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					            Cogeneration
      Clean, Clever, Competitive

     National Allocation Plans and
            Cogeneration




     Emissions Trading and Cogeneration,
      Milanoenergia 2005, 5 October 2005

Dr Simon Minett, Managing Director, COGEN Europe
•   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
Cogeneration
Directive

Emissions Trading
Directive


Energy performance
of buildings Directive


Energy Services
Directive




                            Preparation     Transposition          In force in MS
                SOLUTIONS

• Cogeneration is the most   Electricity Generation in European OECD countries


  efficient energy
                             (in TWh)




                                                                                                                                                     Not acceptable!
                                            Coal:                                                                om
                                                    2597.3                                                  es fr .1
                                                                                                        loss : 4712



  conversion technique
                                                                                                    ion     on
                                                                                                vers ucti
                                                                                            Con al prod
                                                                                            therm                                                                                         68.5
                                             Oil: 523.5                                                                                                                               n: 3
                                                                                                                                                   156
                                                                                                                                                      .7                          ptio
                                                                                                                                             lant:                          sum
                                                                     Total primary                                                       er p                           con
                                            Gas: 1104.0                                                                             ow                             ctor
                                                                    energy input for                                             eP                            y se
                                                                                                                             n us                          nerg
                                                                       electricity                                      Ow                             nd e
                                   Renewable fuels & waste:                                                                                        es a
                                                            199.5     production:                                                              loss                               86.5
                                                                                                                                           ort




• Saves around 280 million
                                                                        7831.8                                                          nsp                                   : 10
                                                                                                                                     Tra                                 stry
                                                                                                                                                                    Indu
                                          Nuclear: 2833.4                              Gross Electricity                                                                           756.1
                                                                                                              Net Electricity        Electricity delivered                 ential:
                                                                                         Production:
                                                                                                                                        to customers:                 Resid
                                                                                           3119.7            Production: 2963
                                                                                                                                            2601.1                                               613.6
                                                                                                                                                                                    es:
                                                                                                                                                             Commerce, Public Servic
                                                                                                                                                                     Other: 145.4
                                            Hydro: 513.8
                                                                                                                                       23.6
                                                                                                                                ports:



  tonnes CO2 EU25                               33% total efficiency of the electricity supply system
                                                                                                                       Net im




                                                                                                                                                                               Source: OECD 1999




• Reduces energy
  dependence by 1500 PJ/a
• Modernising existing
  stock and achieving
  modest growth will yield
  the same again
•   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
            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!)
•   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
              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
2,000


1,800


1,600


1,400


1,200


1,000


 800


 600


 400


 200


   0
        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”




                                                          cogen




Effect of CO2 cost on marginal electricity production cost
Based on efficiency ratings of 36% and 50% net HHV efficiency respectively. Source: ICF Consulting
               06
                 /0
                      4/
                        20




                                € 0,00
                                         € 10,00
                                                   € 20,00
                                                             € 30,00
                                                                       € 40,00
                                                                                 € 50,00
                                                                                           € 60,00
                                                                                                     € 70,00
                                                                                                               € 80,00
               06          04
                 /0
                      5/
                        20
               06          04
                 /0
                      6/
                        20
               06          04
                 /0
                      7/
                        20
               06          04
                 /0
                      8/
                        20
               06          04
                 /0
                      9/
                        20
               06          04
                 /1
                      0/
                        20
               06          04
                 /1
                      1/
                        20
               06          04
                 /1
                      2/
                        20
               06          04
                 /0
                      1/
                        20
               06          05
                 /0
                      2/
                        20




Carbon Price
               06          05
                 /0
                      3/
                        20
               06          05
                 /0
                      4/
                        20
                           05




Conti PI
               06
                 /0
                      5/
                        20
               06          05
                 /0
                      6/
                                                                                                                         Carbon Price Effect




UKPX
                        20
               06          05
                 /0
                      7/
                        20
               06          05
                 /0
                      8/
                        20
               06          05
                 /0
                      9/
                        20
               06          05
                 /1
                      0/
                        20
               06          05
                 /1
                      1/
                        20
               06          05
                 /1
                      2/
                        20
                           05
            NAP 1 (2005 – 2007)

ELECTRICITY PRICE AND THE MERIT ORDER PRINCIPLE
•   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
            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)

TIMING
 • 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

ENLARGEMENT
 • Accession of Bulgaria and Romania
 • Bilateral discussions with Canada, Norway and
   others
•   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
                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
•   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
     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
     The treatment of cogeneration in NAPS


THE EXAMPLE OF AUSTRIA (1. part)
• 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 treatment of cogeneration in NAPS


  THE EXAMPLE OF AUSTRIA (2. part)

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

   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
•   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
             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


                      32       =       73   32


                                                 Ref. Elect.
100       cogen                                     X%
                                                               Z
       installation
                                                 Ref.Boiler
                                                    Y%


                       48      =            48



                            Savings > 10%


  Comparison of energy consumption for cogeneration
   and for separate production of electricity and heat
          Primary energy savings
                                               32 = 35 – 3 (including grid losses)


                      32         =       73   32


                                                   Ref. Elect.
100       cogen                                      51%
                                                                        125
       installation
                                                   Ref.Boiler
                                                     85%


                       48        =            48



                      Savings = 125-100 = 25 = 20%


  Comparison of energy consumption for cogeneration
   and for separate production of electricity and heat
       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!
•   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
                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:
  FRANK.KNECHT@COGEN.ORG
Thank you for your
    attention!




www.cogen.org

				
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