Today, 11% of Europe’s electricity is supplied through cogeneration plants. There are several industrial sectors where cogeneration is an integral part of the modern process: chemicals, paper making and oil refining are three of the most visible. These industrial processes demand a high heat load, and electricity can be generated as a by-product either for use on-site or for export to the grid. In northern Europe, the significant domestic heat loads of modern cities have encouraged district heating schemes, which typically now are also cogeneration applications. However, the vast majority of cogeneration plants are small, with generating capacity under 10 MW. Schools, hospitals, universities, farms, commercial buildings and sports complexes are all potential applications for cogeneration.
Yet, the use of cogeneration as an efficiency measure for the joint production of heat and power is still not a widely discussed option in the energy policy of European Union member states. Decision makers may have little information about cogeneration, and the public at large (outside a few specific member states) is not really aware of the technology. Cogeneration gets very few column inches in the reports on energy news and climate change and is hardly mentioned in member state energy debates.
European energy policy
The European Union has three pillars to its energy policy: Security of supply, climate change abatement and economic sustainability. In 2004, it adopted a Cogeneration Directive, which recognized that the potential positive impact of cogeneration on security of supply and energy efficiency was such that the EU would seek to promote the widest possible adoption of cogeneration. Despite good beginnings the legislation has made only slow progress into active member state policy, and it is only now in 2009 that the EU can really claim to have completed the legislative process and to be starting fully on implementation of the Directive.
Full and robust implementation of the Directive will bring large energy efficiency benefits to the European Union. However, member state governments must show leadership, if this advantage is to be achieved.
Cogeneration today needs a supportive policy environment, if the sector is to expand. While the logic of using energy as efficiently as possible is clear, the economics of today’s energy sector do not provide adequate returns to ensure cogeneration investors a financial return for their efficiency. While in a fully functioning, perfect, free marketplace efficient cogeneration would be competitive, today’s energy sector is far from perfect.
The lack of internalization of the externalities of energy costs distorts the sector for cogeneration as do incomplete liberalization and the several subsidies (direct or indirect) on energy, which still exist in member states. All these things mean that the return on what is a wise investment for society is lower than many investors will accept and carries a sobering level of risk.
With cogeneration there is clear and immediate benefit to society as a whole from using fuel more efficiently. But a new cogeneration operator has to take on additional risks over and above his core business requirement for energy use. In this environment the role of policy is crucial. It signals to investors that there is structure to the risk they are undertaking and that they will be compensated for taking that risk on behalf of society.
The advantages and potential of Cogeneration
Europe has a lot to gain from the wider use of cogeneration. Through its high energy efficiency, the technology cuts down total fuel demand compared to the separate production of electricity and heat. Through the reduction in primary energy use, and the higher efficiency, cogeneration reduces CO2-emissions, and as a mature available technology today it is one of the most immediate solutions, which we have available right now.
Additionally, by its distributed nature, it reduces electrical grid losses and creates local employment. A cogeneration plant is comparable in size to the boiler technology it replaces. It can cohabit well with domestic or commercial organizations, and its effect is fuel independent.
The member states of the European Union are currently assessing just how big the potential for cogeneration is. As part of their responsibilities under the Cogeneration Directive, member states will submit their own estimates of the cogeneration potential in their country.
Early results are interesting. Every member state that has reported shows potential growth. Several, including Germany, targeted or have shown that a doubling of the current capacity is possible, bringing cogeneration in Europe to 22% of electricity supply. However, there is reason to believe that more still could be achieved. The potentials study in Germany showed that there is economic potential for cogeneration to supply over 50% of Germany’s electricity. If there was the political will to do this, there is no technical impediment. The Netherlands, Finland and Denmark already generate over 40% of their electricity from cogeneration.
“Cogeneration technology helps to realize the European Union’s energy targets: security of supply, climate change abatement and economic sustainability.”
Investments Pay Off
The benefits to European citizens of full expansion of cogeneration are a low risk path to short and medium term benefits in security of supply, climate change reduction, employment and their economies. Investment in cogeneration makes good social and economic sense.
COGEN Europe represents both manufacturers of cogeneration equipment and users of that equipment and most of the supply and contract chain in between. Based in Brussels, the association was founded in 1999 and was involved in shaping the Cogeneration Directive (2004/08/EC), which provides the main policy framework for cogeneration in EU law.