COGENchallenge - European Campaign for the Development and Documentation of 1000 Small-scale

Cogeneration Projects in European Cities and Towns

Plan your cogeneration

project thoroughly
Good Practice Guide/Project Checklist
Frequent Asked Questions List

A Good Practice Guide of small-scale cogeneration

July 2006
Table of contents

Good Practice Guide & project checklist................................. 2

First rough assessment with easyCOGEN.xls ........................ 4

Feasibility study carried out by an expert................................ 5

Choose your individual financing option ................................. 6

Public support mechanisms .................................................... 7

Grid connection ....................................................................... 8

New energy contracts ............................................................. 9

Administrative licensing procedures ..................................... 10

Environmental permit ............................................................ 11

Green certificates procedures ............................................... 12

Call for tender........................................................................ 13

Offers comparison................................................................. 14

FAQ list – General ................................................................ 15

FAQ list – Country specific ................................................... 17

COGENchallenge Facilitators ............................................... 19

Who we are ........................................................................... 20

1
Good Practice Guide & Project Checklist
If a cogeneration project is well designed, primary energy savings of 10 to 25% can be
achieved and sometimes even more. Projects with such a high amount of energy
savings are also known as "high efficiency cogeneration". In order to achieve these
results, it must be ensured that as little energy as possible is wasted. This can be only
done by using the total amount of heat and electricity produced by the cogeneration unit
in an effective and efficient way.

The first big challenge for the realisation of a high efficiency cogeneration project
therefore is to find the right capacity of the cogeneration unit. If the unit is too small, the
opportunity to save more energy is missed. If the unit is too big, energy will be wasted.
Project developers determine the size of a unit always according to various criteria such
as the heat load, the electricity needs and the regulatory framework. Another important
aspect is the question, whether it is possible to sell excess electricity.

The purchase and the installation of a cogeneration unit is a considerable investment

which needs to pay back. The more hours of a year the cogeneration unit is in operation,
the more money is saved during this year. Therefore, project developers choose a size
for the cogeneration unit which does not cover the highest possible heat load but a load
which will allow the cogeneration unit to run for at least half the year.

If the technical and economical analysis is positive for a cogeneration plant, some legal
and other aspects have to be kept in mind. Depending on the size of the plant, an
operator needs permissions from different parties. The checklist on page 3 will provide
all necessary steps, from the first rough calculation to the running of the cogeneration,
but cannot cover all national regulations in the European countries. It is helpful to ask
local facilitators or engineers or the suppliers that have experience with cogeneration
installations. On page 19 of this guide you find the contact details of six regional
Facilitators (Austria, Belgium, France, Germany, Slovenia and Spain), which are
information and support facilities for small-scale cogeneration.

2
□ easyCOGEN.xls
□ feasibility study
□ financing option
□ public support mechanisms
□ grid connection
□ new energy contracts
□ administrative licensing procedures
□ environmental permit
□ green certificates procedures
□ call for tender
□ offers comparison

3
First rough assessment with easyCOGEN.xls

Countries concerned: all

Depending on your site's energy needs and the operational requirements, a range of
energy experts can assist you in carrying out a proper sizing of your cogeneration
project. These may be the supplier of the cogeneration unit, an energy consultant or a
so-called energy services company (ESCO). With a "feasibility study" the experts can
measure your consumption of heating fuel and of electricity and simulate (with a
complex software tool) different sizes of cogeneration units. They can calculate for each
size the profitability and then propose the best option, giving also an assessment of the
economical benefits, the energy and environmental balance, and the technical
integration into the building.

The COGENchallenge team recommends to you to begin by doing the first assessment
yourself and for free. For this reason, we have created a simplified version of the same
software tool that energy professionals use in their work. The Excel-based software
easyCOGEN.xls allows also non-experts to carry out a first rough assessment whether
the installation of a cogeneration plant is a good option or not. You can download this
Excel file on the www.cogen-challenge.org website. By entering key data of your project
(buildings, enterprise, offices, etc) in the blue boxes you can assess easily the size and
the profitability of a suitable cogeneration unit (results are shown in the grey boxes).

