Flourishing of German CHP on hold until Brussels approval

Date: 15/08/2016

The German government has put energy efficiency and by extension combined heat and power and district energy technologies at the top of its agenda, but a decision at EU level needs to be passed before that favourable policy becomes truly visible.

Decentralized Energy spoke this week with Andreas Gortz, Director Power Generation Sales at Rolls-Royce Power Systems about the state of the industry in Germany and the wider European context.

Germany is one of the more progressive European nations, when it comes to new energy and efficient use of energy. A recent revision of the country’s EEG or Energiewende law has energised investment towards combined heat and power in the country (with provisions for subsidisation of CHP), but momentum has been temporarily interrupted at a higher level.

“Due to this law which has been in discussion since the middle of last year we have seen a huge investment already in Germany,” says Gortz. “Up to now we are seeing a lot of orders for CHP applications mainly from industrial investors due to a change in law. It is an Interesting incentive for modernisation but this law is awaiting EU approval. A lot of investments were made on assumption that this law would come into effect in the end of the summer but now we are awaiting for the EU to make that commitment.”

“We have a strong order book with very good business for CHP over the last 12 months, with even biogas projects coming to the fore.”

The change in the law particularly related to CHP now sees support shifting away from industrial to municipal investors.

“The reason for this is that with the old law industrial investors were not obliged to pay the so called green energy fee because they were just using electricity for their own factory and for their own needs. The new law means they are forced to do so and businesses cases are becoming a bit more difficult but for municipal investors the new law is very favourable for modernisation of old CHP plants and development of new CHP plants.”

“The Bundestag and Bundesrat have approved it but we must await Brussels. It was thought that the decision would take place in July, but we will now have to wait until maybe September.”

One such project is the hugely efficient, 200 MW Kiel combined heat and power plant in northern Germany. They have had to extend their date to initiate stage two of the project, involving roll out of investment to suppliers, until the EU gets around to considering a decision on the new law.

Despite what may prove to be a minor delay, Germany is still an easier place for the CHP industry’s practitioners that other European nations. Take the UK, for example, a market very important for Rolls-Royce, according to Gortz.

“When you look to the UK it’s a completely different story. CHP is not at all supported in the UK at the moment, but they are heavily investing in the capacity market which does not exist in Germany.”

“It’s a contradiction – when you think of all these millions of British pounds installed to invest in a power station, the investors are making money and have a business case without selling even 1KW of energy. Just by having a standby fee, by just winning an auction installing capacity they are making money without selling energy and it doesn’t support any investment in energy efficiency.”

While Europe is under pressure to make more headway in hitting energy efficiency targets, the state of CHP in individual countries indicates how much more needs to be done.

80 per cent of Denmark’s energy is supplied by CHP. The penetration is also high across the Benelux – but in Spain and Italy the sector has suffered due to recession’s acute effect. Gortz says those countries potentially have good programmes but the money hasn’t been there to further subsidise CHP and energy efficiency.

Even in Germany recognition by the government doesn’t give the technology favoured status over the claims of solar and wind, while even the coal sector lobbies for some of the investment earmarked in the sector.

“There is a clear willingness by the government to increase the proportion of energy in Germany produced by CHP, but we are not the only voice,” Gortz says.

Despite all that, in terms of EU pronouncements, efficiency targets and investment announcements, all of the indications are that the sector is on the cusp of serious growth.

“Italy, Spain, Portugal and France, countries with big populations have seen no CHP investment over the last five years. There is a huge backlog in investment, or investment jam.”

“I am strongly convinced that these states have to do something over the next year. You see signals with (evidence of) the Italian market reviving. That’s not the case yet in Spain and France but with France decreasing its proportion of nuclear energy in the next months they need to come up with a new CHP subsidy scheme.”

In terms of market drivers, Gortz says CHP and trigeneration have ‘a real validity for the future of the energy market in Europe’, particularly smaller decentralized units with above 90 per cent total efficiency set for industrial plants and municipal communities.

A second major trend or driver could prove a fascinating one. Local media in Germany last week saw leaked documentation indicating the government would phase out coal earlier than originally intended, using the new supply of gas from Nord Stream 2 as a means of resurrecting recently mothballed gas plants. It may mean easier integration of more offshore wind power in the German system, and Gortz says CHP has a potential role to play in balancing the system, whether or not it unfolds that way.

“With regard to a combination of green energy volatility and stabilisation of the grid we see a demand for fast start up for gas and units which are stronger at coping with grid flexibility. This goes in the direction of the N3 directive from the EU and Germany’s local energy law with regard to low voltage right through to frequency stabilisation.”

“The units can be used for positive and negative regulation of the grid, a very suitable decentralised solution.”