Linking Heat and Electricity Systems

Linking Heat and Electricity SystemsCo-generation and District Heating and Cooling Solutions for a Clean Energy Future

INTERNATIONAL ENERGY AGENCY

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OECD/IEA2014 LinkingHeatandElectricitySystems

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TableofcontentsForeword................................................................................................................................................5Acknowledgements................................................................................................................................6ExecutiveSummary................................................................................................................................7

Appliedsolutionsandlessonslearned............................................................................................7Keypolicyrecommendations..........................................................................................................8

Introduction..........................................................................................................................................10CogenerationandDHCSolutionsAnalysis.........................................................................................13

Technologyselectionjustification.................................................................................................16Financingmechanisms..................................................................................................................19Businessstructure.........................................................................................................................22Conclusions...................................................................................................................................26

CogenerationandDHCCaseStudiesCompendium...........................................................................27Industrialcogeneration:Segovia,Spain.......................................................................................27Industrialcogeneration:Tabasco,Mexico...................................................................................31Industrialcogeneration:Fife,Scotland,UnitedKingdom............................................................36DHC:Marstal,Denmark.................................................................................................................40DHC:Paris,France.........................................................................................................................45DHC:Riyadh,SaudiArabia.............................................................................................................49

TheIEACHPandDHCCollaborativeandRelatedInitiativesSupportedbytheIEA..........................53AbbreviationsandAcronyms...............................................................................................................54UnitsofMeasure..................................................................................................................................55References............................................................................................................................................56

LinkingHeatandElectricitySystems OECD/IEA2014

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ListoffiguresFigure1 Globalpowerandheatgenerationenergyflows,2011.....................................................10Figure2 KeyfactorsindevelopmentandoperationofcogenerationandDHCprojects...............15Figure3 Interconnectionsofelectricityandthermalenergyinanintegratedenergysystem........23Figure4 OpenDHCbusinessmodel..... 24Figure5 Eresmacogenerationsystemsankeydiagram..................................................................27Figure6 NuevoPemexcogenerationsystem..................................................................................31Figure7 Offsiteindustrialprocesseselectricitypurchases.............................................................33Figure8 Mexicanelectricitysectorstructure...................................................................................34Figure9 ProcessflowdiagramdescribingSunstore4plantadditions.............................................41Figure10Sankeydiagram(MWh)ofMarstalDHproduction............................................................42Figure11ProcessflowdiagramofBercycoolingplant......................................................................45Figure12SystemdiagramofthePNUWsolarthermalDHplant.......................................................50

ListoftablesTable1CogenerationandDHCcasestudiesanalysed.....................................................................14Table2EresmaCogencapacity,generationandefficiency..............................................................28Table3NuevoPemexcapacity,generationandefficiency...............................................................32Table4NuevoPemexelectricityprices.............................................................................................35Table5Markinchcapacityandefficiency..........................................................................................37Table6Markinchsteamcharacteristics............................................................................................37Table7HistoricexpansionoftheMarstalSunstoreprojects............................................................41Table8AnnualenergyinputandoutputoftheMarstalDHsystem.................................................42Table9PNUWdistrictwaterheatingenergyinput,outputsandefficiencies..................................50

ListofboxesBox1StrategicheatingandcoolingplanningtrendsinEurope........................................................19Box2Russia:policyeffortstomoderniseDHinfrastructure............................................................21Box3India:financialandfiscalincentivesforindustrialcogeneration...........................................22Box4Sweden:OpenDHCbusinessmodel........................................................................................24


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ForewordOur energy systems are becoming increasingly complex, underpinning the need for efficient andflexible technologies and networks.At the same time, the realities of climate changemean thatsustainable solutionsmust be implemented in the near term to avoid longterm environmentalconsequences. Inordertomeetthesechallengesandmaximisethe impactofourefforts,wemustconsiderthesustainabilityoftheenergysystemasawhole.Cogeneration and efficient district heating and cooling (DHC) can support an integrated energysystembyprovidingaflexiblelinkbetweenelectricityandthermalenergywhiledeliveringenhancedenergy efficiency. These technologies are ready for implementation today, yet global progress indeploymenthasbeen slow.Recently, somecountrieshave recognised thecontribution that thesetechnologiescanmaketoasustainableenergyfuturebysettingupdeploymentprogrammes.ThisreportbuildsonacompendiumofcasestudiesofsuccessfulcogenerationandDHCprojectstoanalyse the impactofexistingbarriersandopportunities to thedeploymentof cogenerationandefficientDHC.Theanalysishighlightstheneedtocreatealongtermstablemarketenvironmentthatincentivises energy efficiency as a critical factor for the uptake of these technologies, aswell asstrategicplanningforenergyinfrastructuretooptimisetheuseoflocalenergysources.Aswemove forward, efficient and flexible technologieswill become increasingly important, andpolicymakersandprojectdevelopersshould learn fromtheexperiencesofothers inorderto fullyrealisethepotentialofcogenerationandDHC.Bybuildinguponpastsuccesses,wecanuselessonslearnedtohelpcreateabetterintegratedenergysysteminthefuture.TheIEAhopesthatthisreportcanserveasaguideforpolicy makersdevelopingsustainableenergypolicystrategies.ThispublicationisproducedundermyauthorityasExecutiveDirectoroftheIEA.

MariavanderHoevenExecutiveDirector

InternationalEnergyAgency(IEA)

Linking Heat and Electricity Systems OECD/IEA 2014

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Acknowledgements

This report was prepared by Araceli Fernandez Pales, John Dulac, Kira West and Marc LaFrance of the IEA. The authors would like to thank the following people and organisations who provided case study information, comments and expertise: Javier Rodrguez Morales (Acogen), Ennis Rimawi (Catalyst Private Equity), Javier Dintn Fernndez and Jaime Igea Lpez-Fando (Cogen Energa Espaa), Ana Delia Crdova Prez and Jorge Armando Gutirrez Vera (Cogenera Mexico), Claire Wych and Jonathan Graham (CHPA), Marco Gangichiodo and Antonio Dicecca (Climespace GDF Suez), Krzysztof Laskowski (Euroheat&Power), Niko Wirgentius (Fortum), Angelika Cerny, Tamara Khoury and Meera Drabkah (Millennium Energy Industries), Per Alex Sorensen (PlanEnergi Nordjylland), Jorge Javier Maon Castro and Carlos Azamar (Pemex), Tomas Jumar (RWE Innogy) and Stephan Renz (Swiss Federal Office of Energy). The Finnish Ministry of Employment and the Economy, VTT Technology Research Center of Finland, IEA Committee on Energy Research and Technology and IEA Working Party on Energy End-Use Technologies, as well as other members of the IEA CHP and DHC Collaborative provided support for this project. Thanks are also due to IEA colleagues such as JeanFranois Gagn, Didier Houssin, Cecilia Tam, and Christelle Verstraeten who provided thoughtful comments. Finally the authors would like to thank Jonas Weisel for editing the manuscript, as well as the IEA publication unit, in particular Muriel Custodio, Cheryl Haines, Astrid Dumond, Bertrand Sadin and Hanneke van Kleeff for their assistance on graphics, editing and layout.


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ExecutiveSummaryCogeneration1technologiesandefficientdistrictheatingandcooling(DHC)networksprovideclearenvironmental benefits due to their enhanced conversion of energy and use ofwaste heat andrenewableenergysources.CogenerationandDHCcanalsoserveasflexibletoolstobridgeelectricalandthermalenergysystems,whichwillplayan increasingly importantrole inachieving integrated,sustainableenergynetworksinthefuture.Thesetechnologiescanthereforebeanessentialpartofstrategiesforgreenhousegas(GHG)emissionsmitigationandenergysecurity.Whilethesetechnologiesrepresentaconsiderableshareoftheenergygenerationportfolioinsomecountries, globaldeploymentof cogeneration and efficientDHChasbeenmuch less successful globalelectricitygeneration fromcogenerationwas reduced from14% in1990 toaround10% in2000, and it has remained relatively stagnant since then. Significant barriers prevent extensivepenetration andmodernisation of these technologies. These barriers aremostly related to poorstrategicplanning forheatingand cooling infrastructure, localenergymarket conditions failing toensureenergypricesthatarereflectiveofgenerationcosts,andlackoflongtermvisibilityofrelatedenergypolicies.However,despite the lackofprogressglobally,somecountriesandregionshaverecentlyshownarenewed interest in cogeneration and efficient DHC networks. This interest includes the 2012European Energy Efficiency Directive calling for an assessment of the potential additionaldeployment of these technologies (EU, 2012), a 2012 US Executive Order aiming to achieve40gigawatts(GW)ofindustrialcogenerationby2020(US,2012),thestrongindicationthatPeoplesRepublicofChinawill reach50GWof gasdrivendistributed cogenerationby2020 (NDRCet al.,2011)andthecreation,in2012,ofacogenerationroadmapinJapantargetingafivefoldincreaseincogenerationbasedelectricityby2030(EEC,2012).Althoughthesedirectivesandtargetsrecognisethe potential of these technologies, significant efforts have yet to bemade to realise all theirbenefitsforasustainableenergyfuture.AppliedsolutionsandlessonslearnedThe report builds on real case studies from a selected range of applications, technologies andlocations to analyse the impact of existing barriers and opportunities. This includes a detailedassessmentofthedifferentphasesofthedevelopmentofcogenerationandefficientDHCprojects,fromconception tooperation.Thecasestudiesanalysed in this report include three industrialcogenerationapplicationsandthreeDHCsystems: The Eresma Cogen project consists of a gas enginebased 13 megawatts electric (MWe)

cogenerationsystem thatsupplieselectricityandheat toadistillery factory inSegovia,Spain.Thegenerationsystemprovides70%ofprocesssteamandalltheelectricityrequirementsoftheindustrialsite,anditexportstheexcesselectricitytothegrid,savingroughly16kilotonnes(kt)ofcarbondioxide(CO2)everyyear.

The cogeneration plant located in the gas processing complex of Nuevo Pemex in Tabasco,Mexicoprovidesheatandpowerforonsiterequirementsandexportselectricitytootherusers.The generation system has a 300MWe installed capacity and includes two natural gas turbo

1Cogenerationisalsocommonlyreferredtoascombinedheatandpower(CHP).Thisreportusesthetermcogenerationtorefertothesimultaneousgenerationofheatandelectricity.


