 946

(*) German figures are for 1995.
Source: ‘Combined Heat and Power production (CHP) in the EU — summary of statistics 1994-1998’, Eurostat, 2001.

According to Eurostat the absolute primary energy savings from cogeneration in 1998 amounted to 1 176
PJ, or 28 Mtoe. This corresponds to 2 % of total EU gross inland consumption of primary energy. The
Eurostat calculation is based on an assumed average efficiency of separate electricity generation of 36 %, an
average efficiency of separate heat generation of 85 % and an overall efficiency of CHP plants of 75 % in
1998

7.2. Impact on security of energy supply

Import dependency and rising import ratios may lead to concern about the risk of interruption to or
difficulties in supply. However, it would be simplistic and wrong to conceive security of supply as merely a
question of reducing import dependency and boosting domestic production. Security of supply calls for a
wide range of policy initiatives aimed at,
inter alia, diversification of sources and technologies and
improved international relations.

From an import dependency point of view, cogeneration would be beneficial, if the import of fuel to the
EU were to be reduced compared with separate production of electricity and heat. However cogeneration
schemes do not automatically trigger a reduction in energy imports. When it follows, the benefits from a
security of supply point of view can be of varying size. If a more diversified fuel mix results from a
cogeneration project than from separate production, the security of supply will be increased. Local
production of electricity may also enhance security of electricity supply, since it ensures that electricity
is produced in many different regions of a country where heat is needed. These regions become more self
sufficient in power supply and less vulnerable to power failures. Most large industries with a steam demand
are very sensitive to power failures for their industrial production and see their own electricity generation
as an increased security of electricity supply.

If cogeneration takes place in a district heating system the security of heat supply is increased, considering
that a large cogeneration installation always has stand-by capacity to back-up failures in individual units,
something that a small heat installation can rarely afford.

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The physical security of a cogeneration plant as regards sabotage and terrorist attacks also needs to be
considered, especially following the 11 September 2001 attack on the USA. Cogeneration production
would take place in a large number of plants, whereas electricity production in the reference case would
take place in a few, large, centralised power plants, which are more likely targets for terrorists because of
the larger impact of an attack. Cogeneration production would thus normally increase the physical security
of the power system.

7.3. Cost-effectiveness of the measure

New high-efficiency and well-designed cogeneration installations dimensioned on the basis of a relatively
stable heat demand and operated for a reasonable amount of hours over the year are generally considered
to be a cost-effective energy solution.

Nevertheless, determining the costs-effectiveness of this proposal must necessarily be subject to many
uncertainties and assumptions. In this context, a key issue is to define the reference case with which
the cost-effectiveness of cogeneration is compared. The huge differences in the calculation of CO2 savings
from cogeneration referred to in section 6.2 illustrate the impact of applying different assumptions to the
calculation of CO2 savings or to calculations of cost-effectiveness.

In the context of the European Climate Change Programme reference was made to an estimated savings
potential from a cogeneration Directive of 65 Mt CO2eq of which 12 Mt CO2eq could be achieved at
costs of between EUR 20 and EUR 50 per tonne (1). However, the document subsequently underlines that
leave the choice of
actual reductions are subject to uncertainties because the proposed Directive will
implementation strategy and specific support mechanisms in favour of cogeneration to the Member States.

It should also be noted that these cost estimates are based on the assumption that the reference to
cogeneration is a gas economy with combined cycle gas turbines with electrical efficiencies of 55 %. In
other words, this is the assumption that generates the most conservative estimates as to the cost-effec-
tiveness of cogeneration. If other references were used, cogeneration would be more cost-effective.

The fact that this Directive will only promote high-efficiency cogeneration installations that make optimal
use of the fuel input is also likely to improve the overall cost-effectiveness of the measure. In addition, it
should be kept in mind that promotion of cogeneration is not only aimed at reducing greenhouse gas
emissions, but also at saving energy. Important additional benefits with regard to energy savings and
security of energy supply must therefore also be taken into account when judging the cost-effectiveness of
the measure.

8. Relevance for the Candidate Countries

Community action promoting cogeneration is also very important for the Candidate Countries of in
particular Central and Eastern Europe where cogeneration, and especially district heating,
for many
years has been an important component in the energy supply system. Most of the Central and Eastern
European Countries have cogeneration shares of at
least 10 % of electricity production and some
substantially higher (2). District heating is even more widespread in Central and Eastern Europe with
district heating networks in most major cities and markets shares for district heating in the range
between 13-70 % (3). According to Euroheat & Power (4) almost 40 % of the inhabitants of Central and
Eastern Europe are customers of district heating representing 41 million users compared with around 20
million in the EU.

(1) ‘Communication from the Commission on implementation of the first phase of the European Climate Change

Programme’, COM(2001) 580 final.

(2) ‘The European Cogeneration Review’, Cogen Europe, 1999.
(3) ‘District Heat in Europe — Country by Country 2001 Survey’, Euroheat & Power, 2001.
(4) ‘District Heat in Europe — 1999 Survey’, Euroheat & Power, 1999.

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The energy sectors in most of the countries in Central and Eastern Europe are generally characterised by a
high heat demand and a considerable potential for energy savings. The general conditions of many district
heating systems in Central and Eastern Europe is not good with sometimes oversized capacities and old
district heating networks in need of refurbishment. This often results in relatively low system efficiencies.
At the same time, district heating is sometimes faced with competition from other energy sources.
Community action to promote cogeneration could therefore provide a stable and supportive framework
for cogeneration and district heating in this region.

