Summary of delegations' comments on the proposed directive on the promotion of cogeneration based on a useful heat demand in the internal energy market

Brussels, 17 Dec 2002

Full text of Document 15321/02

prev. doc. 13987/02 ENER 253 ENV 646 CODEC 1396
No. Cion prop.: 11381/02 ENER 167 ENV 433 CODEC 975 (COM (2002) 415 final) Subject: Proposal for a Directive of the European Parliament and of the Council on the promotion of cogeneration based on a useful heat demand in the internal energy market - Follow-up of open debate

1. On 25 November 2002, the Council (TTE) held an open debate on the above proposal, based on the four general questions set out in document 13987/02 .

When opening the debate, the Presidency invited delegations, in addition to their oral comments, to also present their views in writing. To date, ten delegations have made use of this possibility (B/DK/D/FIN/GR/I/L/A/P/UK).

2. A summary of delegations's views is presented in point 3, without prejudice to further comments and taking into account the still provisional nature of some of these contributions notably with respect to issues such as:
- the level of ambition and the nature of the instrument proposed
- the assessment and/or definition of the quality of cogeneration
- guarantee of origin for electricity produced by cogeneration
- the connection with climate change commitments
- the degree of harmonisation to be achieved by the Directive
- the cost-effectiveness of the measures proposed
- the type of support schemes
- access to the grid.

3. Summary of delegations' views:

a. With respect to the first question (Which elements of the proposed Directive are the most supportive of the proposal's overall objectives and which are not?), while delegations are generally supportive to a EU wide framework based on harmonised definitions and methodologies of cogeneration, they make the following comments:

i) with regard to the overall objective itself:
• - efforts made at national level are likely to reduce the added value of this Directive
• - the framework should leave details to Member States
• - the aim of the proposal should be to increase the cogeneration of electricity and heat as one of the best means of improving energy efficiency and savings (more CHP equal more efficiency), while prioritising cost-effectiveness, environmental friendliness and security of supply
• - the harmonisation of the assessment of cogeneration plants could be improved by including references to concrete support mechanisms (Articles 87 and 88 ECT
• - performance criteria and the examination of national potentials in relation to support schemes are the most salient features of the proposal, whereas the guarantee of origin is considered as rather deviating the attention from the main problems (one delegation)
• - attention should be paid to technologies that enable cogeneration production based on difficult fuels (i.a. biomass)
• - the main aim of the proposal should be to contribute to the fulfilment of climate change commitments
• - in the short-term, support should be given to CHP as alternative system
• - measures should be cost-related and non-discriminatory
• - administrative and cost burdens are placed on all cogeneration regardless of its efficiency or whether public support is being claimed

ii) with regard to definitions:
• - definitions need further careful consideration - some being arbitrary or ambiguous (clarification can be needed i.a. as to the power to heat ratio)
• - the relationship (if there is any) between the definition of cogeneration electricity and the definition of high efficiency cogeneration needs to be clarified
• - categorisation of cogeneration electricity into various types based on the sector in which it is used and on the quality of the heat output does not allow for enough flexibility
• - definitions should exclude less performing installations
• - the definition of cogeneration should clarify that only electricity generated simultaneously with heat and to be used commercially is considered cogeneration electricity
• - larger and condensed plants should be included

iii) with respect to "indicative targets":
• - more ambition towards harmonisation could have been good: this could be reached by the identification of national potentials and the setting of indicative targets
• - indicative targets could be similar to renewable ones, i.e. aim at the 2010 horizon
• - the proposal should not lead to the establishment of quantitative targets
• - targets for producers could be fixed at national level (one delegation)

iv) regarding support schemes:
• - the framework could include supplies and harmonised schemes (one delegation)
• - a harmonisation of national support schemes is unnecessary, while a reliable framework for support schemes at Community level could be envisaged
• - support should not be limited to schemes below 50MW
• - less performing installations should be excluded from support
• - certification will be a good way of increasing harmonisation (one delegation)
• - national aid, based on the need for economically useful heat, should be directed to production that has the most disadvantageous competition situation (one delegation)

  b. With respect to the second question (Should the proposal include an assessment of the quality of cogeneration in comparison with alternative separate production of heat and electricity?), a large majority of delegations supports an assessment of cogeneration quality in comparison with alternative separate production of heat and electricity, as this leads to a distinction between high efficient and other cogeneration. Such an assessment should be based, according to at least one delegation, on the use and design of cogeneration in Member States.

  For other delegations, this assessment should be based on the figures contained in Annex III, where primary energy consumption is compared to separate heat and electricity production.