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generatorswithheatrecoveryequipmentthatresultin430ktCO2peryearsavingscomparedtoconventionalgenerationtechnologies.

TheMarkinch biomass project consists of a 60MWe cogeneration plant at the TullisRusselpapermill in Fife, Scotland. The generation unit provides heat and electricity to support thepaperproductionprocess,and itexportsexcesselectricity to thegrid. It isestimated that theplantwillavoid250ktCO2peryear.

TheSunstore4projectisadistrictheatingplantlocatedinMarstal,Denmarkthatwasdevelopedto demonstrate the production of 100% renewablebased district heating and flexiblemanagementofdifferentintermittentenergysourceswiththeassistanceofthermalstorage.Theplantcombinessolar thermal,abiomassboilercoupledwithanOrganicRankineCycle (ORC),aheatpumpandthermalstorage.Itisestimatedtosave10.5ktCO2annually.

TheBercy cooling plant is a district cooling facility in Paris, Francewith a current capacity of44megawatts(MWth).Freecoolingassistancehasbeenappliedtothissystemresultingina34%increaseoftheaveragecoefficientofperformance(COP)oftheplantschillers.Overall,theplantisestimatedtosave7.4ktCO2annually.

Thesolarthermaldistrictheatingsystem installed inthePrincessNouraBintAdbulAlRahmanUniversity forWomen (PNUW) inRidyadh, SaudiArabia is theworldsbiggestoperating solarheatingprojectwith36610m2ofrooftopflatplatecollectors.Thesystemprovidesspaceheatingandhotwatertotheuniversitystudentsandsaves5ktCO2peryear.

These realworld examples were used to inform the analysis of barriers impeding increasedpenetration of cogeneration and efficient DHC in markets across the world, as well as todemonstrate the applied value of these technologies to achieve sustainable, efficient energysystems.Longtermstabilityofapolicystrategy rewardingenergyefficiencywasdemonstratedbythecasestudiestobethemost important levertounlockdeploymentofcogenerationby limitingassociated investmentrisk.Theanalysisoftheserealapplicationsalsoshowedthat innovativeandhighly integratedDHCsystemsposetechnologicalchallenges,whichcanbesolvedthroughthecooperativeeffortofexperiencesharingand,insomecases,financialsupporttodemonstratepioneersystems.KeypolicyrecommendationsThereportprovidesasetofpolicymeasuresandrecommendationstoovercomemarketandpolicybarriersfromanenergysystemsintegrationapproach.

Policy strategies to support the costeffective selection of cogeneration and efficient DHCtechnologies

Ensurethatmarketconditionspromotetransparentandfairfuelpricesandreflecttherealcostofelectricityandheatgenerationtopromoteefficientuseofenergy.

Consider cobenefitsofpromoting themostefficientuseof lowcarbonand renewableenergysourcesthrougheffectivecoordinationandcomplementarityofenergyefficiencyandrenewableenergypolicies.

Ensurestreamlinedandcleargridinterconnectionstandardstofacilitateexploitingtheflexibilitypotentialofcogenerationtechnologies.

Developstrategic local,regionalandnationalheatingandcoolingplanningbasedonmappingofdemand and source points to identify costeffective opportunities for cogenerationdevelopment,andrefurbishmentorexpansionofcogenerationcapacityandDHCnetworks.


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PolicystrategiestoreinforcetheeconomicfeasibilityofcogenerationandDHCprojects

Ensure longterm stability of energy policies andmarket regulation to secure investments inefficientelectricityandheatgenerationanddistributiontechnologies.

Consider financialand fiscal incentivesthatmitigatethe impactofmarkets failingtoreflect fairenergy prices and that take into account the environmental benefits of efficient generationtechnologies.

Facilitate investment inmodernisationand improvementoftheoperationofexisting inefficientDHCnetworksthroughfinancialincentives.

Policy strategies to support the optimisation of cogeneration and efficient DHC networks inintegratedsustainableenergysystems

Support research activities to design sustainable businessmodels that reward flexibility, lowcarbon energy sources and energy efficiency in complex and highly interconnected energysystems.Promotetheirimplementationandsharelessonslearnedfromthoseexperiences.

Coordinatethedevelopmentof local,regionalandnationalstrategic infrastructuredeploymentplanswithdevelopersof smartbusinessmodels forenergynetworks.Define jointmeasures tominimise costs, capture energysaving opportunities and support the prioritisation of energyefficiencymeasures.


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IntroductionCogenerationandDHCcanplaya fundamental role ina lowcarboneconomy,yet theirpotentialremains an untapped resource that has not been effectively pursued within energy policy andtechnology initiatives. Large quantities of heat are currentlywasted in power stations and heavyindustry.Inendusesectors,suchasresidentialandcommercialbuildings,heatingandcoolingneedscouldbemetthroughbetteroptimisationoftheenergysupplyanddemandmatrix.CogenerationandDHCcouldplayamuchmore importantpart inachievingthisoptimisationthroughtechnologysolutionsforamoreefficient,integratedenergysystem.Cogeneration technologiesenable the simultaneousgenerationofheatandelectricity, increasingthe overall energy efficiency of the conversion process in comparisonwith conventional thermalgeneration technologies. This efficiency is achieved by partially recovering heat produced duringelectricitygenerationtomakeitavailableforenduseapplications.Globally, thermal power plants achieved a conversion efficiency of 36% in 2011 (IEA, 2013b). Bycontrast,cogenerationunitsconvertedabout58%2ofenergy input intoelectricityandheat inthesame year (Figure 1) (IEA, 2013b). Stateoftheart cogeneration units can reach conversionefficienciesofasmuchas90%(IEA,2013b).

Figure1 Globalpowerandheatgenerationenergyflows,2011

Notes:followingIEAenergybalanceconventions,forautoproducercogenerationplants,onlyheatgenerationandfuelinputforheatsoldareconsidered,whereasthefuelinputforheatusedwithintheautoproducersestablishmentisnotincludedbutisaccountedforinthefinal energy demand in the appropriate consuming sector. Totals may not equal the sum of their components due to rounding.Transmissionanddistributionlossesarenotincluded.Source:unlessotherwisenoted,alltablesandfiguresinthisreportderivefromIEAdataandanalysis.Keypoint Only about 36% of the energy going to thermal power plants is converted into electricity incomparisontoa58%averageconversiononcogenerationsites.

2FollowingIEAenergybalanceconventions,forautoproducercogenerationplants,onlyheatgenerationandfuelinputforheatsoldareconsidered,whereasthefuelinputforheatusedwithintheautoproducersestablishmentisnotincludedbutisaccountedforinthefinalenergydemandintheappropriateconsumingsector.

Coal 99 EJ

Biomass and

waste 5.6 EJ

Nuclear 28 EJ

Natural gas 47 EJ

Oil 12 EJ

Conventional

thermal electricity

plants 158 EJ

Non-combustion

electricity plants

17 EJ

Co-generation

plants 24 EJ

Heat plants

9.5 EJ

Geothermal 2.4 EJ

Hydro 13 EJ

Wind 1.6 EJ

Electricity

80 EJ

Heat 14 EJ

Conversion losses 115 EJ


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Efficient DHC networks provide the required infrastructure to distribute recovered heat fromcogeneration sites to end users. These networks can benefit from locally available, carbonfree3energysources,suchassolarthermalheatandwasteheatrecoveredfromindustrialprocessesthatcanbe injected intoadistrictheatingnetworkorconverted intocoolingcapacityusingabsorptionchillers.Naturalcoolingsources,suchaswater from lakes,seasandrivers,canalsobeused.4DHCnetworksbasedonthesecarbonfreeandnaturalenergysourcescouldachieveenergyefficienciesfive to ten timeshigher than traditionalelectricitydrivenequipment (DHC+ TechnologyPlatform,2012).Duetotheirflexibilityandenhancedefficiency,cogenerationandDHCcanplayarelevantroleinanintegrated energy system by providing a sustainable option to help balance a greater share ofvariable renewable energy sources. In addition to their turndown range and capability,5cogenerationtechnologiescanoperatewithinarangeofpowertoheatoutputratios,allowingunitstoadapttospecificenergydemandrequirementsovertime.Theadditionofenergystoragecapacitytocogenerationplantscanalsoprovideanaddedlevelofflexibilitytoregulateelectricityandheatoutputswhileminimisingenergylosses.Thesetechnologiescanuseawiderangeofenergysources,fromfossilfuelstowasteandrenewablesources,suchasbiomass,solarandgeothermalenergy.DHCnetworkscan similarlybedesignedandoperatedasenergybalancing tools.By incorporatingother technologies, such asheatpumps and thermal storage capacity,DHCnetworks can absorbexcesselectricitygenerationwhenneededby thesystem.DHCnetworkscanalsohelp tomitigatepeakdemandelectricityloadsbyprovidingalternativeheatingandcoolingsupplyoptions.Despite these benefits, cogeneration technologies and highefficiency DHC systems are still notextensively deployed. Only 9% of global electricity generation uses cogeneration technologies(Figure1) (IEA,2013b),andpenetrationhas remained stagnantover the lastdecade.While somecountries have achieved a high share of cogeneration in electricity production (for instance,Denmarkhasmorethan60%andFinlandalmost40%),mostcountrieshavenotbeenthatsuccessful.ExperiencefromcountrieswithhighlevelsofcogenerationandefficientDHCproductionillustratesthat strategic decisions to consider cogeneration and DHC as key energy security and climatesolutions are critical to achieving increased penetration. In these countries, deployment did notnecessarily require substantial financial incentives. Rather, targeted policies were crucial toeffectivelyaddressingbarrierstofurtherdeploymentofcogenerationandDHCtechnologies.ExistingbarrierstocogenerationandefficientDHCnetworkdeploymentcanbegroupedbyspecificphase of project development, including project conception and technology selection, projectfinancingandeconomicfeasibility,andbusinessstructure.BarrierspreventingtheselectionofcogenerationandefficientDHCtechnologiesinclude: Marketconditionsandenergypricesfailingtorewardenergyefficiency. Energypoliciesnotfairlyrewardingtheuseofindustrialwasteheatornaturalcoolingsourcesin

comparisontorenewableenergysources. Nontransparent,inconsistentinterconnectionproceduresandbackupcharges.

