National Allocation Plans and Cogeneration Dr Simon Minett, Managing Director, COGEN Europe...

National Allocation Plans and Cogeneration

Dr Simon Minett, Managing Director, COGEN Europe

Emissions Trading and Cogeneration, Milanoenergia 2005, 5 October 2005

CogenerationClean, Clever, Competitive

• About COGEN Europe• Principles of the emissions trading scheme• NAP 1 (2005 – 2007)• NAP 2 (2008 – 2012)• NAP 3 (2012 – 2016)• The treatment of cogeneration in NAPs• CHP Directive• Final remarks

COGEN Europe

European Trade Association for the Promotion of Cogeneration

• Representing the cogeneration sector• Setting the agenda• Resource and information source for policy

makers

Vision• COGEN Europe working towards the wider use

of cogeneration in Europe for a sustainable energy future

Structure• National Members

– National Promotional Organisations - 21• Company Members - 120

– Gas and Electricity Utilities– Equipment Manufacturers and Suppliers– Consultancies– Banks, Insurance and End Users

About COGEN Europe

• Secretariat with seven staff members based in Brussels

• One focus on studies and information campaigns• Advocates the interests of the CHP sector• Working group on emissions trading looks at

NAPs and cogeneration• Key to cogeneration’s success is the CHP

Directive (will set the references and thus the allocation too)

Four Important Directives

2002 2003 2004 2005 2006 2007 2008

Preparation Transposition In force in MS

CogenerationDirective

Energy Services Directive

Energy performanceof buildings Directive

Emissions Trading Directive

SOLUTIONS

• Cogeneration is the most efficient energy conversion technique

• Saves around 280 million tonnes CO2 EU25

• Reduces energy dependence by 1500 PJ/a

• Modernising existing stock and achieving modest growth will yield the same again

Source: OECD 1999

Conversion losses from

thermal production: 4712.1

Transport losses and energy sector consumption: 368.5

Own use Power plant: 156.7

Coal: 2597.3

Oil: 523.5

Gas: 1104.0

Nuclear: 2833.4

Hydro: 513.8

Net imports: 23.6

Renewable fuels & waste: 199.5

Gross ElectricityProduction:

3119.7

Total primaryenergy input for

electricityproduction:

7831.8

Net ElectricityProduction: 2963

Electricity deliveredto customers:

2601.1

Industry: 1086.5

Residential: 756.1

Commerce, Public Services: 613.6

Other: 145.4

33% total efficiency of the electricity supply system

Electricity Generation in European OECD countries(in TWh)

Not acceptable!

Principles of the ETS

• Covering 12,000 installations, the European emissions trading scheme (ETS) is the largest of its kind in the world

• The ETS gives emissions reductions a value and extra emissions a cost

• The ETS is the main European policy instrument for fulfilling its Kyoto obligations

• The ETS is designed to promote low-carbon technologies such as cogeneration (IN PRINCIPLE!)

NAP 1 (2005 – 2007)

• The first trading period is in effect since 1 January 2005

• All 25 national allocation plans (NAP) are accepted by the European Commission

• No harmonisation across EU25• Due to the Commission scrutiny the amount of

total emissions allowances has been cut by 290 million

• For the NAP 1 period, there are 2.2 billion allowances issued per year

NAP 1 (2005 – 2007)

DISTRIBUTION OF ALLOWANCES ACROSS EU-25

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

GE UK PO IT ES FR CZ NL GR BE FI PT DK AT HU SK SW IE EE LI SI CY LT LX MA

Number of Installations Millions of Allowances

The “Electricity Price Effect”

Effect of CO2 cost on marginal electricity production cost Based on efficiency ratings of 36% and 50% net HHV efficiency respectively. Source: ICF Consulting

cogen

Carbon Price Effect

€ 0,00

€ 10,00

€ 20,00

€ 30,00

€ 40,00

€ 50,00

€ 60,00

€ 70,00

€ 80,00

06/0

4/20

04

06/0

5/20

04

06/0

6/20

04

06/0

7/20

04

06/0

8/20

04

06/0

9/20

04

06/1

0/20

04

06/1

1/20

04

06/1

2/20

04

06/0

1/20

05

06/0

2/20

05

06/0

3/20

05

06/0

4/20

05

06/0

5/20

05

06/0

6/20

05

06/0

7/20

05

06/0

8/20

05

06/0

9/20

05

06/1

0/20

05

06/1

1/20

05

06/1

2/20

05

Carbon Price Conti PI UKPX

NAP 1 (2005 – 2007)

