The recent amendments of the Combined Heat and Power Act (CHP Act) ensure that the highly efficient technology of combined heat and power generation will continue to play an important role in implementing the energy transition in Germany. This is why the amount of funding allocated to the technology has been doubled – rising from €750 million to €1.5 billion per year. This is intended to give the energy-efficient technology of combined heat and power generation a significant boost.
The amendment to the CHP Act were built upon three key targets:
- To reach the climate targets: In order to do this, support will be provided for power generation in gas-fired CHP installations, which is a particularly low-carbon technology. New construction projects that replace a coal-fired CHP installation will also receive an additional amount. In addition, all existing gas-fired CHP installations used to supply the public will be funded up to 2019 in order to make use of the potential for raising efficiency. This is to enable carbon emissions from CHP plants to make an important contribution to meeting the climate target (40% reduction of carbon emissions by 2020).
- Planning security: The framework for funding will be extended up to 2022. A mid-term expansion target will be defined for the period up to 2025. Comprehensive evaluations will take place in 2017 and 2021. These measures are designed to ensure that the CHP Act can be adapted, where necessary, in order to take account of any developments that occur as a result of the current electricity market reforms. In addition, adjustments have been made to CHP funding schemes and to the rules on reduced surcharges to ensure compatibility with European aid legislation, which creates long-term legal certainty for the stakeholders concerned.
- More flexiblity: We are modernising the CHP Act so that it provides scope for installations to be operated flexibly, which is important for the future as the system copes with an ever increasing share of renewable energy. This greater level of flexibility of CHP plants is also intended to allow the feed-in of renewables to be balanced. In order to achieve this third target, we have improved funding for heat storage, focused funding on CHP electricity that is fed into the public grid, and introduced mandatory direct marketing for this electricity.
The operators of CHP plants receive a fixed supplement for every kilowatt hour of CHP electricity that is fed into the grid. Financing for the CHP Act is raised by adding a surcharge to the price of electricity. This means that the cost is shouldered by consumers. In order to ensure that the costs are divided up fairly, businesses have to contribute to financing the surcharge, with the strength of their competitiveness also being taken into account. The CHP surcharge exemptions granted to industries with intensive electricity costs is in line with the special equalisation scheme of the 2017 Renewable Energy Sources Act: a company which has been granted an exemption on the basis of the Renewable Energy Sources Act thus also enjoys relief under the CHP Act.
Overall, we are ensuring that the level of funding raised through the surcharge is proportionate to the overall costs and to the amount that consumers can be justifiably expected to bear.
In contrast to the surcharge on renewable energy, the CHP surcharge is capped at a maximum upper threshold. This stands at €1.5 billion per year. The current funding amounts to approximately €1.1 billion. In 2020, the surcharge is around 0.226 cent/kWh. For the average consumer, this works out at around €10 per year.
What changes will occur when funding for medium-sized CHP installations and innovative CHP systems is raised through auctions?
Since the end of 2017, CHP funding for medium-sized installations with electrical output between 1 and 50 MW and for innovative CHP systems has been auctioned. The key points of this auction-based system have been included in the CHP Act since the beginning of 2017. 100 MW of installed CHP capacity is being auctioned on both 1 June and 1 December. The first auction round ended on 1 December 2017.
A new funding category which will cover innovative CHP systems will also be introduced. Innovative CHP systems combine flexible CHP plants with renewable heat, for example from solar thermal installations or heat pumps, which considerably lowers their greenhouse gas emissions. Innovative CHP systems therefore show ways in which CHP installations can remain a viable option for generating electricity long into the future.
Since the beginning of 2016, there has been as a general rule no funding available for CHP electricity that is self-consumed. The aim here is to limit costs and to focus funding on areas that need support. Funding support is now only available for self-supply where a need for funding can be proven (particularly for smaller installations with a capacity of less than 100 kW, where the cost of investment is proportionally high).
Installations producing electricity that is primarily self-consumed have a different business model than CHP installations producing electricity for public consumption (which are dependent upon prices on the electricity market and are therefore particularly affected by low wholesale prices).
Owners of ‘traditional’ self-consumption installations are already able to save on their renewable energy surcharge and on grid charges, which means their installations are already economically viable without receiving funding. In addition, energy-service providers (contractors) that supply electricity and heat to, for example, housing initiatives (neighbourhood systems) or retail parks will continue to receive support.
This will raise the efficiency potential in these set-ups. The energy-service providers (contractors) are not self-consumers and will therefore receive funding.
What is the purpose of the rules on direct marketing designed to flexibilise the operation of CHP installations?
Since the beginning of 2016, CHP installations with a capacity of more than 100 kilowatts have had to directly market the electricity they produce or to consume it themselves. The aim of this rule is to flexibilise the operation of CHP installations so that they are able to respond to specific demand situations and to fluctuating volumes of renewable energy.