3 Industrialwasteor surplusheat refers toheat contained in sidestreams,productorwastestreamsproducedaspartof thenormaloperation of industrial processes; this heat, unless recovered,would be released to the environment, and thus the use of recoveredsurplusheatisconsideredcarbonfree.4Theuseofnaturalcoolingsourceswillneedtocomplywithlocalenvironmentalregulationandrequiredimpactassessments.5Turndownrangereferstotheratiobetweenmaximumandminimumoperatingloadsofaplant,whileturndowncapabilitydefinestherateatwhichtheoperatingloadcanbedecreased.Bothtermsprovideanindicationofthedegreeofflexibilityofagenerationunit.


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Lackofknowledgeinsocietyaboutcogenerationbenefitsandsavings. Lackofintegratedheating/coolingsupplyplanning.BarriersreducingeconomicfeasibilityofcogenerationandDHCinclude: Higherupfrontinvestmentscomparedtoconventionalgenerationanddistributionsystems. Economicandmarketissuesrelatedtodifficultiesinsecuringfairvaluepricesforelectricityfrom

cogenerationexportedtothegrid. Uncertainenergypolicieslackinglongtermvisibility.Barriersreducingflexibilityofthebusinessstructureofcomplexenergysystemsinclude: Lackofenergyefficiencypolicycoordinationonsupply,distributionandenduse. Lackofbusinessmodelsthatrewardenergyflexibilityandsustainability.Thisreportprovidespracticalexamplesandapproachestohowthesebarrierscanbeovercometoachieve increased penetration of cogeneration andDHC technologies in support of an efficient,integrated,lowcarboneconomy.ThefollowingsectionsdescribespecificcogenerationandmodernDHC solutions and analyse them from different angles, including the technology selectionmade,business structure developed and financingmechanisms used. The report also considers the roleplayedbytheregulatoryframeworkwithinwhichprojectshavebeenimplemented.Inaddition,thereportpresentssixspecificcogenerationandDHCprojects,includingthreeindustrialcogenerationcasestudiesandthreehighefficiencyrenewableDHCcasestudies.Thesecasestudiesofferpracticalexamplestodistilreallifesolutionsoftechnologychoices,financialtoolsandmarketstructures,includinglessonslearnedandpossibleapplicationinothercontexts.


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CogenerationandDHCSolutionsAnalysisCogeneration represents a series of proven technologies, covering a wide range of enduseapplications,capacityranges,fuelbasesandtechnologyuses.Themajorityofthesetechnologiescanbegrouped into threecategories: industrialprocesses,DHC,and smallcommercialand residentialapplications.ThisreportfocussesonindustrialandDHC6applications.CogenerationunitsinstalledinindustrialprocessesEnergyintensive industrial sectors such as chemicals, refining, pulp and paper, and food andbeverage typically have high processheat requirements and considerable electricity needs.Cogenerationtechnologiesarecapableofprovidingheatupto400degreesCelsius(C).Almostallprocessheatdemand inthe foodsector isbelow400C,aswellasapproximately51%and83%ofthe total heat demand of the chemicals and pulp and paper sectors, respectively. Taking thesecharacteristicsintoaccountglobally,theestimatedmaximumtheoreticaltechnicalpotentialforheatcogenerationrepresents4.8exajoules(EJ)and3.3EJinthechemicalsandpulpandpaperindustrialsectors, respectively, based on 2011 energy use data (IEA analysis based on Ecoheatcool, 2006).However,thecosteffectivepotentialoftheseapplicationsishighlydependentonlocalenergypricesand regulatory conditions. Data availability limitations on existing global industrial cogenerationcapacitymake itdifficulttoestimatetheshareofadditionalcapacitypotentialwithinthe indicatedmaximumtheoreticallevel.Some industrialprocessesalsogeneratewaste streams thatare suitable foruseas cogenerationfuels that can reduce a sites operating costs by reducing fuel expenditures. Personnel at theseindustrial facilities are often qualified to operate the necessary cogeneration units, providing asuitableenvironmentforcogenerationtechnologiestobeapplied.In2011,industrialcogenerationfacilitiesgenerated26%of totalglobalelectricitygeneration fromcogeneration (37%and15% inOrganisation for Economic Cooperation and Development [OECD] member countries and nonmembereconomies,respectively).CogenerationapplicationsconnectedtoDHCnetworksDistrictheating (DH)networkssupplyheatfor lowandmediumtemperatureapplications,suchasspace heating and hot water in residential and commercial buildings. District cooling (DC) cansimilarlybe produced fromheat via absorption chillers and fromnatural cooling sources such asriversandtheocean.HeatsupplyapplicationsforbothDHandDCcanincludeheatrecoveredfromcogenerationunits,industrialprocessesandothergeneratingsources,includingrenewableenergy.Thepotentialfortheseapplicationsdependsonthecharacteristicsofthethermalload(temperatureandregularity)aswellasonelectricitypricesandpopulationdensity,whichdirectlyaffectsrequiredcapitalinfrastructureinvestmentsandtheassociatedpaybackperiod.In2011,79%of totalDH inOECD countrieswasproducedby cogenerationplants (IEA,2013). InEurope,roughly12%oftotalheatdemandwasmetbyover6000DHsystems,whereasDHsalesinChina (2.81EJ) (Euroheat&Power, 2013) represented about 23%7 of residential and commercialheatingdemand.This levelofdemandrepresentsagrowthof25%between2007and2011 inDHsalesinChina(Euroheat&Power,2013).6ThesectiononcogenerationapplicationsconnectedtoDHCnetworkscanalsoincludestandalonedistrictenergynetworks.7BasedonIEAETPBuildingsmodeldataforresidential/commercialheatingdemand.


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CurrentDCsalesarestilllimitedcomparedtoglobalcoolingdemand.ThegreatestDCsalesareintheUnited States, accounting for24.71 terawatthours (TWh) (Euroheat&Power,2013), although thisamountstillrepresentsonly6%ofthecountrysspacecoolingdemandinresidentialandcommercialbuildings.8 Significantpotential exists forDC growth. The capacityofDC through chilledwater inKoreaalonemorethantripledbetween2009and2011(Euroheat&Power,2013),andasglobalspacecoolingdemandcontinues to increasemore thandoublingby20509DC solutionswillhaveanimportantroleinprovidingefficient,lowcarboncoolingsupply.Challengesandsolutions:analysisofreallifeexamplesOften, cogeneration projects look attractive when analysed independently from market andregulatory conditions. In practice, implementation of cogeneration technologies has beenchallenging, as proven by current limited cogeneration penetration in the global energymarket:only9%oftotalelectricitygenerationcomesfromcogenerationplants.DHCprojectssimilarlymaybe attractive from anenergysavingperspective,butoften they requirebothmore investment ininfrastructurethanisfinanciallyviableinthecurrenteconomicclimate,andanestablishedlongtermurbanplanningstrategy,which issometimes lacking.Littleprogress inpractical implementationofefficientDHCnetworkshasbeenachievedinrecentyears.To assist policymakers in addressing barriers to implementation of successful cogeneration andDHC solutions, this report has developed a compendium of case studies, including industrialcogenerationandDHCapplications,asthebasisforthereportsanalysis.Thesecasestudiesaddressdiverseapplications,locations,capacities,energysourcesandachievedCO2savings(Table1).

Table1CogenerationandDHCcasestudiesanalysed

Projectname Typeofapplication Location Capacity(MW) EnergyinputCO2savingscompared

toconventionalgeneration

technologies(kt/year)Markinchproject Industrialcogeneration:Papersector United

Kingdom127 Biomass 250

Eresmaproject IndustrialcogenerationBeveragesector

Spain 23 Gas 16

NuevoPemexproject

Industrialcogeneration:GasprocessingandRefiningsector

Mexico 730 Gas 430

Marstalproject BiomasscogenerationandsolarthermalDHwithstorageandheatpump

Denmark 6 100%renewable

11*

Bercyproject DCnetworkassistedwithnaturalcooling France 44 Naturalcoolingassisted

7**

PNUWproject DHnetworkwithsolarthermalandstorage

SaudiArabia

25 Solar,diesel(aux.boilers)

5

Note:CO2=carbondioxide;kt=kilotonnes;MW=megawatts.*Assumedsavings(seecasestudyfordetails).**IncludesCO2emissionsfromrefrigerantreleases.Notconsideringrefrigerantrelatedemissions,CO2emissionssavingsforthisprojectare5.5kt/year.Sources: RWE Innogy representatives (2013), Personal communication; Cogen Energa Espaa representatives (2013), Personalcommunication; Pemex representatives (2013), Personal communication; PlanEnergi Nordjylland representatives (2013), Personalcommunication; Climespace GDF Suez representatives (2013), Personal communication;Millennium Energy Industries representatives(2013),Personalcommunication.8BasedonIEAETPbuildingsmodeldataforresidential/commercialspacecoolingdemand.9BasedonIEAETPbuildingsmodeldataforresidential/commercialspacecoolingdemand.


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The studies examine in greater detail the technology choices, business structures, regulatorycontexts,andspecificbarriersandchallengesthatareencounteredduringprojectdevelopmentandimplementation.Thecase studiesalsodemonstratehow thesechallengescanbeovercome.TheirconclusionsinformedthereportsanalysisofcommonobstaclestodeploymentofcogenerationandefficientDHC,andsubsequentanalysisaimstoprovideinsightforpolicymakersandstakeholdersinmovingtowardsamoreefficient,lowcarbonenergysystemusingthesetechnologies.Theprojectdevelopmentphaseexamined in thecasestudies isdivided into twosections:one,ananalysisof technology selection and theother, a look into the financingmechanismsused in theprojects.Thecasestudiesanalysesubsequentsystemoperationintermsofthebusinessstructuretounderstandhow interactionsbetweenenergyusersandproducerscanhelpdriveenergysavings inthe overall system. Each case study also assessesmarket and regulatory conditions and drawsconclusionsandlessonslearned.Several factors can affect the decisionsmade at each of the project development phases or thedefinitionofthesystemsbusinessstructure(Figure2).TheprojectssuccesscanbeinfluencedbyagoodunderstandingoftheenvironmentalandflexibilitybenefitsofcogenerationtechnologiesandmodernDHC networks, aswell as the existence of appropriate policymeasures and fairmarketconditionsrewardingthesebenefits.

Figure2 KeyfactorsindevelopmentandoperationofcogenerationandDHCprojects

Keypoint Many factorsdetermine the success of cogeneration andDHC projects. Themost importantfactortofacilitatelongterminvestmentsisastableandeffectiveregulatoryframework.