In this context, it could be of particular importance to protect the existing district heating infrastructure,
which has come under threat due to lack of renovation and competition from individual heating. A
cogeneration Directive could provide guidance and incentives to promote high-efficiency cogeneration
on the basis of i.a. the existing infrastructure and the documented experiences with cogeneration and
district heating in the region. Modernisation of the district heating networks and shift to cogeneration
instead of heat-only boilers could in many cases be important elements in future efforts to improve energy
efficiency in the Candidate Countries.

9. Consultation during the preparation of the proposal

This proposal follows a consultation and preparation phase involving a number of different meetings and
working groups.

Member States and representatives of European associations and non-governmental organisations were
invited to a formal consultation meeting organised by the Commission services on 26 November 2001. At
this meeting Member States and stakeholders were given the opportunity to present their views and
positions on the possible elements of a cogeneration Directive. A background document circulated
prior to the meeting formed the basis for the consultation. A number of Member States and stakeholder
organisations have subsequently submitted written comments on the Directive.

Specific consultation with experts from industry, associations and research institutes took place on
issues
12 November 2001 in the form of a workshop devoted exclusively to discussing technical
relating to the definition and certification of cogeneration.

Another workshop focussing on the future outlook for cogeneration in Europe was organised on
25 October 2001 where representatives from Member States and Candidate Countries as well as
industry were invited.

Finally, Community action in favour of cogeneration was also subject to discussions in two separate
working groups under the European Climate Change Programme working from mid-2000 to mid-2001.
In these working groups work was conducted through a co-operative effort involving representatives from
the Commission's different departments, the Member States, industry and environmental groups.

10. Contents of the proposal

Article 1 defines the purpose of the proposal.

Article 2 sets out the scope of the proposed Directive.

Article 3 lays down technical definitions.

Article 4 contains provisions for guarantee of origin of electricity from cogeneration,
‘disclosure’ provisions on common rules for the internal markets in electricity and natural gas.

in line with the

Article 5 obliges Member States to development criteria to determine the energy efficiency of cogeneration
on the basis of a common methodology.

Article 6 obliges Member States to publish reports with analyses of national potentials for high-efficiency
cogeneration and national barriers to their realisation.

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Article 7 contains provisions for the evaluation of support schemes for cogeneration.

Article 8 concerns grid system issues.

Article 9 obliges Member States to evaluate the scope for reducing administrative barriers to cogeneration.

Article 10 concerns reporting requirements under the Directive.

Annex I lists the cogeneration technologies covered by the proposal

Annex II sets out the methodology to be used for the basic definition of cogeneration.

Annex III outlines a methodology for determining the efficiency of cogeneration production.

Annex IV lists the criteria to be followed when analysing national potentials for high-efficiency cogen-
eration.

THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular Article 175 thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the Economic and Social
Committee,

Having regard to the opinion of the Committee of the Regions,

Acting in accordance with the procedure laid down in Article
251 of the Treaty,

Whereas:

(1) The potential for use of cogeneration as a measure to save
energy is underused in the Community at present.
Promotion of high-efficiency cogeneration based on a
useful heat demand is a Community priority given the
potential benefits of cogeneration with regard to saving
primary energy and reducing emissions, in particular of
greenhouse gases. In addition, efficient use of energy by
cogeneration can also contribute positively to the security
of energy supply and to the competitive situation of the
European Union and its Member States. It is therefore
necessary to take measures to ensure that the potential
is better exploited within the framework of the internal
energy market.

(2) Directive 96/92/EC of the European Parliament and of the
Council of 19 December 1996 concerning common rules
for the internal market in electricity (1) provides for an
important step in the completion of the internal market
in electricity. At its meeting in Lisbon on 23 and 24 March
2000, the European Council called for rapid work to be
undertaken to complete the internal market in both elec-
tricity and gas and to speed up liberalisation in these
sectors with a view to achieving a fully operational
internal market.
the Commission adopted
on 13 March 2001 a package of measures on completing
including a proposal for a
the internal energy market,
Directive amending Directives 96/92/EC and 98/30/EC
concerning common rules for the internal market in elec-
tricity and natural gas (2).

In response,

trends persists.

(3) The Green Paper (3) on security of energy supply points
out that the European Union is extremely dependent on
its external energy supplies currently accounting for 50 %
of requirements and projected to rise to 70 % by 2030 if
Import dependency and rising
current
import ratios may lead to concern about the risk of inter-
ruption to or difficulties in supply. However, it would be
simplistic and wrong to conceive security of supply as
merely a question of reducing import dependency and
boosting domestic production. Security of supply calls
for a wide range of policy initiatives aimed at, inter alia,
diversification of sources and technologies and improved
international
emphasised
relations. The Green Paper
furthermore that security of energy supply is essential
for a future sustainable development. The Green Paper
concludes that the adoption of new measures to reduce
energy demand is essential both in terms of reducing the
import dependence and in order to limit greenhouse gas
emissions.

(1) OJ L 27, 30.1.1997, p. 20.
(2) COM(2001) 125 final.
(3) COM(2000) 769 final.