TO DO LIST :

‰ Collect your energy bills (fuel and electricity) for one year

‰ Download the easyCOGEN.xls

‰ Enter your data

‰ Check if cogeneration is an opportunity for you or not

⇒ If YES, you can go ahead: the feasibility study

4
Feasibility study carried out by an expert

Countries concerned: all

In most cases a feasibility study is necessary because there is no standard formula to

calculate the size of a cogeneration unit (unlike for a typical boiler). It means that for the
same enterprise or building, there is a wide range of suitable cogeneration size options,
but only one is the most beneficial for you. The main target is to assess the optimum
size of the cogeneration you can install.

A feasibility study, carried out by an expert, will calculate the best option for you. The
study will also give you an assessment of the economical benefits, the energy and
environmental balance, and the technical integration into the building. With all this
information, you are ready to order (or not) a cogeneration unit.

The COGENchallenge team recommends that the expert uses a simulation software,
like the Excel COGENsim.xls software, which is very useful to carry out the feasibility
study. This software will simulate, 1/4 hour by 1/4 hour, different sizes of cogeneration
units and calculate the price and cost-effectiveness for each size. Then the expert can
suggest to you the best option according your wishes (profitability, CO2 savings,
investment, reliability). This Excel software is freely available on the www.cogen-
challenge.org website.

TO DO LIST :

‰ Order a feasibility study for a cogeneration in your specific building

‰ Propose to the expert to use COGENsim.xls software or a similar one

‰ Invite the expert to analyse the possible integration

‰ Analyse the feasibility report

⇒ If POSITIVE, you can go ahead: choose the financial option

5
Choose your individual financing option

Countries concerned: all

As with all other investments in life the rate of return of your investment in cogeneration
depends on the level of risk that you are willing to take. You have different options:

1. You manage the entire investment by yourself, but you can outsource part or all
of the maintenance. You control the project and the benefits;

2. You ask a bank, even an investment fund, to finance the cogeneration unit and
you can also outsource the maintenance. You also control all the project;

3. You sign a "partnership contract" with an energy supplier or producer, also called
an Energy Service Company (ESCO), who will provide an individual range of
services, from design and installation to operation, maintenance and monitoring,
including finance. Most importantly, the ESCO guarantees the user certain
thermal and electrical outputs at agreed prices from the CHP-installation for the
duration of the contract. In this case, the ESCO owns the unit;

4. You agree to a so-called Third Party Financing (TPF) contract. In this case, a
third partner will carry out all the investment and the maintenance of the unit. But
you stay the owner of the project. You work with the TPF on a open contract
basis: the "true" benefits are retrofit to all parties.

You should thoroughly assess, which option fits best to your financing plan. If you want
to know more about financing cogeneration projects, please consult the Guidance
Document on CHP Financing Guide on the COGENchallenge website.

TO DO LIST :

‰ Check your ability to finance yourself the cogeneration

‰ Download the CHP Financing Guide

‰ Choose the best financing plan for you

⇒ If OK, you can go ahead: find the public support mechanisms

6
Public support mechanisms

Countries concerned: all

This is an important item, but not essential, for the potential investor and needs to be
thoroughly checked. All over Europe there are different public support mechanisms for
cogeneration in place: grants for study costs and/or investment, feeding tariffs, green
certificates, tax allowance, better VAT rates, ... It is sometimes necessary to contact a
variety of different public authorities in order to receive all financial support (for the
actual investment but also for the feasibility study or for the operation costs).

It is important to know how you will finance the cogeneration project in advance because
some financing options, like the "partnership contract", do not allow additional public
support mechanisms in some countries. Be aware that sometimes you need to ask the
public authorities before you decide to invest in a cogeneration unit.

You will find more information on the financial and regulatory support mechanisms in
your country on the COGENchallenge website. In order to have complete information on
possible support, you should also ask a regional expert or Facilitator in this field. On the
last but one page of this guide you find the contact details of six regional Facilitators
(Austria, Belgium, France, Germany, Slovenia and Spain) which are information and
support facilities for small-scale cogeneration.