TECHNOLOGY SELECTION

Energy efficiency

Technology flexibility

Energy prices and availability

Thermal/electricity loads

Existing local infrastructure

Grid interconnection possibilities

FINANCING MECHANISMS

Company self-financed

Loans

Third party

Joint venture

Publicly financed

Any combination of the

above financing options

PROJECT DEVELOPMENT SYSTEM OPERATION

BUSINESS MECHANISMS

Generator/end-user

contract structure

Sale contract

Purchase contract

Generator/market

operator structure:

wholesale market bids

End-user/distribution

contract structure

FINANCIAL AND

FISCAL INCENTIVES

Low interest loans

Capacity grants

Feed-in tariffs

Fiscal incentives

SMART BUSINESS

MODELS SUPPORT

Support related

R&D and international

collaboration

Promote pilot models

Integrate lessons learned

from pilots and existing

models into infrastructure

development plans

POLICY AND MARKET MEASURES

REGULATORY FRAMEWORK LONG-TERM STABILITY

TECHNOLOGY SELECTION

INCENTIVES

Energy efficiency

rewarding policies

Complementary policies

rewarding efficient use of

renewable energy sources

Interconnection measures

Local infrastructure and

heating/cooling planning


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TechnologyselectionjustificationSeveral factors determine which technologies and configurations are suitable for cogenerationapplications, includingquantityandqualityofheatandelectricitydemandloads,thepatternoftheconsequent powertoheat ratios over time, and enduser location. Economic and environmentalaspects,suchasenergyefficiency, local fuelpricesandavailabilities,andexisting localdistributioninfrastructures and the ability to interconnect to them also affect the relative competitivenessofcogenerationtechnologiesandDHCnetworksincomparisontootherconventionaltechnologiesandtechnicalapproaches. Enduseenergyefficiencycomesfirst.Energydemandprofilesdirectlyinfluencegenerationand

distributionsystemcapacities. Implementationofenergyefficiency improvementsanddemandside management measures on enduse applications should be considered prior to definingpotential supply system solutions, to ensure that the resulting heat and electricity needs areminimisedwhen possible. This approach avoids excessive capacity on generation equipment,whichcanaffectproductionenergyefficiencyperformance if thesystem isnotoperatingat itsoptimalloadlevel.

Temperaturecounts. Industrialprocessesareverydiverse,and theirheatdemandranges fromambient temperatures (25C) to temperatures above 1500C. Heating needs from processesoperating at temperatures below 400C can technically be supplied by cogenerationtechnologies. In those industrial processes that generate exhaust and waste streams at hightemperature levels, steam can be generated by partially recovering the heat that otherwisewouldbereleasedtotheenvironment.ThissteamcanbeusedtomeetonsiteheatdemandsorintegratedinlocalDHCnetworksiftemperaturecompatibilityisfavourable.Inthecaseofsteamtemperaturesabove430C,electricitymaystillbegeneratedthroughsteam turbines ifthermaldemandisnotlocallyavailableorfavourable(EPA,2008).ExistingDHnetworkstypicallyoperateatsupplyandreturntemperaturesintherangeof110Cto80Cand60Cto50C,respectively.NewerDHCsystemscanoperateat lowertemperaturesof90C (supply)and40C (return),and research isalsounderway through the IEA ImplementingAgreementonDistrictHeatingandCoolingtodevelopnextgenerationDHsystemsthatoperateattemperaturerangesof55Cto50C(supply)and30Cto25C(return)(Wiltshire,2013).Reducing supply and return temperatures is a critical first step to improving DHC networkefficiency (in addition to addressing demand and building energy efficiency), because it has apositive impactonenergysavingsbydecreasing requiredheatingenergy input, thermalenergydistribution lossesandnetworkpumpingrequirements.Beyondthesesavings,additionalenergyreductioncanbeachievedthroughthedirectuseoflowtemperatureindustrialsurplusheatandcogenerationapplicationsthathave lowernetenergy inputtoprovideDHneeds.For instance,the ORC is an example of applying lowtemperature energy sources such as waste heat,geothermal, solar thermal andbiomass,byusing anorganic fluid in theheat generation cycleinsteadofwater,enablingthesystemtooperateatalowerboilingpoint.

Get the rightheattoelectricity ratio.For cogeneration technologies tobea costcompetitiveoption incomparisontoconventionalseparateproductionofheatandelectricity,simultaneousdemand needs to exist for both electricity and heat. Under these conditions, cogenerationoptions canpayback the additional investment requirement associatedwith greater technicalcomplexityofequipmentthroughenergysavingsgeneratedbyahigheroverallenergyefficiencylevelsubjecttoexisting localenergyprices.Generally,thecapacityofacogenerationsystem isset tomeet the required thermal load, because this is usually the limiting factor; however,optimumdesignneedstobeassessedonacasebycasebasis.Fromanoperationalperspective,a


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cogenerationunitshouldaimtomaximisetheexergy10output(heatandelectricity)withinlocalconstraints, thus optimising the systems environmental benefits. The heattoelectricity ratiodeterminesthemostsuitablecogenerationprimemover.Typicalheattopowerratiorangesare0.5to1.5forinternalcombustionengines,1to10forgasturbinesand3to20forsteamturbines(CutticaandHaefke,2009).Finding the optimum generation technology can become more challenging in demandapplications, includingDHCnetworks,whoseheattoelectricity ratio variesdailyor seasonally.Thesesystemsoftenrequireacombinationofseveralgenerationtechnologiestooptimisesystemenergyperformanceonanannualbasis.Aportfolioofgenerationand storage technologies intheseDHCnetworksistypicallyneededtohelpthesystemadapttothedemandrequirements.

Bridge energy demand locations with generation. The business case for cogenerationapplicationscanbenefit fromtheexistenceof localheatendusersthatcanabsorbexcessheatgenerated. These end users could be neighbouring industrial processes with a temperaturecompatible heat demand or a local DH network. In the case of industrial cogenerationapplications,thepossibilitytoexportexcesselectricitytothegridasanaddontothe industrialsitescorebusinesscanenhance theprofitabilityof thesiteandprovideadditional flexibility tooperations.DHC networks often require considerable infrastructure to distribute the heating and coolingfromthegenerationsitetoendusers.Thenecessarycapital investmentcanonlybereasonablypaidback inareaswithhighpopulationdensitieswheresignificantheatingandcoolingdemandcan be ensured. These networks can be highly efficient and reduce their carbon footprint bytakingadvantageof locallyavailable, renewableenergy sources suchasbiomass, solar thermalandgeothermalpower,aswellassurplusheatfromindustrialprocessesandnaturalcooling.

Agreatvarietyofenergysourcescanbeused.Cogenerationtechnologiescanoperatewithinawiderangeoffuelsandenergysources,rangingfromfossilfuelsandwastetorenewableenergysources such as biomass, geothermal and concentrated solar. Combining cogenerationtechnologieswithrenewablesourcesprovidesatwofoldcarbonbenefit:energysavingsthroughenhancedconversionefficiency levelsanddirectCO2emissions reductionachieved through theuse of carbonneutral energy sources. The final selection of energy sources for cogenerationsystemsishighlydependentondiversefactors,suchaslocalavailabilityandenergyprices.

Value flexibility. Cogeneration technologies provide a flexible bridge between heat andelectricity.Bothformsofenergycanbebalanceddependingonenduserneeds,sothateithertheelectricityor theheatoutput ismaximisedover theother tomeet system requirements. Thiscogeneration feature allows multiple solutions and operating modes to be explored. Forinstance,industrialcogenerationapplicationstypicallyoperatetomeetasetheatoutput,whichis required to sustain the industrialprocess.Theelectricityoutput in this casewould fluctuatewith theheatoutput for the specificestablishedheattoelectricity ratio. Incontrast, theplantcouldalso choose tomaximiseelectricitygenerationduringperiodswhenelectricitypricesareattractive incomparison to fuelprices, thuscompensating for the reduction inheatgenerationthrough the use of auxiliary boilers. Even in shutdown periods formaintenancework,whensignificantly less or no heat demand exists, an industrial facilitymay still decide to keep thecogenerationunitinoperationtoexportelectricitytothegrid,providedthesystemsdesignandsizeallowthisalternative.Theimpactonheatsupplyofapplyingtheseoptionscanbeminimisedwiththeuseofthermalstoragecapacityandseparateboilersonthesite.

10Exergyisameasuretoindicatetowhatextentenergyisconvertibletootherformsofenergy.


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DHCnetworkscanreachsignificant levelsofflexibilitydependingontheirsupplysystemdesign.Apart from cogeneration technologies,DHCnetworks can integrateotherequipment, such asheat pumps, absorption chillers and thermal storage capacity, as well as free energy andrenewable energy sources. These highly integrated networks can absorb power from the gridduring excess electricity periods and convert it into heat for end uses through heat pumpsintegrated in the system. Conversely, the DHC networks can help mitigate electricity peakdemandperiodsbyprovidingheatingorcooling fromcogeneration systems, thereby reducingelectricitydemandedbyendusers.Thermalstoragecapacitycanalsohelpreducethefluctuationofheatsupplyproducedbychangesintheoperatingmodeofthenetwork.

