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%