Smarter policies are needed to improve the business environment for combined heat and power (CHP)

03 October 2014 News Article

Combined heat and power (CHP) is an important element of Europe’s transition to a diverse and low-carbon energy mix, power sector representatives will say at a EURELECTRIC workshop today. EURELECTRIC will be making the case for CHP in the context of the EU’s decarbonisation and energy efficiency agenda.

“As a mature technology with very high efficiency levels, CHP can save primary energy and help to reduce CO₂ emissions. However, conflicting policies and the economic downturn are causing a decline in CHP and smarter policies are needed if CHP is to fulfil its potential,” Gwyn Dolben, Chair of EURLECTRIC’s Thermal and Nuclear Working Group will say.

In a paper published today, EURELECTRIC recommends several measures to improve the policy framework and ensure that CHP can compete fairly with other technologies, making the most of its energy efficiency potential.

In particular, EURELECTRIC calls for

Strengthening the EU Emissions Trading Scheme (ETS) to make it the key driver for decarbonisation – Given CHP’s high efficiency and low emissions, technology neutral policies focusing on CO₂ reduction rather than energy sources would benefit CHP (assuming costs of CO₂ are internalised also for heating).
A policy framework that drives CO₂ reduction in electricity generation and in heat – CHP is commonly used for district heating, which is at a competitive disadvantage compared to other heating technologies if the costs of CO₂ are not internalised. To rectify this, the feasibility of extending the EU ETS within the heating sector should be studied.
Electricity markets that incentivise greater flexibility – CHP plants can help make the energy system more flexible, allowing it to adapt as decarbonisation progresses. The EU should strive to develop integrated wholesale markets, in particular intraday and balancing markets, to reveal the value of flexibility. Barriers to the participation of the aggregated flexibility from smaller CHP plants in electricity markets should be removed. Capacity remuneration mechanisms, where applied, should be technology-neutral and open to all CHP plants.
Member States should review taxes on CHP – Taxes on fuels for power generation should be avoided: the different levels of taxation across EU Member States undermine the EU’s objective of creating a European-wide internal energy market. Power generators in the EU, including CHP plants, need to be able to compete on a level playing field. For this reason electricity should be taxed at the point of consumption.

The report, including the full set of recommendations, is available here.