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(4) The Commission's Communication ‘A Sustainable Europe
for a better world — A European Union Strategy for
Sustainable Development’ (1) presented at the Gothenburg
European Council on 15 and 16 June 2001 identified
to
climate change as one of
sustainable development and emphasised the need for
increased use of clean energy and clear action to reduce
energy demand.

the principal barriers

Directive 2001/80/EC of the European Parliament and of
the Council on the limitation of emissions of certain
pollutants into the air from large combustion plants (10)
and Directive 2000/76/EC of the European Parliament and
of the Council on the incineration of waste (11) all recite
the need to evaluate the potential for cogeneration in new
installations.

to met

(5) The increased correct use of cogeneration constitutes an
important part of the package of measures needed to
comply with the Kyoto Protocol to the United Nations
Framework Convention on Climate Change, and of any
policy package
commitments. The
Commission in its Communication on the implementation
of
the European Climate Change
Programme (2)
identified promotion of cogeneration as
one of the measures needed to reduce the greenhouse
gas emissions from the energy sector and announced its
intention to present a proposal for a Directive on the
promotion of cogeneration in 2002.

the first phase of

further

and power

combined heat

(6) The increased correct use of cogeneration is a priority as
outlined in the Communication ‘A Community strategy to
promote
(CHP) and to
to its development’ (3). This was
dismantle barriers
endorsed
of
its
18 December 1997 on a Community strategy to
promote combined heat and power (4), and by the
European Parliament in its resolution of 23 April 1998
on the Community strategy to promote combined heat
and power (5).

the Council

resolution

by

in

(9) High efficiency cogeneration is in this directive defined by
the energy savings obtained by combined production in
stead of separate production of heat and electricity. For
existing plants energy savings of more than 5 %, and for
new plants energy savings of more than 10 % qualify for
the term ‘high efficiency cogeneration’. To maximise the
energy savings and to avoid that energy savings are lost
through incorrect operation of the cogeneration plants the
greatest attention must be paid to the functioning
the
conditions of
heat production is being properly used.

these plants, mainly to ensure that

(10) It is important for monitoring purposes and for reasons of
transparency to adopt a harmonised basic definition of
are
cogeneration. Where
equipped
or heat
production, such production should be excluded from
the definition of cogeneration.

cogeneration
separate

to generate

installations

electricity

is promoted,

(11) To ensure that only cogeneration that provides benefits in
terms of primary energy savings
is
necessary to develop additional criteria to determine and
quantify the
cogeneration
production identified under
the basic definition. To
avoid distortions of the internal energy market, national
efficiency reference values used to define high-efficiency
cogeneration should be adopted on the basis of a
common methodology.

energy efficiency of

the

it

(7) The Council in its Conclusions of 30 May 2000 and of
5 December 2000 (6) endorsed the Commission's Action
Plan on energy efficiency (7) and identified promotion of
cogeneration as one of the short-term priority areas. The
European Parliament
in its resolution of 7 February
2001 (8) on the Action Plan on energy efficiency called
on the Commission to submit proposals establishing
cogeneration,
for
common rules
where this makes environmental sense.

the promotion of

(8) Council Directive 96/61/EC of 24 September 1996
concerning integrated pollution prevention and control (9),

(1) COM(2001) 264 final.
(2) COM(2001) 580 final.
(3) COM(97) 514 final.
(4) OJ C 4, 8.1.1998, p. 1.
(5) A4-0145/98.
(6) Council Conclusions 8835/2000 (30 May 2000) and Council

Conclusions 1400/2000 (5 December 2000).

(7) COM(2000) 247 final.
(8) A5-0054/2001.
(9) OJ L 257, 10.10.1996, p. 26.

legislation,

(12) The definitions of cogeneration and of high-efficiency
cogeneration used in this Directive do not prejudge the
use of different definitions in national
for
purposes other than those set out in this Directive. It is
contained in
to borrow the definitions
appropriate
Directive 96/92/EC of the European Parliament and of
the Council of 19 December 1996 concerning common
rules for the internal market of electricity (12) and in
Directive 2001/77/EC of the European Parliament and
the Council of 27 September 2001 on the
of
promotion of
electricity produced from renewable
energy sources in the internal electricity market (13).

(13) To increase transparency for

the consumer's choice
between electricity from cogeneration and electricity
produced on the basis of other techniques, guarantee of
origin of high efficiency cogeneration is necessary.

(10) OJ L 309, 27.11.2001, p. 1.
(11) OJ L 332, 28.12.2000, p. 91.
(12) OJ L 27, 30.1.1997, p. 20.
(13) OJ L 283, 27.10.2001, p. 33.

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(14) To ensure increased market penetration of cogeneration in
the medium term, it is appropriate to require all Member
States to adopt and publish a report analysing the national
potential for high-efficiency cogeneration and to include a
separate analysis of barriers to cogeneration in the report.
The Commission, on the basis of these reports and the
progress made
indicative
Community target of 18 % of electricity consumption
from cogeneration by 2010, should consider whether it
is appropriate to establish indicative objectives for each
Member State. Special considerations should be given to
analysing the scope for increased use of renewable energy
sources in the national heat markets via cogeneration.

in achieving

global

the

(15) Public support should be consistent with the provisions of
the Community guidelines on State aid for environmental
protection (1). These guidelines currently allow certain
if
it can be shown that
the
types of public support
the
in terms of protection of
measures are beneficial
is
environment
efficiency
the
particularly high, because
allow
energy consumption to be reduced or because the
less damaging to the
production process will be
environment. Such support will
cases be
necessary to further exploit the potential for cogeneration,
in particular to take account of the need to internalise
external costs.

conversion
the measures will

in some

because

(16) Public support

schemes

for promoting cogeneration
should focus on support for cogeneration based on a
useful heat demand and avoid encouragement of
increased heat demand in order to avoid increase of fuel
consumption and CO2 emissions. Member States should
take steps to prevent public financial support for elec-
tricity from cogeneration from being used to subsidise
thereby creating incentives for being
heat production,
less careful about
the proper use of the heat output.
Without prejudice to the Community Guidelines on
State aid for environmental protection, direct support
for production should in principle be focused on the
share of cogenerated electricity produced either in instal-
lations with a capacity below a threshold value that
should be set at 50 MW(e) or lower or in larger instal-
lations but then only the amount of electricity produced
by the capacity below such a threshold value.

at

cogeneration

national
tax exemptions or

(17) Member States operate different mechanisms of support
including
the
for
reductions, green
investment aid,
certificates
schemes. The
Commission intends to monitor the situation and report
on experiences gained with the application of national
support schemes.

