The Consistency of European CHP, Renewable and Energy Efficiency Policies
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Risa-R-l147(EN) The SharedAnalysis Project: Economic Foundationsfor Energy Policy VolumeN“14 prepared for the European Commission.Directorate Generalfor Energy Energy Policy Responses to the Climate Change Challenge: The Consistency of European CHP, Renewable and Energy Efficiency Policies Poul Erik Grohnheit Riso National Laboratory, Systems Analysis Department. Building 110, P. O. Box 49, DK-4000 Roskilde, Denmark IWO National Laboratory, Roskilde September 1999 The Shared Analysis Project: Economic Foundations for Energy Policy. Volume N“14 prepared for the European Commission, Directorate General for Energy Energy Policy Responses to the Climate Change Challenge: The Consistency of European CHP, Renewable and Energy Efficiency Policies Poul Erik Grohnheit Abstract This reportis Volume 14 of individualreportsof the SharedAnalysis Project prepared for the EuropeanCommission,DirectorateGeneralfor Energy. The threemajor objectives of the project were: ● to designa commonframeworkof energy analysisthat aimedto involveall Mem- ber States andthe expertsof industrialresearchgroups(the sharedapproachto en- ergy analysis). ● to analyse generic EU-wide issues importantfor energy policy and for future en- ergy demandandproduction,puttingparticularemphasison world energy market trends,strategicenergypolicy responsesto the Kyoto process, andevaluationof re- sponse strategiesto increasing energy import dependenceand to climate change activities ● to carryoutquantitativeanalysesof energytrendsandscenariosas an inputfor dis- cussion. The presentvolumeconsidersthree main issues concerningenergy policy responses to the climatechangechallenge: ● thepenetrationof CHP andrenewable accordingto official objectives, focusing on infrastructureandinstitutionsratherthantechnology ● the consistency of promotionof CHP, renewable and energy savings at the same time. ● consumers’choices andprioritiesin a liberalisedmarket The volumedescribesexamplesof policies in severalMember States for these tech- nologies with emphasison CHP for both large-scale and small-scale district heating systems. The penetrationof CHP technologiesis analysedquantitativelyusing a tradi- tional optimisationmodel approachfor stylisedregions with heat markets suitable for CHP andfacing a competitiveEuropeanmarketfor electricity. The Joint Final Report of the project, titled “EconomicFoundationsfor Energy Pol- icy” is publishedas a Special Issue of Energy in Europe, December 1999. All reports are availableon the Internet,www.shared-analysis.jhg. de/ The project startedin January 1998, involvingabout 100 monthsof scientific Iabour. The project consortiumconsistedof nine member institutesco-ordinatedby the Fraun- hofer Institutefor SystemsandInnovationResearch,Karlsruhe(FhG-ISI). Cover Electricity supplyinpotentialCHPmarkets.Extract of Figure4.3 (Page 114-115). ISBN 87-550-2625-7 ISBN 87-550-2626-5 (Internet) ISSN 0106-2840 Afdelingen for Informationsservice, Riw, 1999 DISCLAIMER Portions of this document may be illegible in electronic image products. Images are produced from the best available original document. SharedAnalysis.Volume 14 Contents PREFACE 7 EXECUTIVE SUMMARY 9 1 INTRODUCTION 15 1.1 Method and basic assumptions 15 1.2 Sources for the analysis and work plan 17 1.3 The structure and contents of this volume 18 2 THE TECHNO-ECONOMIC POTENTIALS 20 2.1 The potential of CHP in the EU member states 20 2.1.1 The penetrationandpotentialof CHP 20 2.1.2 The technologybasis for fi.utherpenetrationof CFIP 22 2.1.3 Industrialcogeneration 24 2.2 Renewable 25 2.2.1 Potentialof renewable 26 2.2.2 Biomass 27 2.2.3 Windpower 28 2.2.4 Solar waterheaters 29 2.3 Energy savings 30 2.3.1 Space heating 30 2.3.2 Passivesolardesignfor buildings 34 2.3.3 Transport 34 2.3.4 Utilisationof industrialwasteheat and ‘industrialsymbiosis’ 35 2.4 Newtechnologies and organisation of CHP systems 35 2.4.1 EU policy on CHP 36 2.4.2 CHPparametersandcost allocationbetweenheat andpower 37 2.4.3 Transmissionanddistribution 42 2.4.4 IT tools for districtheatingsystems 42 2.4.5 Operationaloptimisationandcompetition 43 2.4.6 Nuclearfissionandfbsion CHP 43 2.5 Market opportunities for expansion of CHP 44 2.5.1 Peak loadandancillaryservicesin the electricitysystem 44 2.5.2 Air-conditioningandcoolingapplications 45 Risa-R-l 147 (EN) SharedAnalysis.Volume 14 2.5.3 Hot waterusagein domesticappliances. 