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quality. Where substantial modifications are required to the grid to allow connection, the cost to the scheme developer may be prohibitive, especially for smaller schemes. The cost and complexity of grid connection is currently a barrier to the development of smaller CHP schemes. Anecdotal evidence suggests that banks are not willing to invest in energy projects at present due to the risk associated with price volatility and uncertainties within energy markets. The market is in such a poor state that the major CHP developers have disbanded their development teams. The only projects that may go ahead currently are either ones where all of the power will be consumed on site or that have another factor driving them, such as avoided grid connection strengthening costs. One UK consultee identified the diversity of European standards as being a problem for companies trying to export to other EU countries. A common European standard for shell boiler design is being introduced (EN12953), but the consultee was concerned that oversees clients will continue to specify their own national standards. The current strength of sterling was also identified as a problem for UK HRSG suppliers. There is strong competition in the market place and other European suppliers can undercut UK companies, even in the UK despite their higher transport costs. 6.4.4 Future Industrial CHP Market Potential in the UK and Mainland Europe The European Commission sponsored ‘Future Cogen’ study assessed the potential for the expansion of CHP within EU member states and Central and Eastern European (CEE) states. It modelled the growth of CHP under four scenarios ranging from the pessimistic ‘deregulated liberalisation’ scenario to the optimistic ‘post Kyoto’ scenario. In the ‘deregulated liberalisation’ scenario EU CHP capacity grew by only 16 GW from a base level of 65GW to 81GW in 2020. In contrast, under the ‘Post Kyoto’ scenario installed capacity grew by 130GW to 195GW by 2020. Under the ‘Post Kyoto’ scenario, CHP in the UK would grow from a base level of 3453GW to 27215GW in 2020. Not all of this growth would come from CHP schemes involving steam generation but it would represent a substantial opportunity for growth in the HRSG industry [80] . At present CHP opportunities in the UK are limited to those that have specific driving factors other than just more efficient use of fuel. The UK government has set a target of achieving an installed CHP capacity of 10GW by 2010, compared to the current capacity of 4801MW (2001). Some policy measures have been introduced to stimulate the CHP market. Fuels used in CHP are exempted from the Climate Change Levy (CCL). In the April 2002 budget it was announced that electricity exported from CHP schemes will also be exempted from the CCL (subject to approval under EU state aid rules). Enhanced capital allowances (ECAs) are allowed on some items of CHP (110)
equipment, increasing the opportunities for investment in CHP. However ECAs are not yet available on all items in a complete installation. The EU target is to double CHP capacity as a fraction of total electricity generation capacity from 9% (1994) to 18% in 2010. In order to achieve this target the EU have proposed a CHP directive [81] . The key points of the directive are:- • The introduction of a common definition of cogeneration; • Targeting of support at schemes with an electrical capacity of up to 50MW (or at the first 50MW of larger schemes); • Providing a guarantee of the origin of electricity from cogeneration; • The establishment of efficiency criteria for cogeneration; • An obligation on member states to establish their national potential for cogeneration; • Allowing national support schemes for cogeneration in the short to medium term (under state aid rules); • The establishment of objective, transparent and non-discriminatory rules for grid connection and reinforcement; • A requirement for member states to review legislative frameworks with a view to reducing barriers to cogeneration. These actions should enhance the European HRSG market. The Kyoto agreement sets binding targets for greenhouse gas emission cuts for signatory countries. CHP has been identified as one of the most cost-effective methods of cutting CO2 emissions. Joint Implementation and Emissions Trading mechanisms can potentially be harnessed to help develop CHP schemes. In ‘Annex II’ countries, the Clean Development Mechanism may offer opportunities to help develop CHP schemes. 6.4.5 Action to Stimulate the UK Market / Support the UK Industry A common view was expressed by all UK consultees: there is no problem with the product but huge problems with the market. No need for DTI funded research was identified – the technology is essentially mature. However the Government does need to act to stimulate the UK market. The combination of NETA and a high natural gas price has dramatically reduced the market for CHP and the climate change levy is not seen as being an adequate incentive to invest in new HRSGs / CHP schemes. Enhanced support for CHP is required from government and a ‘CHP obligation’ seems to be the preferred mechanism in the industry. The current pessimistic industry view is supported by a report by Forum for the Future / Cambridge Econometrics commissioned by the Combined Heat and Power Association and released in October 2002. This predicted that total installed capacity would only reach 6.6 GWe by 2010 and 8.6 GWe by 2020 under current conditions, compared to the government target of 10 GWe by 2010. (111)
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