CODE Project

WP3 – Modelling support for cogeneration across the EU27

What WP3 seeks to achieve

• Model the effect of support mechanisms within Member States (MS)

• Model the internal rate of return (IRR) of the same 5 theoretical projects across all MS

• Identify the value of the support in each MS improving the IRR of a project

Output sought

CountryModelled IRR

with fiscal supports

Modelled IRR with fiscal supports removed

Value of fiscal support for augmenting

IRR

1 A B C=(A-B)

2 A B C=(A-B)

3 A B C=(A-B)

The table above to be completed for all 27 MS. Column 2 represents which country is the most attractive for investment. Column 4 represents the value of fiscal support offered for each MS

Achieving the desired output

• PGC at CHPA UK developed a model which compares the investment costs for installing and operating a CHP plant with and without policy support

• BUT – gas and electricity markets operate differently in MS.– Data need to be supplied so that policy

support from Government can be separated from other costs and benefits from operating in a given MS

Achieving the desired output…

• Working closely with each region within the CODE project a spreadsheet was developed to enable MS to provide data on costs and financial support.

• The datasheet seeks to allow for all possible differences in charging mechanisms in MS.

• This presentation seeks to highlight what data are needed and explain the need for the detail sought.

Dividing up the problem

• Installing CHP is a choice compared with buying a boiler and importing electricity. The investment decision involves 5 key areas– The cost of the CHP plant and heating boiler

(purchase and maintenance)– The cost of input fuel– The cost of purchasing electricity (avoided by CHP)– The value of selling additional electricity from CHP– The value of any Government support

• The presentation examines each in turn and what data are required

• Data are required for each of the five scenarios

Equipment purchase• How much does the CHP plant cost to install?

– This can be reported as total cost or cost in € per kW• How much does the maintenance of the CHP

plant cost (not including fuel inputs)?– This can be reported as total annual cost or cost in

Euro per kWh• Does the Government offer any support for

purchase? – Is the support in the form of an avoided cost – e.g. tax

rebate, reduced tax rate (Enhanced capital allowances in the UK)

– Is the support in the form of a grant? – What is the value of that support? Figures can be

reported as € kW or total €.

Options for an investor• Project A – Boiler• Buy Fuel• Buy electricity• Sell heat

• Project B CHP• Buy fuel (more than

an equivalent boiler)• Avoid buying

electricity• Sell electricity?• Sell heat• Receive incentives

Calculate the IRR of the CHP with and without incentives

The price of input fuel (per kWh)

Base price

Costs e.g.

T and

D

Taxes

Overall fixed gas

price including

all costs and taxes

Boiler CHP

Avoidedtax

Incentive

Base price

Costs e.g.

T and

D

Taxes

Overall fixed gas

price including

all costs and taxes

The price of purchased electricity (per kWh)Boiler

Base price

Costs e.g.

T and

D

Taxes

Overall fixed gas

price including

all costs and taxes

CHP

Zero

The value of electricity generated and sold (per kWh)

Baseimportprice

Avoided costs e.g.

T and D

Taxes

Overall fixed

electiri price

including all

costs and taxes

Boiler

CHP

Incentive

Total generation Incentive

e.g. a feed

in tariff

Total generation value

Exported electricity price

Avoided electricity purchase

Incurred costs?

No electrical generation from a boiler

Baseexportprice

Export costs or

taxes

Export Incentive

EmbeddedBenefit

1MWe

1MWe 1MWe 1MWe 1MWe 12MWe 66MWe

Financials no benefits            

Simple Payback   8.6 3.5   6.1 4.8

IRR   -4.34% 13.44%   9.08% 11.99%

             

Financials with benefits            

Simple Payback with benefits   6.8 3.4   5.7 3.9

IRR   1.24% 24.87%   12.36% 16.21%

             

Effect of benefits on Financials            

Simple Payback with benefits   -1.7 -0.1   -0.3 -0.8

IRR   5.58% 11.43%   3.27% 4.22%

Worked example: UK Model Outputs

UK Support mechanisms• About 7.5 GW CHP in the UK

• No UK wide grant schemes for CHP

Enhanced capital allowancesSet full capital cost of construction against tax in year 1

Embedded benefit• Ca. 1 euro MWh electiricy exported

UK Support mechanisms

Climate change levy exemption

• levy exemption certificates for exported electricity• Ca. €5 MWh electricity exported• Import fuel exempt

Feed in Tariff for domestic (<2kWe CHP)

• Generation payment (10p kWh)• Export payment (3p kWh)

UK Support mechanisms

Renewables Obligation Certificates• Market based system

• All renewable electricity

• Suppliers obligated to present certificates (ROCs) for renewable electricity (a varying proportion)

• Uplift for biomass CHP

• Only support for energy from waste is for CHP• 1 ROC but halved due to proportion of renewables assumed at

50%