45 2.6 Consistency of different instruments 46 2.6.1 CHP vs. buildinginsulation 46 2.6.2 Synergybetweendifferentmeasures 47 2.6.3 Inconsistencyof economiccriteria 48 3 INFRASTRUCTURE AND MARKETS 49 3.1 The infrastructure for the urban heat market 49 3.1.1 Large-scaleurbandistrictheat systems 49 3.1.2 Historicalnotes on districtheating 50 3.1.3 Electricitymarketliberalisationandfutureinfrastructuredevelopment 51 3.2 CHP in an electricity market with international competition – the case of Denmark 52 3.2.1 InternationalelectricitytradeandCHP in Denmark 52 3.2.2 The structureof districtheatingin Denmark 53 3.2.3 Developmentof naturalgas anddistrictheatinggrids 55 3.2,4 Organisationandregulationof the electricitysector 56 3.2.5 DanishCHP in thenorthernEuropeanelectricitymarket 58 3.3 District heating and CHP in Firdand, Sweden and Norway 60 3.3.1 Finland:Rapidpenetrationof districtheatingsystems 60 3.3.2 Norway:Hydropowerandverylittle districtheating 61 3.3.3 Sweden:Much districtheatingbut little CHP 62 3.3.4 Energy andenvironmenttaxationin theNordiccountries 63 3.4 Germany, Austria and the Netherlands 65 3.4.1 Germany:Long tradition,but lowpenetrationof districtheating 65 3.4.2 Austria:Systematicdevelopmentof largeurbanCHP systems 70 3.4.3 The Netherlands:Competitionandopportunitiesfromdomesticgas 71 3.5 Nationalised electricity supply industries and their privatised successors 73 3.5.1 France: Some districtheatingbut little CHP 74 3.5.2 UK: Many ‘CHP schemes’but littlepenetrationof districtheating 75 3.5.3 Italy: Climaticdifferencesbetweenregions 82 3.6 Markets for ‘green energy’ 84 3.’7 Competitive and monopolyelements in the electricity, gas, and district heating industries 86 3.7.1 Vertical disintegrationandoutsourcing 86 3.7.2 Competitionwithinurbanheatmarkets 87 3.7.3 The Copenhagenregionalheat exchange 91 3.7.4 Overlappinginternationalelectricityandgas markets 92 4 RisO-R-l 147 (EN) SharedAnalysis.Volume 14 3.8 Competition and consumer sovereignty in a liberalised market 93 3.8.1 Cash-and-canyitemsvs. realproperty 94 3.8.2 Consumers’choice for spaceheating 94 4 CHP MODELLING 99 4.1 CHP in different local urban environments 99 4.2 Modelling the penetration of new technologies 102 4.2.1 Optimisationwithemissionconstraints 103 4.2.2 Liberalisedmarket 103 4.2.3 Low energypricesandinternalisedemissioncosts 104 4.2.4 The spatialelement 105 4.3 Optimisation results for a CHP region 106 4.3.1 The EFOM modelfor CHP systems 106 4.3.2 Districtheatingnetworksfor small-scaleandlarge-scaleCHP 109 4.3,3 The impactof tradableC02 permits 112 4.3.4 Model resultsfor small-scaleandlarge-scaleCHPnetworks 113 4.3.5 Tradablepermitsvs. targetedinvestmentincentives 124 4.3.6 Modelresultsas ‘buildingblocks’ for geographicalregions 125 4.4 Short-term evaluation using a load-curve model 127 4.5 The impact of spot markets and long-term contracts 131 4.6 A broader modellingframework 132 5 CONCLUSIONS 133 5.1 The role of local government and local initiative 133 5.2 Distribution effects and consumers’ choice 134 5.3 Possible elements of a European policy on heat distribution networks 135 BIBLIOGRAPHY 137 ABBREVIATIONS 141 APPENDIX A. CURRENCY CONVERSION AND PRICE LEVELS 142 INDEX 143 Risa-R-l 147 (EN) SharedAnalysis.Volume 14 Tables andfigures Table 2.1. Total grosselectricalinstalledcapacityandtotalgrosselectricitygenerationin 1994 in E.U.-I5. 21 Table 2.2. PotentialCHP contributionsharesin the electricitymarketin the EU. 22 Table 2.3. Currentandprojectedelectricityproductionby RES for 2010 26 Table 2.4. CurrentandProjectedHeatProductionfor 2010 26 Table 2.5. COZreductioncost of investmentin spaceheatingin Germanyuntil2010. Fuel cost savingscif pricesandtransportcost for gas deliveredto individualboilers. 33 Table 2.6. COZreductioncost of investmentin spaceheatingin Germanyuntil2010. Different assumptionson heatingsystemsandfuel prices 33 Table 2.7. Short andlongtermmarginalcost of differenttechnologiesfor power generation 39 Table 3.1. Heatingsystemsin differenttypesof dwellings 95 Table 4.1. Examplesof local or regionalconfigurationsfor CHP. 100 Table 4.2. Technologiesfor electricityandcentralCHP 108 Table 4.3. Technologiesfor small-scaleCHP anddistrictheating 108 Table 4.4. Demandandinfras~cture constraints. 110 Table 4.5. Capacitiesfor Electricity GenerationandTransmission. 111 Table 4.6. Price assumptionsfor fiels andelectricitytrade. 112 Figure 2.1. Space heatingdemandin Denmark1972-1997 30 Figure 2.2. CHPparameters 38 Figure 2.3. Price combinationsfor cogeneratedheat andpower 40 Figure 2.4. Electricity andheatproductionfrom oneunitof fuel inputin old andnew small-scaleCHPunits. 41 Figure 3.1. Electricityproductionandimport- Denmark 53 Figure 3.2. Monthlyaverageprices at the spotmarketof Nerd Pool, 1996 and 1997 59 Figure 3.3. The dreamor the nightmareof competition 96 Figure 4.1. Optimisationmodelfor large-scaleandsmall-scaleCHPnetworks 107 Figure 4.2. Seasonalloaddurationcurvesfor electricityanddistrictheating 110 Figure 4.3. Electricity generationby technology 114 Figure 4.4. Districtheatingtechnologychoices. 116 Figure 4.5. New electricitygeneratingcapacity. 118 Figure 4.6. New CHP anddistrictheatingcapacity. 120 Figure 4.7. Primaryenergy–