Howcanpolicyandmarketregulationshelptomaketherightenergytechnologychoice?Policies andmarket regulations can help unveil the benefits of cogeneration technologies andefficientDHCnetworks.Marketconditionsshouldensuretransparentandfairfuelpricesandreflectthe realcostofelectricityandheatgeneration topromoteefficientuseofenergy.Crosssubsidiesbetween heat and electricity markets should be avoided since they can result in artificiallyimbalancedenergyprices.Bypromotingthemostefficientuseoflowcarbonandrenewableenergysources, energypolicies can alsohelp toprovide a twofold contribution tomeet climate targetsfrom the use of renewable sources, while achieving higher levels of energy efficiency in theconversionprocesstofinalenergy.Streamlinedandclear interconnectionstandardsthatfacilitateconnectionofcogenerationsitestothe distribution grid to export excess electricity can improve the business case of projects. Byenablingabidirectionalflowofelectricityfromcogenerationfacilitiestothetransmissiongridandviceversa, these sites canmaximise added value through system flexibility. Policy tools, such asstrategic heating and cooling planning, can help identify costeffective opportunities forcogeneration technologies and DHC networks. These assessments identify, locate, quantify andcharacterisethermalsourcesandthermalendusers inaspecificregion(Box1).This information iscriticalwhenexploringlocationsfortheimplementationofnewDHCnetworksorassessingpossibleupgradesorexpansionsofexistingnetworks.Inthecaseofindustrialcogeneration,heatmappingofthearea surrounding the industrial site canhelp identify thepossibleopportunities foradditionalheatprovidersandcustomers.This informationtypicallyhasadirect impact inthedesignphaseoftheproject.Thepolicyandmarketconditionsbrieflydescribedherehavebeenkey in thedevelopmentof theprojectsanalysedinthisreport(Table1).Thethreeindustrialcogenerationprojectsanalysedinthisreportareinterconnectedtothelocalpowergridandtypicallyexportelectricityaspartoftheircorebusiness structure. For instance, policy measures jointly promoting lowcarbon and efficientelectricityundertheRenewableObligationCertificatesintheUnitedKingdomwereessentialfortheeconomicfeasibilityoftheMarkinchcogenerationproject.Theprojectalsocouldbenefitfromotherpolicymeasures, including theproposed futureelectricitymarket reformasacapacitymechanismincorporatingdemandsideresponseandstorage.ThedevelopmentoftheDHCprojectsanalysedinthisreportalsobenefitedfrompolicyprogrammescomplementarilyrewardingenergyefficiencyandtheuseofrenewableenergysources.Forinstance,the Paris Climate Action Plan was taken into account in the choice of free cooling technologyintroduced in theBercyClimespace coolingplant inParis, France.TheMarstal solar thermalDHCnetwork integrating storage and biomassbased cogenerationwas similarly developed under theframework of the Danish governments climate targets aiming for 100% renewable heat andelectricitygenerationby2035.


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Box1StrategicheatingandcoolingplanningtrendsinEurope

FinancingmechanismsFinancing is a key consideration in project development and continues to be a limiting factor inprogresstowardshighercogenerationandefficientDHCpenetration incountriesacrosstheglobe.Cogenerationtechnologiestypicallyrequiregreaterupfrontcapital investmentsthanconventional,separatethermalgenerationtechnologiesduetotheadditionalheatrecoveryequipmentrequired.The investmentcosts forcogenerationunitsusingagasturbinerange fromUSD900perkilowattelectric(kWe) to USD1500/kWe (ETSAP, 2010a), in comparison to USD900/kWe required for aconventional opencycle gas turbine (ETSAP, 2010b). In the case of naturalgasbased combinedcycles(NGCC),thecogenerationarrangementrequiresaninvestmentbetweenUSD1100/kWeandUSD1800/kWeorhigher(ETSAP,2010a),comparedtoUSD1100/kWeforaconventionalNGCCwithnoheatexport(ETSAP,2010b).Efficient DHC networks are also capital intensive due to the significant infrastructure needed todistributeheatorcoolingfromgeneration locationstoendusers.Highcostscanalsobeassociatedwiththedevelopmentand integrationofthedifferentenergysupplysourcesandtechnologiesthataretobelinkedtothenetwork.Toencouragegreaterpenetrationof cogenerationandDHC,economic feasibility studiesneed toclearly reflect the environmental and flexibility benefits of these technologies in economic termswithinthelocalregulatoryandmarketframework.Thisinclusiveevaluativeapproachhelpstoensurethatprojectsarefairlyassessedagainstconventionaltechnologyoptions.

Article 14 of the 2012 European Energy Efficiency Directive (EE EU Directive) requires thatmembercountriesperformanassessmentofthepotentialforfurtherdeploymentofcogenerationandefficientDHCsystemsbyDecember2015,aswellasananalysisofpolicystrategies tobeadoptedby2020and2030torealisethatpotential.Thisexerciserequiresthedevelopmentofnationalmaps locatingheatingandcoolinggenerationanddemandpoints,asabasisforassessingcosteffectiveopportunitiesforthesetechnologiestomeetexistingheatingandcoolingdemands.Thisassessmentincludes: Heating and cooling sources, including electricity generation facilities with an annual generationgreaterthan20gigawatthours(GWh),wasteincinerationplants,andexistingorplannedDHsystemsandcogenerationsites. Heating and coolingdemandpoints, including industrial areaswith an annual consumptiongreaterthan20GWhandmunicipalitieswithaminimumplotratioof0.3.* TheDirectivealsocalls for theanalysisofenergyefficiency improvementpotentials inexistingDHCsystemsandacostbenefitanalysisfornewinstallationsorsubstantialrefurbishmentprojects,including: Thermalelectricityplantsorindustrialfacilitiesgeneratingsurplusheat(atarecoverabletemperaturelevel). New DHC systems or existing networks with a thermal input greater than 20MW where a newgenerationfacilityisexpected.*Plotratioisdefinedastheratioofthebuildingfloorareatothelandareainagiventerritory.Source:EuropeanParliamentandtheCouncil(2012),DirectiveoftheEuropeanParliamentandoftheCouncilof25October2012onenergyefficiencyamendingDirectives2009/125/ECand2010/30/EUandrepealingDirectives2004/8/ECand2006/32/EC,EP,Brussels.


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MultiplemechanismscanbefoundtofinancecogenerationandefficientDHCprojects,dependingonthereturnoninvestment(ROI),theestimateduncertaintyofnotfulfillingtheROIintheexpectedtimeperiod, theacceptable risk fordifferentparties involvedand their financial situations.Whilelargegenerationprojectscanoftenbeselffinancedor financed through thedevelopmentof jointventures, small and mediumcapacity systems developed by smaller entities typically requirealternative financingmechanismsdue to lower cash flow flexibility.Mechanismsused range fromselffinancedprojectstodiverseformsofthirdpartyandpublicfinancing. Selffinancing. This financingmechanism canbe attractivewhen importantnet cash flows are

availableandtheprojectalignswithstrategicperformanceandenvironmentaltargets.Thelackofother projects simultaneously competing for the same entitys funding can also influence theselectionofthisfinancingoption.

Partialortotalloanfinancing.Thistypeoffinancingcanbeanalternativemechanismtoproceedwiththedevelopmentofaprojectandmitigatetheriskofexcessivelyaffectingnetcashflowoftheentity.Loanscan typicallybeprovided forup to80%of totalconstructioncostatdifferentinterestrates,dependingontheguaranteethatinvolvedcompaniescanoffertosecurepaymentoflentcapital(EPA,2013).

Thirdpartyfinancing.Companiesorpublicentitieswithnoabilitytotakeonhighupfrontcapitalinvestmentsmay seek an agreement with a third party, typically energy services companies(ESCOs).The latterown,financeandoperatethecogenerationordistributionsystem,andtheyprovide heat and electricity to the energydemanding body at set or indexed price rates. TheESCOcanoperatethefacilityfortheentiretyoftheplantslife(e.g.abuildownoperatescheme),ortheplantcanbetransferredtotheenergydemandingcompanyafteraspecificoperationtime(e.g.abuildownoperatetransferscheme).

Financing through jointventures.Whendevelopingprojects thatmaypresentgreater risks forindividual companies (for instance, because of lack of expertise in a specific technology orbecauseofa lessprevalentposition ina specificmarket),companiesoften form jointventuresspeciallydesignedtominimisepotentialinvestmentrisks.Thesejointventuresopenawiderangeof flexible financing solutions in which the parties involved contribute differently to projectfunding throughdiverse financingmechanisms,often involvingplantoperation and associatedenergyprovisionrights.

Public financing. Cogeneration and DHC projects can be fully or partially financed bygovernments, either throughpublic energy companieswith the sameownership rightson thefacility,orthroughdirectfinancialsupport,suchascapacitygrantsorlowinterestloans.

Howcanpolicyandmarketregulationshelpmitigatemarketfailures?Policymeasures including financial and fiscal incentives can helpmitigate the impact ofmarketsfailing to reflect fairenergyprices that reward theenvironmentalbenefitsofefficientgenerationtechnologies,andtoreducehigherinvestmentcostsforthesetypesofprojects.Theseincentivescanbeappliednotonly tonew installationsbutalso to refurbishmentsofexisting facilitiesaiming toimproveenergyefficiencyperformanceand reduce theircarbon footprint.Freeingup investmentsfor modernising and improving the operation of existing inefficient DH networks is critical toachieving decarbonisation of heat generation in countries that are bound to extensive, old andfrequentlypoorlymaintainedheatdistributioninfrastructures(Box2).


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Box2Russia:policyeffortstomoderniseDHinfrastructure

Policy measures can either alleviate higher upfront investment requirements for projectdevelopment or help reduce the associated operation and maintenance costs of systems. Forinstance,afueltaxexemptionsystemforcogenerationunitsorefficientenergyproviderscanhelppromotetheprogressiveuseoflowcarbonfossilfuelsandrenewableenergysourcesforelectricityandheatgeneration.Feedintariffscanensureahigherpriceincomparisontothemarketbaserateforelectricityandheatexportedtothedistributionnetworkfromcogenerationfacilities.Differentbonus conditionsmay apply, depending on the fuel or energy source used by the cogenerationplant,orfeedintariffscanbeappliedtothetotalelectricityorheatgeneratedatthesite.Feedintariffs can also be applied at a fixed rate, independent ofmarketbased electricity prices, or incombinationwithanobligationfromdistributiongridoperatorstopurchaseelectricityfromefficientgenerators,suchascogenerationplants.Longtermstabilityofenergypoliciesandmarket regulations iskey tosecuring investments in thedeploymentofefficientelectricityandheatgenerationanddistributiontechnologies.Thesepoliciesenable amore accurate assessment of project ROI,minimise the risk for supply plants and gridoperators, and encourage progressive deployment of efficient and lowcarbon generationtechnologies.Thepolicyandmarketconditionsbrieflydescribedaboveinfluencedthedevelopmentoftheprojectsanalysed in the case study section of this report. The financingmechanisms used by the threeindustrialcogenerationcasestudiesrangefromselffinancedprojectstothirdpartyfinancing.TheMarkinchbiomassbasedproject intheUnitedKingdomwasalsoawardedwithacapacitygranttomeetpartofthe investmentrequirements.Twooftheotherprojectssimilarlybenefit (orareverylikely to benefit in the near future) from electricity export feedin tariffs and fiscal incentives,includingreductioninfueltaxes.TheDHC case studyprojectsalsobenefited from fiscaland financial incentives, including capacitygrants in the combined cogenerationand storageproject inMarstal,Denmark.Twoof the threeDHCprojectsusedatotalorpartialloanfinancingmechanism.

