Energy giants reject obligation -- CHP support precedent

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Germany's energy giants have persuaded the government to abandon a support concept for combined heat and power (CHP) based on a purchase obligation backed by tradable certificates. The decision may have ramifications for the renewable energy directive proposed by the European Commission.

The renewables directive is currently embroiled in wrangling between the governments of member states and the European Parliament. The parliament, led by Germany's Mechtild Rothe, is demanding binding national targets on each country for the volume of renewables in their supply portfolios. Several energy ministers and the Commission are against including fixed national targets in the directive.

The German government had hoped to achieve a 23 million tonnes annual reduction in CO2 emissions by 2010 by doubling CHP capacity. But the alliance of RWE, E.On, EnBW, HEW, Veag and Ruhrgas sharply criticised the CHP obligation. They claimed it would involve considerable bureaucracy and monitoring, that it was not clear whether there would be sufficient liquidity (trading) in the certificates market, that CHP operators could manipulate the market by strategically holding back capacity, and that large CHP plant would determine the price of certificates. An obligation, argued the utilities, also creates dependency on subsidies and does not stimulate modernisation of existing plant nor encourage technological development.

Furthermore, imposition of a purchase obligation for CHP would mean the creation of a protected market -- and that would have to be opened up to European CHP generators, argued the utilities. As a result, German consumers would be subsidising Belgian, Danish and Dutch operators, they claimed. Last but not least, a purchase obligation would raise the share of levies included in the end-price of power to the German consumer, already swelled by other obligations, to over 50%.

A blatant omission from the arguments of the energy majors against the CHP quota was the problem of their surplus generating capacity, some 10,000 MW. This could well have been exacerbated by a CHP purchase obligation, a fact studiously ignored in the debate. The utilities are not anxious to draw attention to their generation glut.

Voluntary measures

The energy companies had previously presented a detailed program of voluntary measures to reduce CO2 emissions by up to 45 million tonnes a year by 2010 as long as the government did not intervene with mechanisms such as the CHP obligation. The program included replacement of inefficient CHP plant. The Greens Party has since pointed out, however, that much of the voluntary "reductions" include savings already attributed to the government's climate protection program, such as expansion of renewables.

The conclusion of the ongoing debate awaits, but it looks like being a system of targeted incentives financed by electricity consumers. CHP plant operators could get a DEM 0.02-0.03/kWh bonus over a period of four to eight years for less efficient plant, and for up to 12 years for efficient plant. The big utilities have made it clear, however, that the incentives should not be used to support the construction of new CHP plant, to the annoyance of the smaller municipal utilities.

An obligation for a fixed volume of green power in the supply mix, which electricity retailers meet by trading green certificates, is the basis of new support systems for wind power in Britain, Denmark, the Netherlands and several American states. Green credit trade allows renewable energy producers direct access to main power markets and ensures that all polluters pay for green power irrespective of the geographical location of the energy source.

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