TO DO LIST :

‰ Check all the public support mechanism you can receive

‰ Fill in the necessary forms and send to the authorities

‰ Check if their answers is positive

‰ If not, check if the project stay attractive without public support

⇒ If YES, you can go ahead: check the grid connection

7
Grid connection

Countries concerned: all

The electricity distribution network operator should be involved in the project at an early
stage. In the case of bigger units the impact on the grid needs to be checked and the
point of interconnection needs to be defined. It is also helpful to know the
interconnection costs. These costs can vary from 5 to 20% of the total installation costs,
sometimes cheaper. This information (interconnection feasibility and costs) are part of
the "connection contract" you will generally pay to the distribution network operator. This
step must then occur just after you decide to install a cogeneration unit in your building.

More often, the distribution network operator will facilitate the interconnection of your
cogeneration unit. For instance, the electricity produced by a cogeneration unit might
receive preferential treatment when fed into the grid. The distribution network operator is
normally the right address to find out about the conditions in your country and region. In
some countries you will be asked to add a "decoupling connection" system to your
cogeneration plant. The performance of this decoupling system needs to be tested
before you start to run your cogeneration plant. The distribution network operator will
also check and often change the electricity meter.

TO DO LIST :

‰ Ask your distribution network operator for the "connection contract"

‰ Check if the interconnection costs are affordable

⇒ If YES, you can go ahead: negotiate new energy contract

8
New energy contracts

Countries concerned: all

Running a cogeneration unit may have an effect on the price you pay for the remaining
electrical energy. Even if your electricity bill will decrease after installing a cogeneration
unit, the unit price of your electricity might increase because you purchase less energy
for the same power supply. This effect has been taken into account in the feasibility
study. Now a final contract has to be asked from the energy suppliers, not only for the
remaining electricity (you will probably need after installing a cogeneration unit),
including back-up if the cogeneration unit is switched off, but also for the surplus
produced by the cogeneration unit. The feasibility report, which normally contains an
accurate estimation of the new electricity profiles, can help you in this negotiation. In
some cases your current contracts can remain the same if you install a cogeneration
unit.

Contrary due to the installation of a cogeneration unit your fuel consumption on the site
will increase, you can probably negotiate a better unit price. Therefore you should
contact your fuel supplier and his competitors to amend the contract, if necessary.

TO DO LIST :

‰ Check if you have the new energy profiles with cogeneration

‰ Ask suppliers for new energy contract (if needed)

‰ Check if the profitability is positive enough with the new contracts

⇒ If POSITIVE, you can go ahead: administrative license procedures

9
Administrative licensing procedures

Countries concerned: all, except Belgium

In some countries, the authorities will require you to fulfil certain legal regulations
concerning your license, such as to generate electricity and to sell it to a third party.
These regulations vary substantially depending on your country and region. In order to
clarify these rules you need to ask a cogeneration expert even the Facilitator. On the
last but one page of this guide you find the contact details of six regional Facilitators
(Austria, Belgium, France, Germany, Slovenia and Spain) which are information and
support facilities for small-scale cogeneration.

In Belgium, the best option is to self-consume the electricity produced by the

cogeneration unit. The possible surplus can be sold to a supplier or to a third party. As
the licensing procedures are quite complex, we suggest to sell this surplus only to a
supplier for whom you do not need a license. Even the price from a third party could be
quite higher than the supplier's price.

TO DO LIST :

‰ Check if you prefer to sell electricity to a third party than to a supplier

‰ Ask the authorities for the license procedure

‰ Fill in the required license forms

‰ Wait for the answer of the authorities

⇒ If POSITIVE, you can go ahead: ask the environmental permit

10
Environmental permit

Countries concerned: all

Depending on your home country and region, you might need a permission from the
public authorities in order to install a small-scale cogeneration unit. The building
regulations vary substantially across Europe, so that a general statement towards the
permit procedure is difficult to make. In any case, you should inform yourself on the
specific requirements in your region.