Russiahasthemostextensive(173100kilometre[km]trenchlengthofDHpipelineand7EJDHsalesin2007),andoldestDH infrastructure intheworld (manynetwork linesaremorethan100yearsold).Anestimated60%oftheRussianDHnetworkneedsmajorrepairorreplacement,andanestimated20%to30%ofheatislostinthedistributionnetworkbeforereachingconsumers.Heattariffs inRussiadonotreflecttherealheatgenerationcostduetotheexistenceofcrosssubsidiesbetween the electricity and heat markets, because part of heat production costs are allocated tocogenerationbasedelectricity.Thiscrosssubsidisedsystemresultsinanartificiallyhighelectricitypriceforcogenerationcomparedto lessefficientconventionalgenerationtechnologies,which inturnmakesefficient cogeneration technologies less attractive to investors. Imbalanced energy prices also do notincentiviseconsumerstouseheatefficiently,becauseheatpricesareratherlow.Policy efforts have been implemented in recent years to drivemarket conditions to reward energyefficiency.Significanteffortsarestillneeded,butthesepolicieswillsupportnetwork improvementsandmoreefficientuseofheatbyconsumers.Sources: Euroheat&Power (2013),DistrictHeatingandCooling: Countryby Country Survey2013, Euroheat&Power,Brussels; IEA(2009a),CHP/DHCountryProfile:Russia,IEAPublishing,Paris.


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Box3India:financialandfiscalincentivesforindustrialcogeneration

BusinessstructureAs greater shares of variable renewable generation technologies are integrated into the energysystem, networkswill face new challenges to effectively balance supply and demand due to thegreater levelofuncertainty in energy generation from these sources.Additionally, the increasingtrend towards decentralisation in energy generation, driven by the aim of reducing transmissionlossesandimprovingenergyselfsufficiencyofendusers,hasincreasedthecomplexityoftheenergysystembyintroducingbidirectionalenergyinterconnectionsbetweensupplyanddemand.In an energy environment of increased complexity, flexible technologies are highly valued:technologies thatcan rapidlyadapt tooperating loads,absorbor releaseenergywhenneeded,orconvert a specific final energy into another form of energy are increasingly important in energysystems. A number of technologies featured in this report offer this flexibility, includingcogeneration technologies bridging electricity and thermal systems, industrial sites transferringsurplusheatingorcoolingtolocalDHCnetworksorabsorbingexcessheatfromthethermalgridtoconvert it into electricity,DHC systems absorbing power from the grid through heat pumps andstoringitasheatinexcessgenerationperiods,absorptiontechnologiesbridgingheatingandcoolinginDHCsystems,andelectricalandthermalstoragecapacitiescontributingtosmootherpeakdemandperiods(Figure3).

According to recent studies, the sugar industry in India holds the largest potential for industrialcogenerationdeploymentinthecountry,accountingfor5.2gigawatts(GW)ofthetotalestimated14GWofpotentialcogenerationintheoverallindustrialsector.The government of India is pursuing this potential through financial and fiscal incentives specificallytargeted to cogeneration applications in the industrial sector. Bagassebased cogeneration plantsbenefitfromacapitalsubsidythatrangesfromINR1.5milliontoINR1.8millionforprivatelyownedsugarmills,appliedto65%oftheunitcapacity inMW.Thesubsidyalso isavailabletoexistingcooperativeorpublic sugarmills, up to amaximum of INR80million per project, and includes INR 4million to INR6millionperMWofsurpluspowerexportedtothegridfornewpublicorcooperativesugarmills.Fiscalincentives are also provided to biomassbased cogeneration projects, including 80% accelerateddepreciationandconcessionalimportandexciseduties.TappingthetotalindustrialcogenerationpotentialinIndiawouldrequirewiderpolicyprogrammesthatalso include nonbagasse cogeneration applications. Measures such as a more comprehensivecogenerationfeedintariffsystemthatincludesbiomassandothercogenerationapplicationsandopenaccesswithoutcrosssubsidysurchargescouldhelpachievegreatercogenerationdeployment.Note:1USD=approximately62.5INR;Bagasseisafibrouswasteproductgeneratedinsugarmillsaftercrushingandextractingthejuicefromsugarcane.Thismaterialcanbeusedasafuel,anditiscategorisedasbiomass.Sources:Singh,M.,B.SinghandS.K.Mahla(2013),Combinedheatandpowerincommercialsector,InternationalJournalonEmergingTechnologies,Vol.4/1,pp.8187;MinistryofNewandRenewableEnergy(India)(2013),www.mnre.gov.in.


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Figure3 Interconnectionsofelectricityandthermalenergyinanintegratedenergysystem

KeypointElectricityandthermalenergysystemsarecomplexandoffernumerousopportunitiesfordeepintegration.Flexibletechnologiesasstandaloneunitsarenotabletosignificantly improvethecarbonfootprintofenergysystems. Instead, theiradequate integration intoenergynetworkswillplayakeyrole inachieving efficient and sustainable energy systems. Currently, diverse options exist to manageenergy interactionsbetweengeneration,distributionandenduses,but theseoptionsneed tobeintegratedbetterintobusinessstructuresinamarketthatisincreasinglydecentralisedwithmultipleactorsandbidirectionalenergyinterconnections(Box4).Currentbusiness structurescan range fromconventional supplyanddemand (generatoranduser)contracts tomore complexarrangements involvingendusers,distributionmarketsorgenerators.Themostappropriateapproachwilldependonthetechnicalspecificationsandneedsofaparticulargeneratororenduser,aswellasfinancialconsiderations,andishighlydependentontheparticularcontext and internal business structure of the parties involved. For instance,whereas electricitytransmission grids generally are extensive, heating and cooling transmission networks are highlylocalised because interconnections over larger areas are not technically or economically feasible.Therefore,electricitytransmissiongridstendtobecentrallyoperated,whiletheoperationofheatingandcoolingdistributionsystems isoftenvertically integratedwithinthe localgeneratingcompany.Additionally,thegeneratoroftenmayhaveachoicebetweendifferentbusinessstructures,ormayoptforacombinationofseveralapproaches,especially inthecaseofcogeneratorsand integratedDHCnetworksthatbridgeelectricityandheatmarkets.Forexample,anindustrialcogeneratorcouldenterintoabilateralcontractforheatsupplyandthenexportsurpluselectricitytothetransmissiongridoperatoratmarketrates.

Renewable and natural

energy sources

Industry

Transport

Building

Thermal electricity

and heat utilities

Heating storage Cooling storage

Electrical storage

Electricity grid

Heat grid

Cooling grid

Sorption

Heat pumps

Wind

Solar

Geothermal

Natural cooling


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Box4Sweden:OpenDHCbusinessmodel

Fortum launched theOpenDHCbusinessmodel inStockholm (Sweden) in2012with theobjectivesofutilisingthemostefficientenergysourcesavailableandenhancingtheprofitabilityoftheDHCsystembyminimisingcostsrelatedtoheatsupply.OpenDHCtreatsalltypesofthermaldeliveriesconnectedtothenetworkequallybasedonthemarketpricethat ispaidforanyheatdeliveries,regardlessofproductiontypeorheatsource.At thesame time,only thermaldeliveries fromrenewablesourcesorsourcesthathaveahigherconversionefficiencythantheutilitycompanycanbeaccepted.Heatingandcoolingmarketprices are defined daily for three different types of surplus heat deliveries, including primary andsecondaryheatdeliveredtothesupplyandreturnpipelinesoftheDHnetwork,respectively,andrecoveryheatdeliveredtothereturnpipelineoftheDCnetwork.Thesamemechanism isappliedtoDHandDCcapacitiesofnetworkusersthathelptoreducetheutilitycompanysrequiredheatgenerationcapacity,whichcanbeachievedthroughdemandsidemanagementorthermalstoragesthatrewardloweroverallheat/coolingenduse.OpenDHCencouragesthesesynergieswhileseekingtoensurereasonableheatingandcoolingpricesforDHCcustomers.EnergyintheOpenDHCnetworkcanbeproducedbytheutilitycompany,byconventionalcustomersorbyanyotheroperatorconnectedtothenetwork.OpenDHCalsoallowstheuseoflocalwasteheatthatotherwisewouldbelost,therebyachievingamoreefficientsystembyencouragingconsumerstorecovertheirexcessenergy.Thisoptionhelpsto improveoverallsystemefficiencywhilereducingtheemissionsfootprintrelatedtothermaldeliveries.Last,bestavailabletechnology isautomaticallyconnectedtoopennetworks.Inthisway,OpenDHCisaconcrete step towards smarter DHC that takes into account local energy sourceswhile reducing thenetworkscarbonfootprintandensuringtransparentenergyprices.InadditiontotheOpenDHCmodelinStockholm, Fortum has developed several Open DHC pilots in Finland, and these systems could bereplicatedinothernetworksacrosstheglobe.Figure4OpenDHCbusinessmodel

Source:Fortumrepresentatives(2014),Personalcommunication.KeypointSmartbusinessmodelscanhelpintegrateawiderangeofenergysources.

New solutions

Industry

Customers

DH network

Co-generation

Local bio

Solar

Data centres

Customers


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The wide diversity of intervening factorsmeans that each project is best suited to a differentbusiness arrangement. Below are some of the major options currently available, as well aslimitationsandstrengthsforprojectdeveloperstoconsider. Generator and enduser contract structure. Bilateral contracts can be established between

generatorsandenduserseither througha saleorapurchase contract.For someapplications,especially industrial cogeneration, the entity can be either producer or user depending onsupply/demand balance. This type of contract can provide generators with a stable revenuesource, and end userswith predictable longterm energy prices. However, depending on thespecificsofthecontract,thisstructurecouldlimittheflexibilityofasystem(eitheronthesupplyor demand side), given the need to supply or purchase predetermined amounts of heat orelectricity.

Generatorandmarketoperator structure.Generators canofferwholesalemarketbids to theelectricitymarketoperator,dependingonthelocalelectricitymarketstructure.Tobesuccessful,this approach requires interconnection to the grid and attractive prices. This structure canaccommodate systems that function asboth generators and endusers, allowingbidirectionalflows,wheretheentityoffersbidswhenoperatingatasurplus,andpurchasesenergyatmarketrateswhennecessary.Selling intoamarketsystemcanalsoprovideacomplementary revenuesource for generators that have steady heat demand and surplus electricity. However, thisstructurealsoallowsmoreuncertainty;fluctuationsinelectricitypricescouldmakecogenerationeconomicallyunattractive.

