COGENERATION A Major Challenge and Opportunity

for Central and Eastern Europe

Dr Simon Minett

Director

COGEN Europe

Qualifications

• Worked in Ukraine, Belarus• Directed staff working in Russia, Slovenia, Poland,

Hungary, Romania and Estonia• Market Prospects for Cogeneration in Poland,

Hungary and Czech Republic• Membership for COGEN Europe

– National Members in Slovenia, Estonia, Hungary, Poland, Croatia and Czech Republic

– ESCOs

– Links to all the other countries in Region

COGEN EUROPE

• European Trade Association for CHP

• 195 Members

• 30 Countries

• Promotion of Cogeneration

• Climate Change

• Reducing Barriers

• Studies/Literature

Coverage

• Trends

• The Challenge

• Hungary

• Role of ESCOs

• Getting the Policy Right

• Be Bold!

Trends

• Europe– Liberalisation– Greater Decentalisation– Response to Kyoto

• Central & Eastern Europe and CIS– Accession– Investment in Infrastructure– District Heating versus Point of Use

CHP in Europe (% of generation)

1999 - Cogeneration as a share of national power production

0 10 20 30 40 50 60

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

The Netherlands

Portugal

Spain

Sw eden

UK

EU

Share of CHP in Heat Production 1994

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0G

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Sp

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Ge

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EU

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Au

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%

Correction for steam extraction and condensingplantsEuroStat values

Source: Eurostat/1994 Combined Heat and Power Plant Statistics in the EU (Working Paper) and Statistics, Finland

CHP in Transition Countries

Cogeneration as a share of national power productionBulgaria 13%Croatia 10.1%Czech Republic 10%Estonia 39%Hungary 10%Latvia 31%*Lithuania 10%*Poland 15.4%Romania n.aSlovakia n.aSlovenia 4.5%

* Figures correspond to share of installed capacity and not share ofelectricity production.

The figure on Estonia corresponds to share of production from CHP plants,but part of this might not have been produced in a cogeneration mode.

Scale of the Challenge

• Infrastructure needs massive investment

• Modernisation of industry, bankruptcy and markets

• 185 million on District Heating

• Fuel Supply issues

• Political Structures in need of reform

Scope for Savings

• District Heating 30-60%

• Building Energy Use 20-40%

• Industrial Energy Use 10-30%

• Electricity Distribution 10-20%

• Electricity Generation 10-12%

Potential

• COGEN Europe’s estimates

• Poland 15.000 MWe

• Ukraine 40.000 MWe

• Hungary 40% of demand = 2.500 MWe

• Official Forecasts

• Poland 20-30% (now 10%)

Focusing on Hungary

• Dynamic Country in first wave for EU

• Electricity 7.500 MWe and 30 TWh/yr

• Gas 12 million cubic metres, 40% of energy

• District Heating 108 localities, 8.400 MWth

• Cogeneration currently 11% of electricity

• Restructured energy sector

Hungary’s Electricity Sector

Hungary’s Energy Policy

• Goals– reduce import dependence– restrict control to a minimum– improve energy efficiency– liberalise tariffs to reflect economic costs– environmental priorities– move to the market economy– adopt least cost solutions

Difficulties

• Prices for gas and electricity are unfavourable for cogeneration

• No capacity fee

• Partial reform of the energy prices

• Restrictions on the use of gas

• Attitudes to District Heating - old regime

• Non payment of heating bills

Potential

• Cogeneration on DH 1.800 MWe

• Cogeneration in industry 450 MWe

• Cogeneration in tertiary sector > 300 MWe

• Current capacity ~ 800 MWe

• Potential = 40% of demand

Poland in Perspective

• 80 years of cogeneration history

• First installed in industry: sugar, chemicals and mining

• District Heating growth from 1950, especially the large urban areas such as Warsaw, Wroclaw and Gdynia

• Now 3.000 MWe in industry and 4.800 MWe on District Heating

Cogeneration’s Share

• Total installed capacity - 33.717 MWe

• CHP on District Heating - 4.800 MWe

• CHP in Industry - 3.000 MWe

• Total CHP - 7.800 MWe = 23%

• Total production - 142.769 GWh

• CHP Production - 22.050 GWh = 15%

Problems with CHP

• Statistics: – Industrial CHP is not fully used due to market– Some industrial schemes are closing– Some of the DH CHP is not full CHP

• True CHP share of market is nearer 10%• Much of the CHP is coal-fired and not best in

class• The investment climate is improving slowly, but...

Energy Scene

• New Energy Law in place,• Secondary legislation mostly complete• Still political interference in tariffs• Tariffs are not fully cost reflective, but they

are improving,• Principles for independent generation in place• Public perception that DH is the past

New Projects

• Katowice 120 MWe coal cogeneration scheme due in November 1999

• Jaworzno III 140 MWe coal cogeneration due September 1999

• Gorgow 55 MWe gas CCGT cogeneration handed over in January 1999.

Potential

• Major potential for cogeneration on the District Heating through re-powering of DH boiler houses.

• Question mark over decentralised CHP.

• As the Polish industry picks up major opportunities in this sector too.

• We estimate potential is at least 50% of electrical demand = 15.000 MWe

What Should be Done?

• Set the right frameworks - regulatory and legislative

• Address all the issues affecting cogeneration

• Encourage and ensure the conditions are right for foreign investment

• Develop a strategy and set a target

Role of ESCOs

• Transfer of technology from west to east

• Financing of energy projects and CHP

• EBRD support

• Players - Honeywell, Landis&Gyr, Compagnie Generale de Chauffe and ESCO International,

And more….?

Policy Actions

• Electricity Regime

• Heat Regime

• Planning, Taxation, Environment

• Investment Climate

• Reduce Barriers

• Co-ordinated Promotion

The Next Few Years Are Critical

• Debate between District Heating, Decentralised Cogeneration and Centralisation of Electricity

• Set Targets

• Get the Investment Climate Right

• Cogeneration has a major role to play in changing the economic well being of the region

Boldness is necessary!

• This is not an academic exercise

• Cogeneration is a key part of realising the EU’s legally binding commitments made in Kyoto

• The Strategy target to double cogeneration must therefore be achieved

• We MUST find the will to achieve growth in the new liberalised world

Be Bold

• There are 10 years left to double cogeneration’s share of the market.

• This is 60-70.000 MWe in the EU 15

• Plus 20.000 MWe replacement of existing plant

• Plus Transition Economies (0 to 30 GWe)

• Thus ~ 100 GWe or 10.000 MWe per year

• Around 4 times current activity