The environmental permit includes in each country certain regulations on air quality that
need to be fulfilled. Emissions of nitrogen oxides (NOx) typically cause the greatest
concern and legislative attention. Nitrogen oxides are toxic, they cause acid rain and
contribute to the depletion of the ozone layer. Emissions can be reduced by a regularly
maintenance of the cogeneration plant and by installing catalysts on the exhaust gas.
Additional emissions regulations may concern sulphur dioxide (SO2), carbon monoxide
(CO) and dust. Modern cogeneration plants can meet these requirements.

TO DO LIST :

‰ Apply at the authorities for the necessary environmental permit

‰ Check if you need an extra CO2 quota allowance for the project

‰ Wait for the answer of the authorities

⇒ If POSITIVE, you can go ahead: call of tenders

11
Green certificates procedures – specific to Belgium

Country concerned: Belgium

Citizens in Belgium, who want to publish a call for tender, need to certify their future
cogeneration unit if they want to get green certificates. The green certificates system
gives a grant when you save CO2 emissions (in Brussels and Wallonia) or when you
save energy (in Flanders) with your cogeneration unit. These green certificates can be
sold to the energy suppliers who need them to give back to the government, if they do
not want to pay a fine for missing green certificates.

The cogeneration owner can then receive a financial advantage which in some cases
can be very important, as shown in the table below.

€/MWh €/MWh €/MWh

Technologies
electricity electricity electricity
Oil cogeneration 30 0 16
Gas engine/turbine 33 45 26
Steam turbine 36 50 30
Biomass (dual-fuel) cogen 126 128 92
Wind / Hydro / PV cell 113 127 92
Biomass cogen (farm biogas/rapeseed) 113/ 143 184 / 183 138
Biomass cogen (wood/landfill gas) 122 / 146 253 / 292 184

You first need to fill in the forms and send them to the energy market regulator.
Depending on your region, download these documents on : www.ibgebim.be (Brussels:
), www.cwape.be (Wallonia: ) or www.vreg.be (Flanders: ).

TO DO LIST :

‰ Get the necessary forms and send these to the energy market regulator

‰ Wait for the answer from the energy market regulator

⇒ If POSITIVE, you can go ahead:

12
Call for tender

Countries concerned: all

Unless you know the technology and/or partner you will choose, we suggest to
undertake a call for several tenders for the cogeneration unit which you want to install on
your site. The call for tender depends on the financial option is yours. If you prefer to
keep the management of the project, you will ask suppliers of cogeneration units;
otherwise you have to ask several energy partners (ESCO) or third part financing
partners for an "all include" contract: the cogeneration unit installation, but also the
related services (maintenance and management).

The feasibility study will certainly help you to write this call for tender and, afterwards, to
compare precisely the offers.

On the COGENchallenge website, you can download the European Directory of

Cogeneration Developers.

TO DO LIST :

‰ Check if all the steps are OK or POSITIVE

‰ Write the call for tender, based on the feasibility study

‰ Download the European Directory of Cogeneration Developers

‰ Send the call for tenders to several suppliers and/or partners

‰ Wait for the offers and check if they are complete

⇒ If POSITIVE, you can go ahead: offers comparison

13
Offers comparison

Countries concerned: all

It is important to compare the offers with the results of the feasibility study and to
compare the different offers. During the comparison, you need to determine the best
technology but also the best supplier/partner.

The regional Facilitator as proposed and established by the COGENchallenge

campaign, can help you to draw up a list of criteria for this important step. On the last
but one page of this guide you find the contact details of six regional Facilitators
(Austria, Belgium, France, Germany, Slovenia and Spain) which are information and
support facilities for small-scale cogeneration.