Enduseranddistributioncontractstructure.Contractscanbeestablishedbetweenconsumersandthedistributionoperatororretailersfortheprovisionofelectricity,heatingorcooling.Withinelectricity retailmarkets, end users can choose themost attractive electricity supplier fromcompeting retailers. Regarding heating and cooling inmost cases, the end user can set up aprovision contract directly with the generator, because the same entity often operates thegenerationanddistributionaspectsofa specific localnetwork.Themajorityof thesecontractsareunidirectionalfromdistributiontoenduser,rarelyallowingconsumerstoexportenergytothedistributiongridandtherebylimitingthesystemsflexibility.

How can policy help develop and implement tools to optimise integrated sustainable energysystems?Current energymarket structures and legal frameworks have limitations that prevent them fromfullymeeting the increasing flexibilityneedsofcomplexandhighly integratedenergysystems.Forfuture energy systems, smart business models are needed to effectively manage multipletechnologies and optimally balance complex interactions between supply and demand. Thesebusinessstructuresshouldaimtominimiseenergy lossesandoptimisetheuseofsustainable localenergysourcesbyconsideringthefollowingaspects: Optimummanagementofmultipletechnologieswithdiversegenerationpatternsovertimeand

flexible capabilities. This management includes finding optimal balances between variablecarbonfreegenerationtechnologies,flexiblelowcarbonorcarbonfreegenerationtechnologies,andstoragecapacity(thermalorelectric).

Flexible management of bidirectional energy flows among multiple generators and users.Generators(orconsumerswithsurplusenergy)thatprovideagood levelofenergyefficiency inboththegenerationanduseofenergy(aswellasalowcarbonfootprint)couldhavepreferentialaccesstointerconnectwithenergygrids.

Energypoliciesandprogrammescansupportthedevelopmentofthesebusinessmodelsandmarketmechanisms and improve the sustainability of infrastructure projects, throughmeasures such as:


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Supportresearchactivitiestoexploreanddesignsustainablebusinessmechanismsthatcanmeetthetechnicalandsocietalneedsofcomplexandhighlyinterconnectedenergysystems.

Support the implementation of smart business model pilots and promote internationalcollaborationandexperiencesharingtohelpfindoptimumsolutionsfor localcontextsfromthewiderangeofpossibleoptions.

Ensure that thesemodels reward flexibility, lowcarbon footprint generation technologies andenergyefficiency.

Coordinate thedevelopmentof local, regionalandnationalstrategic infrastructuredeploymentplanswith developers of businessmodels for energy networks, and define jointmeasures tominimise costs of future refurbishments, expansions or new installations; avoid missingopportunitiestouselocallyavailablesustainableenergysources;andsupporttheprioritisationofenergyefficiencymeasures.

Thediversebusinessstructuresandpolicy frameworks illustrated inthecasestudiesofthisreportdemonstrate the influenceofpoliciesandmarketmechanisms toencourage theuptakeof flexibleand efficient energy systems in different contexts and regions. For instance, the Nuevo PemexindustrialcogenerationprojectinMexicobenefitsfromanenergybankingsystemthathasallowedefficientcogeneratorsandrenewablepowergeneratorstodepositexcesselectricityinthegridandimportthatpowerwhenneeded.TheParisClimateActionPlan(LePlanClimatdeParis)similarlyhasencouraged the adoption of free cooling tomeet expected energy consumption and emissionstargets,while thePrincessNouraBintAdbulAlRahmanUniversity forWomen (PNUW) inRiyadh,SaudiArabiahas established specific energy and performancemetricswithpossiblepenalties forunderperformancetoensurethatproductionandtechnicalcapacitiesaremaintained.

ConclusionsCogeneration technologies and efficient DHC networks can provide significant added value in asustainable energy future thanks to theirmultiplebenefits. Thesebenefits includeCO2 emissionsmitigation and improved energy security through the enhanced conversion efficiency of thetechnologies, and improved flexibility resulting from the ability of the technologies to bridgeelectricityandthermalsystemsandtotakeadvantageofawidediversityofenergysources.Despite these benefits, global deployment of these technologies is limited, and has remainedstagnantoverthe lastdecade. Importantbarriersexist,mainlyrelatedto localenergypricesignalsthat poorly incentivise energy efficiency, lack of strategic planning on energy infrastructure anddifficultyofensuringlongtermstabilityofenergypolicies.Thedevelopmentof cogenerationandDHCprojects requiresassessing themainparametersandlocalconditionsthatdefineasuitableenvironmentforthesetechnologies,identifyingopportunitiesto use locally available energy sources, exploring possible financing mechanisms, and setting aflexiblebusinessstructurethatcanhelpoptimisepossibleinterconnectionswithlocalenergyplayers.Policystrategiesandmarketregulationscanhelpmakeenergyefficienttechnologiesacosteffectiveoption,mitigatetheimpactofmarketsfailingtorewardenergyefficiencybyreinforcingthebusinesscase for these technologies,and support thedevelopmentof smartbusinessmodels foroptimummanagementofhighlyintegratedandcomplexenergysystems.The following section contains detailed descriptions of real cogeneration andDHC projects thatprovide greatexamplesofhowbarriers canbeovercome andhowopportunitieswithindifferentlocalframeworkscanbefoundtoimplementthesetechnologies.


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CogenerationandDHCCaseStudiesCompendiumIndustrialcogeneration:Segovia,SpainCasestudyinformationsubmittedbyAcogenandCogenEnergaEspaa.

Figure5 Eresmacogenerationsystemsankeydiagram

Source:CogenEnergaEspaarepresentatives(2013),Personalcommunication.

ProjectdescriptionEnergysupplyTheEresmaCogenunithastwo6.5MW,16cylindergasenginesthatproduceelectricityusing100%naturalgasfuel,withanannualaveragefuelinputof902terajoules(TJ)(lowerheatingvalueLHV).GasisimportedfromENAGAS(originallyEmpresaNacionaldelGas),theownerandoperatorofthenationalgas transmissionnetwork.Twoheat recovery steamgeneratorsproduce steam from theexhaustgases (4 tonnesperhour [t/h]each),andcompactheatexchangersproduce superheatedwaterat140C.Thedistilleryalsouseshotwater from thecoolingcircuitsof thegasengines.Theunit always runs on a heatcontrolledmode. The plant operates 24 hours a day, except duringplannedannualmaintenanceperiodsoffivedays.

Natural gas

250 GWh

Generatorlosses

39 GWh

Radiationlosses

59 GWh

Steam45 GWh

Hot water28 GWh

Superheatedwater

14 GWh

Stacklosses

18 GWh

Coolingtowers

18 GWh

Electricity

118 GWhCo-generation

unit

Keyfacts:TheEresmaCogenproject isacogenerationunitat theDestilerasyCrianzadelWhisky (WhiskyDYC)distilleryinSegovia,Spain(Figure5).Thedistilleryproduceswhisky,aniseandgin.Asof2008,theannualtotal production ofmalt liquor from the distillerywas 796700 litres. The cogeneration plant,whichbegan commercial operation inMay 2008 after a twoyear project development period, ismanaged,operated and maintained by Cogen Energa Espaa, and jointly owned with the distillery owners(InfoPower, 2008). The cogeneration plant replaced the distillerys older conventional generationcapacity;beforethisproject,thedistilleryusedboilerstogenerateheat.Theprojectbeganastwodistinctplants:onecogenerationplanttoprovideheatandpowertothedistillery,andoneplanttoprovideheatfor thewaste treatmentprocess.Becauseofchanges in the regulatory framework, the twounits,eachwitha6.5MWgasengineandboiler systemandoperatedby the same control centre,arenowbothcategorisedascogeneration(Table2).


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Table2EresmaCogencapacity,generationandefficiency Electricity Heating Total

Installedcapacity 13MWe 10MWth 23MWAnnualaveragegeneration 113.4GWh 87.2GWh(314TJ) 200.6GWhAnnualaverageefficiency 45.3% 34.8% 80%

Sources:CogenEnergaEspaarepresentatives(2013),Personalcommunication;Acogenrepresentatives(2013),Personalcommunication.EnergydemandThecogenerationplantsuppliesheatandpowertothefollowingeight industrialprocesseswithinthedistillery: Distillationcolumn:104TJheatload,1.5GWhelectricityload. Rectificationcolumn:53TJheatload,0.4GWhelectricityload. Subproductstreatment:70TJheatload,1.3GWhelectricityload. Otherdistillationandheating(includesmolassesconcentration,maltwaterheating,grainwater

heating,maltery,andheating):87TJheatload,2.7GWhelectricityload.Thedistillerystotalheat loadfromthecogenerationplant is314TJ,and itstotalelectricity load is5.9GWh. The steam production from the cogeneration plantmeets 70% of the distillerys totalsteamdemandof11.4t/h (82%ofthetotalheatdemandof106.6GWh).Conventionalgasboilersareusedtogeneratethe19.4GWhofadditionalheatrequiredtomeetthedistillerysdemand.Thesystemcannotsupplyheattoanythirdparties.The5.9GWhelectricityloadmeetsallofthedistilleryselectricitydemand,andmakesupabout5%ofthecogenerationplantstotalelectricityoutput.Excesselectricityabovethedistillerysdemandisexportedtothegrid.Ifthedistillerystopsoperating,thecogenerationplantisalsoshutdown.Theplant is under no commitment to export electricity to the grid, and in the current businessenvironment,exportingelectricity isnoteconomicalwhennoheat isdemandedby the industrialprocessesatthedistillery.TechnologyjustificationUsingcogenerationoverseparateheatandpowerfortheseprocessessaves280TJofenergyeachyear, which is about 28.8% of the plants total annual energy use, and avoids the release of15522tonnesofCO2peryear,abouta22%reduction.11ThetotalcostsavingsassociatedwiththeCogenEresmaplantisEUR2.47million.Theplantwassizedtomeetasmuchheatdemandaspossiblegiventhelimitationsoftheelectricitygrid.Theexistinginfrastructurecanonlysupportaunitwithupto13MWeelectricitycapacity,sotheplanthas13MWeofinstalledcapacity;thiscapacityallowstheplanttoexportasmuchelectricityaspossiblewhilealsosupplyingmostof theheatdemandat thedistillery.Within this limitation, theplant supplies70%of thedistillerysheatdemandandallof itselectricityneeds,andexports theremainingelectricitytothegrid.Becausethetotalheatdemandofthedistilleryexceedstheoutputofthecogenerationplant,nothermalstoragewasincludedinthesystem. 11Compared tobestavailableconventional sources:naturalgascombinedcyclepowergenerationwith55%efficiency (LHV)andheatgenerationusinggasboilerswith90%efficiency.