and direct price

support

level,

(18) Grid connection costs and tariffs related to the trans-
mission and distribution of electricity from cogeneration

(1) OJ C 37, 3.2.2001, p. 3.

and tariffs related to the purchase of additional electricity
sometimes needed by cogeneration producers should be
set according to objective, transparent and non-discrimi-
natory criteria taking into account the costs and benefits
of cogeneration. Especially for cogeneration installations
using renewables and small ones with capacity below
1 MW(e), costs and administrative burdens in relation
to
constitute
grid
considerable barriers for further development.

connection

electricity

the

to

(19) The specific structure of the cogeneration sector, which
includes many small and medium-sized producers, should
be taken into account, especially when reviewing the
administrative procedures for obtaining permission to
construct cogeneration capacity.

(20) Within the purpose of

to create

this Directive

a
framework for promoting cogeneration it is important
to emphasise the need for a stabile economical and
administrative environment for investments in new cogen-
eration installations. Member States are encouraged to
address this need by designing support schemes with a
least 4 years and by avoiding
duration period of at
frequent
etc.
Member States are furthermore encouraged to ensure
that public
the phase-out
schemes
principle.

in administrative procedures

changes

support

respect

central heating purposes, demanding
(from 40 °C to 140 °C)

(21) The overall efficiency and sustainability of cogeneration is
dependent on the many factors such as technology used,
fuel types, load curves, the size, and also on the properties
of
the heat. Use of heat as high pressure steam for
industrial processes provides limits of the electrical effi-
ciency of the cogeneration installation because of the high
temperature level for the heat (above 140 °C). Use of heat
a
for
lower
than the
temperature level
industrial use, allows a higher electrical efficiency of the
cogeneration installation. Use of heat
for agricultural
heating, such as warming of greenhouses and aquaculture
pools, provides an even lower level of temperature (below
40 °C) and improves thereby the possibilities to increase
the electrical efficiency. This Directive reflects
these
considerations by introducing three classes of cogen-
eration in order to ensure that evaluation of electrical
efficiency of different cogeneration installations take the
different heat temperature levels into consideration.

a

in Article 5 of

cogeneration in the

should be set at Community level, but

(22) In accordance with the principles of subsidiarity and
the Treaty,
proportionality as set out
the
general principles providing
energy
promotion of
the
market
to Member
detailed implementation should be
States, thus allowing each Member State to choose the
regime, which corresponds best to its particular situation.
This Directive confines itself to the minimum required in
order to achieve those objectives and does not go beyond
what is necessary for that purpose.

framework for
internal

left

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HAVE ADOPTED THIS DIRECTIVE:

Article 1
Purpose

The purpose of this Directive is to create a framework for
promotion of cogeneration based on useful heat demand in
the internal energy market. Implementation of this Directive
the specific national circumstances
shall
especially concerning climatic and economic conditions.

take into account

Article 2
Scope

This Directive shall apply to cogeneration as defined in Article
3. Annex I provides a list of different types of cogeneration
units covered by this Directive.

Article 3
Definitions

For the purpose of this Directive, the following definitions shall
apply:

(a) ‘cogeneration’ shall mean the generation in one process of
thermal energy and electrical and/or mechanical energy.
For practical reasons and based on the fact, that the use
of the heat output for different purposes requires different
temperature levels of the heat, and that these differences
influence efficiencies of
the cogeneration, cogeneration
shall be divided into three classes: ‘industrial cogeneration’,
‘heating cogeneration’ and ‘agricultural cogeneration’;

(b) ‘industrial cogeneration’ shall mean the generation in one
process of electrical and/or mechanical energy and thermal
energy useful for industrial production generally with heat
temperatures of 140 °C or higher;

(c) ‘heating cogeneration’ shall mean the generation in one
and/or mechanical
and
process of
electrical
thermal energy useful
for heating purposes in district
heating systems or directly in buildings generally with
heat temperatures between 40 °C and 140 °C;

energy

(d) ‘agricultural cogeneration’ shall mean the generation in one
process of electrical and/or mechanical energy and thermal
energy useful for agricultural heating of greenhouses, aqua-
culture plants and similar applications generally with heat
temperatures between 15 °C and 40 °C;

(e) ‘useful heat’ is heat produced in a cogeneration process to
satisfy an economically justified demand, on the basis of
the efficiency criteria laid down in Annex III, point c. 2;
useful heat could via a secondary process be used to
generate useful cooling;

(f) ‘electricity

from cogeneration’

shall mean electricity
generated in accordance with the methodology laid down
in Annex II and in a process linked to production of useful
heat;

(g) ‘district

heating’

system supplying
commercially heat in the form of hot water or steam to
users via a distribution network;

shall mean

a

(h) ‘district cooling’ shall mean a system supplying chilled
water or hot water or steam to chillers via a distribution
network;

(i) ‘back-up electricity’ shall mean the electricity that has to be
supplied through the electricity grid whenever the cogen-
eration process is disrupted or out of order;

(j) ‘top-up electricity’ shall mean the electricity that has to be
supplied through the electricity grid in cases where the
electricity demand is greater than the electrical output of
the cogeneration process.

