Cogeneration in the EU Emissions Trading Scheme

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Cogeneration in the EU Emissions Trading Scheme

• Dr Simon MINETT,
• Director,
• COGEN Europe

CHPA National Conference 2003 13 November 2003
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The Costs of Climate Change
Global costs of natural catastrophes, most of
which were wheather-related, between January and
September 2002 56 billion
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Cogeneration Role

• Kyoto single biggest challenge
• Brings Quality criteria to the energy sector
• In a Kyoto context 40-50 efficiency of energy
  conversion is unacceptable

4
What a Waste of Energy!
Electricity Production in European OECD Countries
(in TWh)
33 total efficiency of the electricity supply
system
Source OECD 1999
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.... in the UK ....
Power generation
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Cogeneration Role

• Kyoto single biggest challenge
• Brings Quality criteria to the energy sector
• In a Kyoto context 40-50 efficiency of energy
  conversion is unacceptable
• Cogeneration
• Maximised to meet the needs of the energy user
• Overall efficiency of fuel conversion of 80 and
  more
• Nearest competitor is 15 point less efficient!
• Saves around 200 million tonnes CO2
• Reduces energy dependence by 1200 PJ/a
• 18 target for cogeneration will deliver another
  180 million tonnes and 1000 PJ/a energy savings

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CHP as a share of national power production -
1999 2010
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Meeting Kyoto in Europe

• Target of around 700 million tonnes of CO2
• How can it be done?
• Still a very tough challenge
• A lot of the easy cuts have gone
• Some countries are a long way ahead of their
  targets and will find meeting them impossible
• Needs co-ordination and co-operation little
  evidence
• Simple measures are blocked by Member States

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State of the European Market

• The prices for electricity are below sustainable
  levels
• The gas market remains unliberalised with gas
  pricing dominated by oil price
• It is almost impossible to build any new
  generating capacity
• Capacity gaps will emerge from 2005 onwards
• Kyoto and IPPC and Emission Trading will cause a
  radical change to investment decisions

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A holistic model is required
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Emissions Trading
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COGEN Europe Activities on Emissions Trading
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Greenhouse Gas Emissions inEU Countries
Source European Commission (2003) EEA (2003)
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Timetable of the Emissions Trading Scheme

• Transposition of the Directive into national
  legislation by end 2003
• Member States to prepare National Allocation
  Plans by 31 March 2004
• Commission to approve these plans within 3 months
  (30 June 2004, Annex III State Aid criteria)
• Decision of Member States on the quantity of
  allowances and their distribution within 3 months
  (30 September 2004)
• Start of first phase of the scheme (2005-2007) in
  January 2005

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Evolution of the regulatory programme
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Evolution of Emissions
Source European Commission (2003) EEA (2003)
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Approximate Percentage of National Emissions
included in the ET Scheme
Source Point Carbon (2003) Carbon Market Europe,
June 13
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The largest European Players
Annual GHG Emissions Energy Industries versus
Countries
Source Point Carbon (2003) Carbon Market Europe,
March 7
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Installations included in Emissions Trading
?
Various sources
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Future net sellers of allowances
Source Carbon Market Europe
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CHP installations potentially included in
Emissions Trading

• mineral oil refineries of a certain capacity
• cement clinkers, glass, glass fibre, ceramics,
  pulp, paper and board industries of a certain
  capacity
• Any CHP installation on a site with combustion
  installations with a total rated thermal input of
  more than 20 MW(e.g. 1 x 25MW or 3 x 8MW)

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Provisions important for CHP

• Impact on CHP - Preamble (19a)"This Directive
  will encourage the use of more energy efficient
  technologies, including CHP technology, producing
  less emissions per unit of output, while the CHP
  Directive will specifically promote CHP
  technology"
• New entrant Articles 3(h) Any installation
  carrying out Annex I activities with a GHG
  emissions permit or with an update of this permit
  because of a change in nature/functioning or an
  extension of the installation
• Annex III (8)"The plan shall contain information
  on the manner in which clean technology,
  including energy efficient technologies, are
  taken into account."

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CHP More efficient
26 Reduction of fuel (and CO2)
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Carbon Efficiency of Power Technologies
Average CO2 Emissions in g/kWh electricity
Source Utrecht University, Gemis 3.0
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Allocation - The "CHP Problem"
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Allocation Methods for CHP
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Allocating efficiently
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What Market Impact ofEmissions Trading?
Preparation of NAPs(When ready? What method? How
many allowances? What installations?)
Combination of ET with other CHP support
schemes(Impact of CHP Directive?Future national
policies?)
Treatment of CHP in NAPs(Penalty? Reserve for
CHP?)
Allowance price(How much?)
Legal issues potential lawsuits(Failures to
implement Directive constitutionality of NAPs
perceived inequalities legal definitions etc.)
Kyoto Protocol adopted?(Use of JI and CDM)
Impact on power prices(How much increase?)
Approval of NAPs(Interpretation of Annex III
andState Aid criteria timetable)
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Guessing theAllowance Price

• Denmark 0-30 per ton CO2
• UK 17.5 initially, then 4.4-5.8 per ton CO2
• Various Experts Allowance between 3.5-6 if
  purchased in bulk today will cost 7-12 by 2005
• Point Carbon Poll Allowance between 2-6.5 in
  2003 2-15 by 2008

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Guessing theImpact on Power Prices

• UBS Warburg (2003) 63 increase of wholesale
  power price
• McKinsey (2003) 40 increase of wholesale power
  price
• Dresdener Kleinwort Wasserstein Research (2003)
  8-20 increase of power price
• ICF Consulting (2002)13 increase of power
  price

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Conclusions

• Emissions Trading is coming
• Getting National Allocation Plans right is a
  matter of priority
• Allocation will matter and CHP installations
  should be winners
• Specific allocation for CHP is necessary Cover
  all installations, set aside a reserve
• The development of the market is uncertain
• CHP is a carbon efficiency solution we need to
  make this clear!

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• Thank youfor your attention!

www.cogen.org
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COGEN Europe

• European Trade Association for the Promotion of
  Cogeneration
• Lobbying
• Representing
• Setting the agenda
• Structure
• National Members
• National Promotional Organisations
• Company Members
• Gas and Electricity Utilities
• Equipment Manufacturers Suppliers
• End Users
• Consultancies
• Banks, Insurance

• Vision
• COGEN Europe working towards the wider use of
  cogeneration in Europe for a sustainable energy
  future
• Process
• EU Level
• European-wide legislation
• EC programmes
• Other agency activities
• Member State Level
• Crucial as they enact policy
• It is only at this level that the technology can
  be deployed