ELECTRICITY PRICE AND THE MERIT ORDER PRINCIPLE

NAP 2 (2008 – 2012)

• Time frame synchronised with the first Kyoto commitment period

• European legal basis for NAP 2 equal to NAP 1, as quick amendment of the ETS Directive impossible

• Individual Member States are free to change national allocation methods

• European Commission discusses inclusion of aviation sector in the middle of NAP 2

NAP 2 (2008 – 2012)

• Accession of Bulgaria and Romania• Bilateral discussions with Canada, Norway and

others

TIMING

ENLARGEMENT

• By 01/07/06: Decision on total number of allowances by each Member State

• By 01/10/06: European Commission approves/rejects these numbers

• By 01/01/07: Members States publish allocation to individual installations

NAP 3 (2012 – 2016)

• To run from January 2012 to December 2016• European Commission will “if appropriate”

propose changes to the European legislation in summer 2006

• Currently, the Commission carries out a review on the ETS

• Emphasis on:– Stable baseline years– Longer allocation periods– Deriving future allocation from past allocation– Expansion to further sectors and gases

NAP 3 (2012 – 2016)

FOCUS OF COGEN Europe

• Level of harmonisation of allocation methods

• Level of harmonisation of CHP treatment

• Role and design of auctioning

• Favourable treatment for “new entrants”

• Definition of combustion installations

• Role of flexible mechanisms (JI/CDM)

• Role of other sectors and gases

The treatment of cogeneration in NAPS

• COGEN Europe is the only organisation carrying out a European-wide best practice review

• Working Group on emission trading deals with this matter

• Today (5 October 2005), meeting with the European Commission

• Final results expected by the end of 2005• Focus on ten biggest EU countries, which

represent more then 80% of allocated allowance


• Art. 11(2) or the Austrian emissions trading law foresees:

“The allocation takes the climate-friendly effects of efficient cogeneration and efficient district heating into account, as well as the promotion of these technologies as foreseen in the framework of climate change policies”

• The so-called “CHP premium” halves the sector-specific CO2 reduction requirements for cogeneration plants

THE EXAMPLE OF AUSTRIA (1. part)


Allocation basis x specific factor without CHP premium = number of allowances

THE EXAMPLE OF AUSTRIA (2. part)

10,000 t CO2 x 0.94* = 9,400 allowances

Allocation basis x specific factor with CHP premium = number of allowances

10,000 t CO2 x 0.97* = 9,700 allowances

* equals 6% reduction obligation for the sector

Cogeneration Directive

Background• Adopted in February 2004• Implementation deadline February 2006• Article 1: “Creating a framework for promotion and

development of high efficiency cogeneration”• Member States must report by February 2007 their

progress towards increasing the share of high efficiency cogeneration

• European Commission can by February 2008 propose new measures, “if appropriate”

• Informal EU target of 18% of electricity from cogeneration by 2010 (currently 11%)

Cogeneration Directive

Definition of high efficiency cogeneration• All CHP plants up to 1MWe, which provide any primary

energy savings (PES)• Larger plants, which provide PES of at least 10%• PES is normally calculated for each individual CHP

plant with following formula

• Other PES calculation formula possible

Primary energy savings

73 32

Ref.BoilerY%

Ref. Elect.X%cogen

installation100

48

32 =

Z

48 =

Savings > 10%

Comparison of energy consumption for cogeneration and for separate production of electricity and heat

Primary energy savings

73 32

Ref.Boiler85%

Ref. Elect.51%cogen

installation100

48

32 =

125

48 =

Savings = 125-100 = 25 = 20%

Comparison of energy consumption for cogeneration and for separate production of electricity and heat

32 = 35 – 3 (including grid losses)

CHP Directive Conclusions

• Next months are very important• References are too strict = No new CHP and

at least 50% reduction of existing CHP• Get references right = stimulation of CHP,

quality assurance and new state aid possible• COGEN Europe needs your help!

Final remarks

• The Working Group on emissions trading is open to all COGEN Europe members

• Permanent representation of an Italian member not secured yet

• Italy ranks second (number of installations) respectively fourth (number of allowances) in the ETS

• If you want to present your concerns to the Commission, please contact the Working Group co-ordinator:[email protected]

Thank you for your attention!

www.cogen.org

National Allocation Plans and Cogeneration Dr Simon Minett, Managing Director, COGEN Europe...

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