(k) ‘heat efficiency’ shall mean annual useful heat output
input used for heat produced in a
divided by the fuel
cogeneration process and for gross electricity production.
In the case of cogeneration with district heating useful heat
output
to the heat
distribution network decreased by a realistic estimation of
losses in the distribution network.
In the case of other
cogeneration applications useful heat output is measured
at the point of use;

the point of outlet

is measured at

(l) ‘electrical

efficiency’

shall mean

electricity
production measured at the point of outlet of the main
generators divided by the
input used for heat
produced in a cogeneration process and gross electricity
production;

annual

fuel

(m) ‘overall efficiency’ shall mean the annual sum of electricity
production and useful heat output divided by the fuel input
used for heat produced in a cogeneration process and gross
electricity production;

(n) ‘efficiency’ shall mean efficiency calculated on the basis of
Net Calorific Values of fuels (lower calorific value) which
means that the latent heat of vaporisation of moisture is
not included;

(o) ‘high efficiency cogeneration’

shall mean cogeneration

meeting the criteria outlined in Annex III;

(p) ‘efficiency reference value for separate production’ shall
mean efficiency of the alternative separate productions of
heat and electricity that
is
assumed to displace.

the cogeneration process

(q) ‘Power to Heat Ratio’ shall mean the relation of electrical

energy to useful thermal energy;

(r) ‘cogeneration unit’ shall mean a unit mainly intended for
cogeneration processes as defined under point a); when a
cogeneration unit generates only electrical energy or only
thermal energy it is still to be defined as a cogeneration
unit, but its output shall not be considered cogeneration
for the purpose of this Directive.

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(s) ‘cogeneration installation’ shall mean an installation made
up of one or more cogeneration units. A cogeneration
installation may include equipment where it is possible to
generate only electrical energy or only thermal energy. The
shall not be considered
output
cogeneration for the purpose of this Directive;

from such equipment

(t) ‘new cogeneration units’ shall mean cogeneration units
having started operation on, or after, 1 January 2004;

(u) ‘existing cogeneration units’ shall mean cogeneration units

having started operation before 1 January 2004.

Member States may include additional
guarantee of origin.

information on the

Guarantee of origin,

issued according to paragraph 2,
4.
shall be mutually recognised by the Member States, exclusively
as proof of the elements referred in paragraph 3. Any refusal to
recognise a certificate of origin as such proof, in particular for
reasons relating to the prevention of fraud, must be based on
In the
objective, transparent and non-discriminatory criteria.
event of
the
Commission may compel the refusing party to recognise it,
particularly with
and
non-discriminatory criteria on which such recognition is based.

to recognise a certificate of origin,

to objective,

transparent

refusal

regard

In addition,
Directive 2001/77/EC shall apply.

the definitions in Directive 96/92/EC and in

Article 5
Efficiency criteria

Article 4
Guarantee of origin of electricity from cogeneration

1. Member States shall no later than two years after the
entry into force of this Directive ensure that the origin of
electricity produced in cogeneration units can be guaranteed
as such within the meaning of this Directive according to
objective,
transparent and non-discriminatory criteria laid
down by each Member State. Member States shall ensure that
this guarantee of origin of the electricity is issued to this effect
in response to a request.

2. Member States shall designate no later than one year after
the entry into force of this Directive one or more competent
bodies, independent of generation and distribution activities, to
supervise the issue of
the guarantee of origin referred in
paragraph 1 Member States or the competent bodies shall
put
the
in place appropriate mechanisms to ensure that
guarantee of origin are both accurate and reliable and they
shall outline in the report referred to in Article 6(3)
the
measures taken to ensure the reliability of
the certificate
system.

3.

Guarantee of origin shall:

— specify the fuel source from which the electricity was
produced, specify the use of the heat generated together
with the electricity and finally specify the dates and
places of production;

— specify the quantity of electricity from cogeneration that

the guarantee represents;

— specify

the

efficiency

separate
reference
production of electricity and heat, and the efficiency of
cogeneration in accordance with Article 5;

values

for

1. Member States shall no later than two years after the
entry into force of this Directive ensure that the efficiency of
cogeneration production, defined in terms of achievement of
primary energy savings can be determined in accordance with
Annex III.

2.
For the purpose of determining the efficiency of cogen-
eration, Member States shall not later than two years after the
entry into force of this Directive adopt:

(a) efficiency reference values for separate production of heat
and electricity to be used for the calculation of primary
energy savings from cogeneration in accordance with the
methodology set out in Annex III.

(b) principles for defining the national efficiency reference
values for separate production of heat and electricity
based on a well-documented analysis of the most realistic
references in each Member State.

shall

review the national

3. Member States
efficiency
reference values for separate production of heat and electricity
every 5 years to take account of technological developments
and changes in the distribution on energy sources. Where
changes
for
separate production are made, the new reference values shall
be published and shall be notified to the Commission.

efficiency reference values

in the national

efficiency of

cogeneration adopted by

The Commission shall evaluate the criteria for deter-
4.
the
mining the
to (paragraph 2). After having
Member States pursuant
consulted the Member States, the Commission shall
in the
report referred to in Article 10(1), consider the scope for a
harmonised methodology that Member States could follow in
order to determine the efficiency of cogeneration production.

— enable producers of

electricity from cogeneration to
demonstrate that the electricity they sell is produced from
cogeneration within the meaning of this Directive.

Article 6
National potentials for high-efficiency cogeneration

1. Member States shall establish an analysis of the national
potential for high-efficiency cogeneration.

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The analysis shall comply with the criteria listed in Annex
2.
IV. It shall be based on well-documented scientific data and
shall distinguish between applications of cogeneration in at
least the following categories:

in promoting the use of high-efficiency cogeneration in
conformity with the national potentials referred to in Article
6. The report shall further review to what extent the support
schemes have contributed to the creation of stable conditions
for investments in cogeneration.

— industrial cogeneration

— heating cogeneration

— agricultural cogeneration.

for

potential

3. Member States shall
include in the analysis a separate
analysis of barriers, which may prevent the realisation of the
In
national
particular, this analysis shall consider barriers relating to the
prices of and access to fuels, barriers in relation to grid system
issues, barriers in relation to administrative procedures, and
barriers relating to the lack of internalisation of the external
costs in energy prices.

high-efficiency

cogeneration.