  It is suggested to appreciate the quality of cogeneration both in terms of energy efficiency and savings and in terms of its capacity to reduce CO2 emissions. The evaluation should take into account differences in technology and energy mix in the various Member States.

  Emphasis should be given to energy efficient cogeneration based on available fuels.

  One other delegation is of the view that rather than to propose a comparative assessment of cogeneration quality, a definition of conditions and modalities on how to promote cogeneration installations should be examined.

  Ideally, according to one delegation, one single harmonised definition for cogeneration should be established within the Community, but, due to the fact that different national definitions already exist, this is not (yet) possible to implement.

  On the other hand, one delegation takes the view that an assessment of the quality of cogeneration which requires clear standards for comparison could possibly lead to the promotion of specific fuels and would require a high degree of bureaucratic efforts: the useful heat production in comparison to the electricity produced ensures already the required high efficiency.

  One other delegation points out that it does not make sense to compare new CHP units with new units of electricity using same fuel, because electricity production from CHP is not replacing electricity production from a combined cycle.

  c. In so far as the third question ( How and to what extent should the Directive provide for a degree of harmonisation in order to be coherent with the achievement of the internal energy market?) is concerned, most delegations underline that harmonisation should be limited to definitions and methodologies: Common principles for defining high efficiency cogeneration are considered to be helpful. Such a framework would ensure that the definitions of high efficiency cogeneration developed by Member States are set at a consistent level. It should, according to several delegations, also be ensured that public support should be limited to cogeneration schemes that provide environmental and social benefits, while recognising the different industrial and climatic conditions in Member States. One delegation stresses that the reference values should be focussing on the performance of installations. One other delegations expresses doubts on the need for harmonisation.

  One delegation suggests that a possible harmonisation should follow a gradual approach, providing Member States with flexibility in the application of tax reductions to fuels used for cogeneration. Criteria for purchase of excess electricity from cogeneration installations should be based on avoided costs and emissions and should safeguard the financial risk linked to the fuel cost.

  Still another delegation considers that obligations imposed on electricity distributors to increase the efficient use of energy should include also the use of cogeneration heat; this would contribute to ensure competition and form the basis of a future market of energy efficiency in the EU.

  Several delegations stress the need to ensure coherence with existing Community legislation, such as the Renewables' Directive, or legislation under preparation, i.a. the Electricity

  Directive. Also, equal treatment of the parties operating on a competitive electricity market must be ensured.

  On the other hand, a delegation is of the view that also a harmonisation of the support schemes is necessary in order to avoid distortions in the electricity market. One delegation wonders whether a separate market for "green" or "cogeneration" electricity should be established. The requirements regarding the guarantee of origin may become a useful step in that direction.

  d. A majority of delegations are replying positively to the fourth question (Should the proposed Directive promote certain types of cogeneration, such as small and distributed cogeneration installations or plants based on renewables, more than others?), underlining that
  • - Incentives which could be limited to the refinancing and compensation for feeding electricity into the grid should be given to small decentralised plants (up to 2MW) and plants based on renewables (several delegations)
  • - Reference should be made to high performing installations and technologies, which should comply with sustainable development, while other tools exist for the promotion of i.a. renewables (one delegation)
  • - Elements in support of new sustainable technologies should be included in the proposal
  • - Specific subsidy schemes could refer to benefits to the security of supply and to environmental aspects not yet integrated in the mechanisms provided for in the internal market Directive.
  • - When encouraging small installations, the cooling effect could also be an important factor to determine the macroeconomic added value (one delegation).
  • - Small and distributed cogeneration should be supported in particular in urban environment, notably through internalisation of avoided costs related to transmission and distribution losses (one delegation)
  • - Regarding installations based on renewables, the evaluation of "avoided emissions" could be useful in the context of the upcoming emissions' trading market.
  • - Economies of scale are important, but it should be taken into account what costs are really incurred
  • - Systems offering the most significant environmental and social benefits irrespective of their size should be supported by Member States (several other delegations)
  • - Encouragement should be directed to production occupying the weakest position in the competition situation; specific output levels (50MW) should therefore not be fixed, as they could give wrong signals to investments in new plants
  • - The proposal should limit itself to provide a common framework of definitions, objectives, tools/means and methodologies, while it should be up to operators to choose the strategies how to reach these objectives (one delegation).

On the other hand, several delegations do not see a special role for small installations, or any reason for discriminating with respect to the performance of the installations. They consider that the basis for promotion of cogeneration should be the efficiency, not the size, of the plants. One delegation underlines that energy from nuclear production should be excluded.

3. The Presidency takes the view that the above findings could facilitate future work on this dossier.

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