CHP in Spain suffering by lack of adequate policy framework

The Gas to Power Journal has recently reported that the Spanish Cogeneration Association (Acogen) is quite concerned that cogeneration will suffer unless there are new energy efficiency measures in place to ensure that the full potential for cogeneration capacity is achieved.  It also states that the current Emissions Trading System is “harmful for CHP.”

Lack of energy efficiency policy measures puts Spanish CHP at risk – Acogen

Unless new efficient policy measures are implemented, about 40 percent of Spain’s installed Combined Heat and Power (CHP) capacity is at risk of being shut-down in 2015, Javier Rodríguez Morales, Director General of Spain’s Cogeneration Association (Acogen) told Gas to Power Journal. “At the moment, there is a moratorium in place to install new cogeneration capacity since 2012, as well as uncertainty about the actual regulatory framework reform and new energy taxes applied since 2003 which are deeply impacting CHP,” he said.

The Spanish government had scrapped a cogeneration tariff in January 2012 as part of a wider move to abolish incentive schemes for renewable and green energy. In Morales’ view, this policy decision has been counterproductive for Spain’s CHP industry and limited the development of new cogeneration capacity. “CHP growth can only be achieved when linked to energy efficiency policies that aim to increase manufacturing activity which helps to revert the current economic crisis and aid unemployment,” he said, pointing out that opposition to such energy efficiency policies tends to be stronger during times of economic crisis.

According to a recent update to a report from the Boston Consulting Group (BCG), CHP saved Spain an estimated €1250 million per year in 2012, an increase of €70 million or 6 percent from 2010. BCG calculated this figure based on the sum of savings from primary energy costs, included avoided grid losses, savings from avoided CO2 emissions, and energy transport and distribution savings.

Morales, however, pointed out that despite these savings, the development of new CHP capacity has fallen in recent years. At this moment, the 6000MWe installed capacity is the same figure as in 2002 and it accounts for 12 percent of the Spain’s total electricity production,” he said. “There are structural, economic, financing and administrative barriers hindering CHP development in Spain,” he said, suggesting “total CHP potential is 25 000MW.” He also said that the situation for overall energy production from gas-fired power plants is not much better with the country’s 25 000MW installed capacity of combined-cycle gas turbine (CCGT) power stations only running at an average operating time of 1500 hours in 2012.

Current ETS regime deemed “harmful for CHP”

The EU’s Emissions Trading System (ETS), in Morales’ view, is another negative development for cogeneration as it gives CHP operators an “average lack of free allowances of about 50 percent”, thereby increasing their operation costs.

The CO2 costs were created by the ETS to benefit cleaner-burning fossil plants, including CHP, he said but criticised that “a recognition or return of these costs – either in the form of cheaper CHP electricity tariffs or in pool prices – did not occur.” He concluded that the higher price of CO2 has further squeezed the operational profit margins of CHP plants.

Morales says that Acogen expects CO2 price increases “sooner than later” and that this risks would contribute to a shut down in current Spanish CHP capacity. He believes that if the “right policy measures” are put in place however, the potential damage caused by a rise in CO2 prices may be limited.

CO2 prices have fallen last week, however, reaching a low of 2.63€/ton on 16 April, according to the ICE Future Exchange in London, as the European Parliament rejected the back loading proposal that had been intended to temporarily curb the surplus of allowances.