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EconomicandregulatoryframeworkNational/regionalregulatorycontextSpainsnationalelectricitygridoperator,RedElctricadeEspaa (REE),wascreated in1985whentransmissionserviceswereunbundledfromgenerationanddistribution. In1998,Spainselectricitymarketbegan the liberalisationprocess,and soonafter, themarketopenedelectricitygenerationandretailtocompetition,subjecttoregulationbytheNationalEnergyCommission(CNE).The1998liberalisation also created dayahead and intraday wholesalemarkets for electricity generation,thoughtradingoutsidethismarket(suchasthroughbilateralcontractsandcapacityauctions)isalsopermitted. Operador delMercado Ibrico de la Energa (OMIE) operates thesemarkets, whereproducers bid to generate electricity. Special regime generators, including renewables andcogeneration,hadtwooptionsforsellingpower intothegrid;theycouldreceivethefixedfeedintariffrate,ortheycouldoperatelikeatypicalgeneratorandeitherbidinOMIEswholesalemarketsorestablishabilateralcontractforpowergeneration(IEA,2009b).Lately theSpanishenergy sector regulatory frameworkhasundertakendeep changes,particularlywith regard to incentives,due to thehighcostof thisprogrammeand fiscalconstraints.Until themiddle of 2013, in addition to the feedin tariff for electricity exported to the grid, which wasadjustedquarterlybasedonSpanishgasprices,bonusescouldbeaddedforreactivepowercontrol,efficiencybasedonprimaryenergysavings,operationwithtimediscriminationandotherpotentialservices for system operation. Since July 2013, cogeneration plants have stopped receiving alladditional incentives, receiving only the feedin tariff according to the prior framework (BoletinOficialdelEstado,2013a).AnewlegislationenteredintoforceinDecember2013,thislawproposeda feedin tariff framework for cogeneration systems that considers each plants revenue,operational costs and initial investment to ensure a reasonable ROI (Boletin Oficial del Estado,2013b).Specificparametersforthecalculationoffeedintariffsaffectingcogenerationplantswereannounced in February 2014, and site operators are currently assessing the impact of this newcompensationsystemontheeconomicfeasibilityofthesefacilities.ProjectfinancingThecogenerationplantwasdesigned,builtandcommissionedbyAximaSistemasy Instalaciones,andisownedbyCogenEresma,acompanythatisownedjointlybyCogenEnergaEspaa(90%)andthedistilleryowners,BeamGlobalSpirits&Wine(10%).TheprojectsIRRmadeiteconomical,basedprimarilyonsavingscompared to thedistilleryspreviousseparateheatandpowergeneration. Itstotal cost was EUR10.3million, which was financed using the companys own funds and ashareholder loan. The project did not receive any preferential financing, subsidised loans orincentives for the initial investment in theproject.Theprojected financialpaybackperiod issevenyears,thoughthisperiodwilldependonregulatorychangesandelectricityprices.BusinessstructureTheEresmaCogenplant,whichismanaged,operatedandmaintainedbyCogenEnergaEspaa,soldelectricityintothegridunderafeedintariffscheme,providingadayaheadscheduletothemarketoperator,andreceivingafixedpriceforallelectricitygenerated.Tobeentitledtoreceivethefeedintariff, facilitieswere required tomeetminimum efficiency conditions (IEA, 2009b) (Ciaretta andGutirrezHita,2009).Thenewfeedintariffforcogenerationplantsaffectsthepaybackperiodforthisplant.Priortothechanges, thecogenerationunitat theWhiskyDYCdistilleryreceived the fixed tariff,plusbonusesforreactivepowerandefficiency.


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LessonslearnedThe Cogen Eresma project would not have been possible without the supporting regulatoryframework for cogeneration thatwas inplaceat the timeof itsdevelopment,and the futureofthoseregulatorysupportswillhaveaneffectontheprojectsbusinessmodel.Similarprojectscouldbedeveloped inother countries and regionswith favourablepolicyenvironments; the regulatoryframework and corresponding incentivemechanisms are key to providing the longterm stabilitynecessaryforsecureinvestments.

OECD/IEA 2014 Linking Heat and Electricity Systems

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Industrial co-generation: Tabasco, Mexico

Case study information submitted by Pemex and Cogenera Mxico.

Figure 6 Nuevo Pemex co-generation system

Sources: Cogen Energa Espaa representatives (2013), Personal communication; Pemex representatives (2013), Personal communication.

Project description

Energy supply

The co-generation plant consists of two natural gas turbo generators, coupled with an exhaust gas heat recovery system. The unit has a total electricity generation capacity of 300 MWe and heat generation capacity of 430 MWth in the form of high-pressure steam (typical generation is 550 t/h, with the possibility of supplementary gas firing leading to a maximum production of 800 t/h). The twin turbo generators have an 18-stage compressor and a 3-stage turbine configuration and are entirely run on natural gas, which is produced at the GPC.

The plants expected annual average energy input is 27 petajoules (PJ), reaching an efficiency of 81.4% annually on average. The co-generation plant has planned maintenance shutdowns of about 12.9 days annually, including some partial shutdowns.

12

Compared to previous natural gas use at this and several other power generation sites.

Key facts:

The Petrleos Mexicanos (Pemex) gas processing complex (GPC), known as Nuevo Pemex, commissioned a new co-generation plant in 2013 (Figure 6). This unit produces heat and electricity for on-site use and supplies excess power to other off-site Pemex-owned industrial end users. The project allows Pemex to reduce energy costs by reducing electricity purchases from the CFE (Comisin Federal de Electricidad) state-owned grid to become more self-sufficient and to produce electricity more efficiently. The electricity produced by this co-generation project allows Pemex to save 30 million cubic feet of natural gas per day (mmscfd), and reduces carbon dioxide (CO2) emissions by 430 ktCO2 annually, as well as reducing nitrogen oxide (NOx) and sulphur oxide (SOx) emissions (Table 3).

12


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Table3NuevoPemexcapacity,generationandefficiency Electricity Heating Total

Installedcapacity 300MWe 430MWth 730MWAnnualaveragegeneration 9 PJ(2 537GWh) 13PJ 22PJAnnualaverageefficiency 81.4%

Sources:CogenEnergaEspaarepresentatives(2013),Personalcommunication;Pemexrepresentatives(2013),Personalcommunication.EnergydemandThe cogenerationplantoperates to target apredeterminedheatoutput (heatcontrolledmode)withtheelectricitygenerationfluctuatingaspertheestablishedpowertoheatratio.Thetotalityoftheheatproducedanexpectedannualaverageof13PJ isusedat theNuevoPemexGPCsite,coveringaround70%ofsteamneeds,alongwith2537GWhofelectricity,ofwhich274GWh(10.8%)coversthegasprocessingneeds,whiletherestisexportedtootherPemexsites.Heatissenttotheenduserfromthecogenerationplantthroughaheatingdistributionnetworkof1.3km,withasupply lineof0.6mdiameter,andareturn linewith0.3mdiameter.The insulationthickness inthemain lines is0.203m,madeof100%mineralwood insulation.Energy losses inthedistribution network aremonitored, to ensure that steam conditions at the enduse pointmeetprocessrequirements.Providedthatheatoutputcontrol isusedtooperatethecogenerationunit,theneed to installheatbuffering capacityhasnot been identified,with the distribution network(includingsteamheadersatdifferentpressurelevels)actingasstorage.TheelectricitynotconsumedbytheNuevoPemexGPC,anaverageof2261GWh,isprovidedtosixindustrialoffsiteprocesses: 6refineries:1175GWhelectricityload. 6gasplants:165GWhelectricityload. 6petrochemicalplants:80GWhelectricityload. 34explorationandproductionprocesses:300GWhelectricityload. 32distributionfacilities:80GWhelectricityload. 20pumpingfacilities:80GWhelectricityload.The remaining electricity load (annual average of 381GWh) is fed into the national grid anddistributedto82nonindustrialsites.13TechnologyjustificationInSeptember2008,Pemexpresentedaplantodevelopenoughcogenerationpotentialintheshorttermto increase its levelofselfsufficiency,and inthe longterm,tobecomefullyselfsufficientbydeveloping the restof the cogenerationpotential estimated at about3GW,mainly in existingrefining,petrochemicalandgasprocessingplants.Withintheframeworkofthisstrategy,theNuevoPemexcogenerationprojectwasdevelopedtoreduceelectricityandheatgenerationcosts,increaseenergyefficiency,andimprovesupplyreliability.Pemexandthecontractorforthisprojectselectedsitesbasedon the levelofelectricityand steamdemand,aswellasunitcosts.Thecogeneration

13Thesevaluesareannualaverageelectricitygenerationnumbers,andcouldvarydependingonoperatingconditionsandsteamdemandfromtheNuevoPemexGPC.Anyexcesselectricity,aftermeetingtheGPCandotheronsiteenduserdemand,isexportedtothegrid;thisisnotlimitedto381GWh.


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project allowed Pemex to reduce purchases from CFE by 150MW and reduce its own lowerefficiencygenerationbyabout140MW,whilealsoreducingnaturalgasuseandemissions(Figure7).

Figure7 Offsiteindustrialprocesseselectricitypurchases

Sources:Pemexrepresentatives(2013),Personalcommunication.EconomicandregulatoryframeworkNational/regionalregulatorycontextTheMexicanelectricitymarketislargelycontrolledbythesemipublicutilityCFE(Figure8).CFEownsover75%oftheinstalledgenerationcapacity,anditownsalltransmissionanddistributionassetsinMexico(EIA,2012).A1992amendmenttothePublicElectricityServiceActof1975markedaturningpoint for theMexicanelectricity sector,partiallyopening theelectricity sector toprivatelyownedelectricityproducers, including foreign investors.Withapermit from theComisinReguladoradeEnerga(CRE),privatecompaniesthatfallintooneofthefollowingcategoriesareallowedtoproducepowerand connect to thegrid: selfsuppliers, cogenerationprojects, smallproducers (


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Figure8 Mexicanelectricitysectorstructure

ProjectfinancingT

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