4. Member States shall for the first time not later than two
years after the entry into force of this Directive and thereafter
every three years evaluate progress towards increasing the
share of high-efficiency cogeneration. Member States shall
also evaluate measures taken to promote high-efficiency cogen-
eration and indicate to what extent the measures are consistent
with national climate change commitments.

On the basis of the reports referred to in paragraphs 1, 3
5.
and 4,
the Commission shall assess how much progress
Member States have made towards realising their national
potentials for high-efficiency cogeneration.

The Commission shall publish its conclusions in the report
for the first time not later than
referred to in Article 10,
this Directive and
four years after the entry into force of
thereafter every three years.

Article 7
Support schemes

1. Member States shall ensure that support for cogeneration
production is based on the useful heat demand, in the light of
opportunities available for reducing energy demand through
other economically feasible measures like energy efficiency
measures.

2. Without prejudice to Articles 87 and 88 of the Treaty,
the Commission shall evaluate the application of support
mechanisms used in Member States according to which a
producer of cogeneration receives, on the basis of regulations
issued by public authorities, direct or indirect support, which
could have the effect of restricting trade.

The Commission shall consider whether those mechanisms
contribute to the pursuit of the objectives set out in Articles
6 and 174(1) of the Treaty.

3.
The Commission shall in the report referred to in Article
10 present a well-documented analysis on experience gained
with the application and coexistence of the different support
mechanisms referred to in paragraph 2. The report shall assess
the success, including cost-effectiveness, of the support systems

Article 8
Electricity grid system issues

1. Without prejudice to the maintenance of the reliability
and safety of the grid, Member States shall take the necessary
measures to ensure that transmission system operators and
distribution system operators in their territory guarantee the
transmission and distribution of electricity produced from
cogeneration.

shall establish a legal

2. Member States
framework or
require transmission system operators and distribution system
operators to set up and publish standard rules on the bearing
of the costs of technical adaptations, such as grid connections
and grid reinforcements, which are necessary in order to
integrate new producers
feeding into the grid electricity
produced from cogeneration.

system operators

framework or require
Member States shall establish a legal
transmission
system
and
operators to set up and publish standard rules relating to the
sharing of
such as grid
connections and reinforcements, between all system users
benefiting from them.

system installations,

distribution

costs of

The sharing shall be enforced by a mechanism based on
transparent and non-discriminatory criteria taking
objective,
into account
the benefits which initially and subsequently
connected producers as well as transmission system operators
and distribution system operators derive from the connections.

shall be based on objective,

The rules
transparent and
non-discriminatory criteria taking particular account of all the
the
costs and benefits associated with the connection of
producers to the grid. The rules may provide for different
types of connection.

States may

system
3. Member
operators and distribution system operators to bear, in full or
in part, the costs referred to in paragraph 2.

transmission

require

Transmission system operators and distribution system
4.
operators shall be required to provide any new producer
wishing to be connected with a comprehensive and detailed
estimate of the costs associated with the connection.

5. Member States shall ensure that the charging of trans-
mission and distribution fees does not discriminate against
electricity from cogeneration. Where appropriate, Member
States shall put in place a legal framework or require trans-
mission system operators and distribution system operators to
ensure that fees charged for the transmission and distribution
of electricity from installations using cogeneration reflect real-
isable cost benefits resulting from the installation's connection
to the network. Such cost benefits may arise from the direct
use of the low-voltage grid.

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Unless the cogeneration producer is an eligible customer
6.
under national legislation within the meaning of Article 17(2)
of Directive 96/92/EC, Member States shall take the necessary
measures to ensure that the tariffs for the purchase of elec-
tricity to back-up or top-up electricity generation are set on the
basis of published tariffs and terms and conditions. Such tariffs
and terms and conditions shall be fixed or approved in
accordance with objective, transparent and non-discriminatory
criteria by an independent regulatory authority prior to their
entry into force.

7. Member States shall designate one or more competent
bodies, which may be an independent regulatory authority,
to monitor and benchmark the tariffs and terms and conditions
offered to cogeneration producers when back-up or top-up
electricity is purchased or when excess electricity is sold. The
body shall publish for the first time three years after the entry
into force of this Directive and thereafter every third year a
report outlining the findings of these assessments. The report
shall be forwarded to the Commission.

8. Member States shall particularly facilitate access to the
grid system of electricity produced from cogeneration units
using renewables energy sources and installations with a
capacity less than 1 MWe, as set out in Annex IIIa).

Article 9
Administrative procedures

1. Member States or the competent bodies appointed by the
Member States shall evaluate the existing legislative and regu-
latory framework with regard to authorisation procedures or
the other procedures laid down in Article 4 of Directive
96/92/EC, which are applicable to cogeneration installations,
with a view to:

(a) encouraging the design of cogeneration installations to
match economically justified demands for heat output
and avoiding production of more heat than useful heat.

(b) reducing the regulatory and non-regulatory barriers to an

increase in cogeneration;

(b) the drawing up of possible guidelines for the activities
referred to in paragraph 1, and the feasibility of a fast-track
planning procedure for cogeneration producers; and

(c)

the designation of authorities
to act as mediators in
disputes between authorities responsible for issuing author-
isations and applicants for authorisations.

3.
The Commission shall, in the report referred to in Article
11 and on the basis of the Member States' reports referred to
in Article 10(1), assess best practices with a view to achieving
the objectives referred to in paragraph 1.

