COGENERATION A Major Challenge and Opportunity for Central and Eastern Europe

1. COGENERATION A Major Challenge and Opportunity for Central and Eastern Europe Dr Simon Minett Director COGEN Europe

2. Qualifications • Worked in Ukraine, Belarus • Directed staff working in Russia, Slovenia, Poland, Hungary, Romania and Estonia • Market Prospects for Cogeneration in Poland, Hungary and Czech Republic • Membership for COGEN Europe • National Members in Slovenia, Estonia, Hungary, Poland, Croatia and Czech Republic • ESCOs • Links to all the other countries in Region

3. COGEN EUROPE • European Trade Association for CHP • 195 Members • 30 Countries • Promotion of Cogeneration • Climate Change • Reducing Barriers • Studies/Literature

4. Coverage • Trends • The Challenge • Hungary • Role of ESCOs • Getting the Policy Right • Be Bold!

5. Trends • Europe • Liberalisation • Greater Decentalisation • Response to Kyoto • Central & Eastern Europe and CIS • Accession • Investment in Infrastructure • District Heating versus Point of Use

6. CHP in Europe (% of generation)

7. Share of CHP in Heat Production 1994

8. CHP in Transition Countries

9. Scale of the Challenge • Infrastructure needs massive investment • Modernisation of industry, bankruptcy and markets • 185 million on District Heating • Fuel Supply issues • Political Structures in need of reform

10. Scope for Savings • District Heating 30-60% • Building Energy Use 20-40% • Industrial Energy Use 10-30% • Electricity Distribution 10-20% • Electricity Generation 10-12%

11. Potential • COGEN Europe’s estimates • Poland 15.000 MWe • Ukraine 40.000 MWe • Hungary 40% of demand = 2.500 MWe • Official Forecasts • Poland 20-30% (now 10%)

12. Focusing on Hungary • Dynamic Country in first wave for EU • Electricity 7.500 MWe and 30 TWh/yr • Gas 12 million cubic metres, 40% of energy • District Heating 108 localities, 8.400 MWth • Cogeneration currently 11% of electricity • Restructured energy sector

13. Hungary’s Electricity Sector

14. Hungary’s Energy Policy • Goals • reduce import dependence • restrict control to a minimum • improve energy efficiency • liberalise tariffs to reflect economic costs • environmental priorities • move to the market economy • adopt least cost solutions

15. Difficulties • Prices for gas and electricity are unfavourable for cogeneration • No capacity fee • Partial reform of the energy prices • Restrictions on the use of gas • Attitudes to District Heating - old regime • Non payment of heating bills

16. Potential • Cogeneration on DH 1.800 MWe • Cogeneration in industry 450 MWe • Cogeneration in tertiary sector > 300 MWe • Current capacity ~ 800 MWe • Potential = 40% of demand

17. Poland in Perspective • 80 years of cogeneration history • First installed in industry: sugar, chemicals and mining • District Heating growth from 1950, especially the large urban areas such as Warsaw, Wroclaw and Gdynia • Now 3.000 MWe in industry and 4.800 MWe on District Heating

18. Cogeneration’s Share • Total installed capacity - 33.717 MWe • CHP on District Heating - 4.800 MWe • CHP in Industry - 3.000 MWe • Total CHP - 7.800 MWe = 23% • Total production - 142.769 GWh • CHP Production - 22.050 GWh = 15%

19. Problems with CHP • Statistics: • Industrial CHP is not fully used due to market • Some industrial schemes are closing • Some of the DH CHP is not full CHP • True CHP share of market is nearer 10% • Much of the CHP is coal-fired and not best in class • The investment climate is improving slowly, but...

20. Energy Scene • New Energy Law in place, • Secondary legislation mostly complete • Still political interference in tariffs • Tariffs are not fully cost reflective, but they are improving, • Principles for independent generation in place • Public perception that DH is the past

21. New Projects • Katowice 120 MWe coal cogeneration scheme due in November 1999 • Jaworzno III 140 MWe coal cogeneration due September 1999 • Gorgow 55 MWe gas CCGT cogeneration handed over in January 1999.

22. Potential • Major potential for cogeneration on the District Heating through re-powering of DH boiler houses. • Question mark over decentralised CHP. • As the Polish industry picks up major opportunities in this sector too. • We estimate potential is at least 50% of electrical demand = 15.000 MWe

23. What Should be Done? • Set the right frameworks - regulatory and legislative • Address all the issues affecting cogeneration • Encourage and ensure the conditions are right for foreign investment • Develop a strategy and set a target

24. Role of ESCOs • Transfer of technology from west to east • Financing of energy projects and CHP • EBRD support • Players - Honeywell, Landis&Gyr, Compagnie Generale de Chauffe and ESCO International, And more….?

25. Policy Actions • Electricity Regime • Heat Regime • Planning, Taxation, Environment • Investment Climate • Reduce Barriers • Co-ordinated Promotion

26. The Next Few Years Are Critical • Debate between District Heating, Decentralised Cogeneration and Centralisation of Electricity • Set Targets • Get the Investment Climate Right • Cogeneration has a major role to play in changing the economic well being of the region

27. Boldness is necessary! • This is not an academic exercise • Cogeneration is a key part of realising the EU’s legally binding commitments made in Kyoto • The Strategy target to double cogeneration must therefore be achieved • We MUST find the will to achieve growth in the new liberalised world

28. Be Bold • There are 10 years left to double cogeneration’s share of the market. • This is 60-70.000 MWe in the EU 15 • Plus 20.000 MWe replacement of existing plant • Plus Transition Economies (0 to 30 GWe) • Thus ~ 100 GWe or 10.000 MWe per year • Around 4 times current activity