Rethink urged over emissions trading in light of cogeneration difficulties
The scale of investment in cogeneration technology is very well highlighted by just two of the most recent project announcements. For example, Siemens Power Generation (PG) has just revealed details of a E360m contract with Endesa France to build a turnkey combined cycle power plant in Saint Avold in the Lorraine region of France.
Scheduled to go into operation in early 2010, the new natural gas-fired power plant is to be built on the existing power plant site at Emile Huchet, about 20km west of the
French-German border near Saarbruecken. According to Siemens PG, the high-efficiency power plant will feature high cost-efficiency, flexibility, and environmental compatibility.
The plant consists of two units, each having a capacity of 430megawatts (MW), making the facility France’s largest new combined cycle plant to date. The output is sufficient to supply as many as one million households in France with electricity.
Siemens PG’s scope of supply encompasses two gas turbines, two steam turbines and two generators, as well as all mechanical equipment, electrical systems and equipment, and instrumentation and control (I&C) systems. Following full deregulation of the French electricity market in July, there is an increasing demand in France for combined cycle power plants to meet peak- and intermediate-load needs.
It is a point not lost on Klaus Vogues, the company’s group president. “Saint-Avold is our second order this year for the construction of a new, turnkey combined cycle power plant in France. With this order we have made a breakthrough in this important power plant market,” he said.
With new orders in the last year worth in excess of E12billion, Siemens PG has become one of the major players in the international power generation sector. However, its close rival GE Energy has also received a major boost from a French company with a E530m contract to supply six of its advanced Frame 9FB
turbine-generators and associated services to Électricité de France (EDF).
GE Energy’s plant in Belfort, the only manufacturer of medium and high power gas turbines in France, will supply the equipment and handle plant engineering for the projects.
“As power producers increasingly turn to today's cleaner and more efficient gas turbine technology to meet their growing capacity requirements, we are seeing a record level of activity for our Belfort facilities. By the end of this year, we expect to ship more than 80 gas turbines from Belfort, a 25percent increase compared to last year,” noted company president Ricardo Cordoba.
The six Frame 9FB units will be installed in the EDF group’s production facilities in France and in some European subsidiaries (Fig.1). EDF has also signed options to purchase additional gas turbines and services from GE which could bring the final value of the contract to over 900m.
One of the key drivers behind such enormous investments is the EU emissions trading scheme (ETS). However, according the the European Association for the Promotion of Cogeneration (Cogen Europe), “Although the ETS offers great potential to encourage energy efficient behaviour in the European industrial and power sectors…[it] has largely failed to drive investment in high-efficiency cogeneration.”
Following a request from the EU, the organisation has submitted a position paper highlighting four ‘fair, specific and workable’ options for the treatment of cogeneration installation in the EU should auctioning emerge as the main allocation methodology to installations.
Under such a system, an industrial site would have to buy the additional allowances associated with its CHP operation at auction.
However, says the paper, this exposes the CHP operator to additional risk. For example, the focus on emission reductions dissuades companies from investing in CHP as they will have to show an increase in carbon emissions on their site despite the fact that they will increase the energy efficiency (and decrease emissions) of the system as a whole.
There would also be an issue of being in competition with sectors that do not carry the cost of carbon dioxide. The paper cites the example of a CHP operator with a plant over 20MW – and therefore covered by the schome – who may limited or no ability to pass on the cost of carbon to its customers: “An industrial CHP can supply heat to a number of customers, many of whom would be – taken individually – below the threshold.
“As a result, while the CHP unit falls within the scope of EU ETS the customer does not and is therefore faced with an additional cost of carbon that he would not have faced if he had installed his own, smaller, less efficient boilers.”
Cogen Europe’s four options propose a solution to these and other problems. These alternatives assume auctioning to be the main allocation method for carbon dioxide allowances and are based on the principle that CHP plants must be treated fairly, taking into consideration their contribution to lower global emissions of the gas.
The four options are to: incentivise CHP over heat boilers; reward cogeneration for low carbon dioxide emissions and increased energy efficiency; treat CHP as though it is a boiler; and reward CHP for its global carbon savings.
“We believe all approaches above – with decreasing effects – will create a more fair and even market and level potential unfair treatment of CHP under auctioning. Only via a clear – financial – recognition of CHP benefits can investors and operators be expected to realise the EU’s CHP potential,” notes Cogen Europe.
The organisation’s submission ends with a brief set of conclusions and recommendations:
CHP is the most efficient form of energy conversion and should be fairly rewarded for this. The best available solution to support this is double benchmarking.
If CHP were to be subject to full auctioning without the protection of any of the methods outlined above then no heat producer or utility would want to build a cogeneration facility.
The design of the EU ETS Phase III should reward the building and utilisation of lower carbon emitting forms of generation such as CHP consistent with its low carbon emissions and global carbon dioxide savings. If it fails to do this, then the scheme is fundamentally flawed.
CHP developers should not have to purchase more carbon dioxide allowances following the installation of a carbon-saving CHP than they would have had to if CHP had not been installed.
Cogen Europe recommends the EU to adopt one of the approaches above to recognise CHP for its environmental benefits under auctioning of carbon dioxide allowances and to release the great potential CHP has for helping to meet EU, Kyoto and IPCC targets.
The full text of Cogen Europe’s submission can be seen at www.cogeneurope.eu
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