Article 10
Member States' reporting

1. Member States shall, not later than two years after the
entry into force of this Directive, publish a report with the
following content:

(a) efficiency reference values for separate production of heat

and electricity referred to in Article 5(2);

(b) principles for defining the national efficiency reference
values for separate production of heat and electricity
referred to in Article 5(2);

(c) analysis of national potential

for high efficiency cogen-

eration referred to in Article 6(1);

(d) analysis of barriers, which may prevent the realisation of
for high efficiency cogeneration

the national potential
referred to in Article 6(3);

(e) examination of the measures taken to facilitate access to
the grid system of electricity produced from cogeneration
and,
introducing two-way
metering for cogeneration units installed in residential
buildings;

the feasibility of

inter alia,

(c) streamlining and expediting procedures at the appropriate

administrative level; and

(f) evaluation of

the

existing legislative

and regulatory

framework referred to in Article 9(1) and 9(2).

(d) ensuring that

transparent and
the rules are objective,
non-discriminatory, and take fully into account the particu-
larities of the various cogeneration technologies.

2. Member States shall not later than two years after the
entry into force of this Directive and hereafter every three
years publish a report on progress towards increasing the
share of high efficiency cogeneration referred to in Article 6(4);

2. Member States shall — where this is appropriate in the
context of national legislation — provide an indication of the
stage reached specifically in:

3. Member States shall submit to the Commission on an
annual basis
and heat
in accordance with the
production from cogeneration,
methodology shown in Annex II.

statistics on national

electricity

(a) coordination between the different administrative bodies as
regards deadlines, reception and treatment of applications
for authorisations;

They shall also submit annual
capacities and fuels used for cogeneration.

statistics on cogeneration

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Article 11
Commission reporting

this Directive and submit

On the basis of the reports submitted pursuant to Article 8(7)
and Article 10(1) and (3), the Commission shall review the
application of
to the European
Parliament and to the Council not later than four years after
the entry into force of this Directive and thereafter every six
years, a progress
this
Directive.

report on the implementation of

In particular, the report shall:

(a) consider the scope for further harmonisation of the criteria

to determine the efficiency of cogeneration.

(b) consider progress towards realising national potentials for

high-efficiency cogeneration referred to in Article 6.

(c) assess the extent to which rules and procedures defining
the framework conditions for cogeneration in the internal
energy market are set on the basis of objective, transparent
and non-discriminatory criteria taking due account of the
benefits of cogeneration.

(d) examine the experiences gained with the application and
coexistence of different support mechanisms for cogen-
eration.

(e) review reference values for separate production on the basis

of the current technologies

If appropriate, the Commission shall submit with the report
further proposals to the European Parliament and the Council.

Article 12
Transposition

Member States shall bring into force the laws, regulations and
administrative provisions necessary to comply with this
Directive not later than two years after the entry into force
of this Directive. They shall forthwith inform the Commission
thereof.

When Member States adopt these measures, they shall contain
a reference to this Directive or shall be accompanied by such a
reference on the occasion of their official publication. The
lay down the methods of making such
Member States shall
reference.

Article 13
Entry into force

This Directive shall enter into force on the twentieth day
following that of its publication in the Official Journal of the
European Communities.

Article 14
Addressees

This Directive is addressed to the Member States.

COGENERATION TECHNOLOGIES COVERED BY THE DIRECTIVE

ANNEX I

(a) Combined cycle gas turbine with heat recovery

(b) Steam backpressure turbine

(c) Steam extraction condensing turbine

(d) Gas turbine with heat recovery

(e) Internal combustion engine

(f) Microturbines

(g) Stirling engines

(h) Fuel cells

(i) Steam engines

(j) Organic Rankine cycles

(k) Any other type of technology or combination thereof falling under the definitions laid down in Article 3.

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Official Journal of the European Communities

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ANNEX II

DEFINITION OF ELECTRICITY FROM COGENERATION

Values used for calculation of electricity from cogeneration shall be determined on the basis of the expected or actual
operation of the unit under realistic conditions.

(a) Electricity production from cogeneration shall be considered equal to total annual electricity production of the unit.

— in cogeneration units of type (b), (d), (e), (f), (g) and (h) referred to in Annex I, with an annual overall efficiency

higher or equal to 75 %, and

— in cogeneration units of type (a) and (c) referred to in Annex I with an annual overall efficiency higher or equal

to 85 %.

(b) Calculations shall be made in order to separate electricity from cogeneration and electricity not produced in a
cogeneration process. In cogeneration units with an annual overall efficiency below 75 % (cogeneration units of type
(b), (d), (e), (f), (g) and (h) referred to in Annex I) or with an annual overall efficiency below 85 % (cogeneration units
of type (a) and (c) referred to in Annex I) The following formula shall be used:

ECHP ¼ Qnet (cid:2) C

where

ECHP

C

Qnet

is the amount of electricity from cogeneration

is the power to heat ratio

is the net heat production from a cogeneration process (defined as total heat production minus any heat
produced in separate boilers).

If the actual power to heat ratio of a cogeneration unit is not known, the following default values may be used for
units of type (a), (b), (c), (d) and (e) referred to in Annex I provided that the calculated cogeneration electricity is less
or equal to total electricity production of the unit:

Type of the unit

Default power to heat capacity ratio, C

District heating

Industrial

Combined cycle gas turbine with heat recovery

Steam backpressure turbine

Steam condensing extraction turbine

Gas turbine with heat recovery

Internal combustion engine

0,95

0,45

0,45

0,55

0,75

0,75

0,30

0,30

0,40

0,60

Subject to prior notification to the Commission, Member States may use other default values for power to heat ratios
than the ones provided in this Annex. Such alternative default values shall be published by Member States.

If Member States introduce default values for power to heat ratios for units of type (f), (g), (h), (i), (j) and k) referred
to in Annex I, such default values shall be published and shall be notified to the Commission.

(c) Subject to prior approval by the Commission, Member States may use other methods than the one provided for in
paragraph (b) of this annex to subtract possible electricity production not produced in a cogeneration process from
the reported figures.

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Official Journal of the European Communities

C 291 E/207

ANNEX III

METHODOLOGY FOR DETERMINING THE EFFICIENCY OF COGENERATION PRODUCTION

Values used for calculation of efficiency of cogeneration production and primary energy savings shall be determined on
the basis of the expected or actual operation of the unit under realistic conditions.

(a) High-efficiency cogeneration

For the purpose of this Directive high-efficiency cogeneration production shall fulfil the following criteria:

— production from new cogeneration units shall provide primary energy savings of at least 10 % compared with the

references for separate production of heat and power;

— production from existing cogeneration units shall provide primary energy savings of at least 5 % compared with the

references for separate production of heat and power;

— production from cogeneration units using renewable energy sources and from cogeneration installations with an
installed capacity below 1 MWe providing primary energy savings in the range 0-5 % may qualify as high-efficiency
cogeneration;

— Member States may introduce principles whereby production from cogeneration units below the thresholds referred
to in this Annex may be considered to be partially fulfilling the efficiency criteria. If such principles are applied,
appropriate methodologies for determining the reduced efficiency of such production, calculated in proportion to
the reduced primary energy savings, shall be developed by the Member State and shall be notified to the
Commission. In such cases, the reduced efficiency of the cogeneration production shall be clearly displayed on
the certificate of origin.

(b) Calculation of primary energy savings

The amount of primary energy savings provided by cogeneration production defined in accordance with Annex II to this
Directive shall be calculated on the basis of the following formula:

1
Ref H(cid:1) þ CHP E(cid:1)

Ref E(cid:1)

CHP H(cid:1)

!

(cid:5) 100 %

PES ¼

1 (cid:3)

Where:

PES

= is primary energy savings

CHP Hη = is the heat efficiency of the cogeneration production

Ref Hη = is the heat efficiency of the reference for separate heat production

CHP Eη = is the electrical efficiency of the cogeneration production

Ref Eη

= is the electrical efficiency of the reference for separate electricity production

Subject to prior notification to the Commission, Member States may use other formula leading to the same results to
calculate the primary energy savings from cogeneration. In the cases where alternative formulas are used, such formula
shall be published by the Member State.

(c) Efficiency reference values for separate production of heat and electricity

The principles for defining the references for separate production of heat and electricity referred to in Article 5(2) and in
the formula set out in paragraph (b) of this Annex shall establish the operating efficiency of the separate heat and
electricity production that cogeneration is assumed to displace.

To define the efficiency reference values, the following principles shall be applied:

1. For new cogeneration units as defined in Article 3, the comparison with new separate electricity production shall be
based on the principle that similar fuel categories are compared. The following indicative efficiency reference values
for new separate electricity production may be used:

 
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Indicative efficiency reference values for new separate electricity production

Fuel category

Operating efficiency

Natural gas

Coal

Oil

Renewables and waste

55 %

42 %

42 %

22-35 %

In the case of cogeneration units connected at the electricity distribution system, the reference values provided in the
above table may be lowered with 5-10 % to take account of avoided network losses.

2. For new cogeneration units as defined in Article 3, the indicative efficiency reference value of new separate heat

production shall be an operating efficiency of 90 %.

In the case of heat production based on oil or coal, the efficiency reference value may be lowered to 85 %. In the
case of heat production based on renewable energy sources or waste, the efficiency reference value may be lowered
to 80 %. In the case of high temperature steam used for industrial processes, the reference values for separate heat
production may be lowered to 80 %.

3. For existing cogeneration units as defined in Article 3,

the efficiency reference value for separate electricity
production shall be based on the average operating efficiency of the national fossil-fuelled electricity production.
Where appropriate, possible cross-border trade in electricity having an impact on the reference values may be taken
into account.

4. For existing cogeneration units as defined in Article 3 the efficiency reference value for separate heat production shall

be based on the average operating efficiency of the national heat production mix.

5. Subject to prior notification to the Commission, Member States may include additional aspects in the national criteria

for determining the efficiency of cogeneration.

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Official Journal of the European Communities

C 291 E/209

ANNEX IV

CRITERIA FOR ANALYSIS OF NATIONAL POTENTIALS FOR HIGH-EFFICIENCY COGENERATION

(a) The analysis of the national potential for high-efficiency cogeneration shall identify suitable heating and/or cooling
demands and shall distinguish between application of cogeneration in at least the following main categories:

— Industrial cogeneration

— Heating cogeneration

— Agricultural cogeneration

(b) For each of the three categories referred to under (a), the analysis shall consider:

— The type of

fuels that are likely to be used to realise the cogeneration potentials,

including specific
for increasing the use of renewable energy sources in the national heat

considerations on the potential
markets via cogeneration.

— The type of cogeneration technologies as listed in Annex I that are likely to be used to realise the national

potential.

— The type of separate production of heat and electricity that high-efficiency cogeneration is likely to substitute.

— A division of the potential into modernisation of existing capacity and construction of new capacity.

(c) The analysis shall include appropriate mechanisms to assess the cost effectiveness — in terms of primary energy
savings — of increasing the share of high-efficiency cogeneration in the national energy mix. The analysis of cost
effectiveness shall also take into account national commitments accepted in the context of the climate change
commitments accepted by the Community pursuant to the Kyoto Protocol to the United Nations Framework
Convention on Climate Change.

(d) The analysis of the national cogeneration potential shall specify the potentials in relation to the timeframes 2010,

2015 and 2020 and include appropriate cost estimates for each of the timeframes.