TO DO LIST :

‰ Draw up the list of comparison criteria

‰ Determine the best technology and the best supplier/partners

⇒ Enjoy your cogeneration unit

14

FAQ list – General
What is cogeneration?
Cogeneration is the simultaneous production
of electricity and heat. For small and medium
installations a combustion engine firing natural
gas, biogas or diesel is often used that drives
a generator to produce electricity. Moreover,
the heat released by the engine in the cooling
water and in the exhaust is recovered by heat
exchangers to be used to heat a building or to
make domestic hot water.
Why install cogeneration in my building?
The principal reason is that this technology
makes it possible to consume less primary
energy to produce the same quantities of
electricity and heat, and thus a reduction in
energy costs. It also results in a reduction of
gas emissions and thus pollution.
Is cogeneration profitable in my
establishment?
The answer to this question is not immediate
and very often requires a small pre-feasibility
study. This can be made by yourself thanks to
the pre-feasibility guide “ Install
cogeneration in your establishment, available
from this project. If this looks promising then
further investigations will be necessary.
Is it necessary that the cogeneration
functions continuously during the whole
year?
No, there can be periods when the
cogeneration can stop. During design it is
necessary to consider carefully the
dimensioning of the cogeneration to optimise
the operating regime. In any case, it is normal
that during periods of low or no heat demand
the cogeneration unit will stop.
It is said that cogeneration is very noisy, is
this true?
No, a well designed and well installed
machine is not noisy at all. The majority of the
machines is delivered in a sound-proof
enclosure and can reduce the noise to a very
low level.
What happens when the cogeneration unit
breaks down?
No panic, you are always connected to the
electrical supply network and your system of
traditional heating. The change of one to the
other is done in an entirely automatic way.
The cogeneration unit usually can be quickly
a repaired.
Can a unit of cogeneration be useful as an
emergency power unit?
15
No. A European Directive, yet to be adopted, Who can help me with the design,
forbids an emergency power unit to function construction, financing and operation of a
“ uninterrupted” , which is practically the CHP installation?
case of cogeneration. An emergency power
must, no matter what happens, always be There are energy service companies who
available. However, adding a unit of offer a complete range of services at
cogeneration to the already existing guaranteed prices. They even can arrange
emergency power unit makes it possible to financing. For details see the TPF-guide
profit from a “ secondary” emergency power (Third-Party Financing) or the database on the
unit of comfort. Moreover, this “ secondary” COGENchallenge website.
emergency power unit can be fed with natural
gas and/or fuel oil, contrary to the
“ principal” emergency power unit which can
only be fed with fuel oil.

According to which parameters is the

cogeneration controlled?

The cogeneration unit will be normally

controlled by the demand for heat.

What happens if I don't have a demand for

heat?

If there is no more request for heat, the

cogeneration will stop. It will start again when
the demand for heat is sufficient. A balloon
with a reserve of hot water makes it possible
to accumulate a certain quantity of heat and to
return this heat at another time. It will be the
object of the optimisation and the guiding of
the installation.

16
 2. CHP certificates (only for installations who
FAQ list – Country specific have a system to utilise the heat as efficient
Can public support be asked by the owner as possible and have relative Primary Energy

of cogeneration? savings more than 5%). The price per

certificate: +/- € 38, penalty price = € 40.
BELGIUM:
Each regional Government gives grants for

Brussels Capital: the feasibility study costs (about 50%) and for
the investment cost (from 10 to 30%). The
You obtain green certificates (currently about Federal Government gives also a tax
€ 70 certificate) when your cogeneration plant allowance reduction of 13.5% (private
saves more than 5% of CO2 compared with companies) to 15% (residential)
the CO2 emissions of the traditional
productions of the same electricity and heat. FRANCE:

Wallonia: Fixed feed in tariffs are offered for

cogeneration unit respecting the
You obtain green certificates (currently about requirements: for units below 36 kVA it is the
€ 90 certificate) when your cogeneration plant same as the price paid for electricity and for
saves more than 10% of CO2 compared with units above it is calculated according to a
the CO2 emissions of the traditional production reference system (combined gas cycle) and
of the same electricity. differentiated according to the supplied power.
The contract is running for 12 years. Certain
Flanders: regional authorities in France (like e.g. in
Rhône-Alpes) are also giving investment
The Flemish Region has two different
subsidies for units below 1 MWe to owners
certificates:
from the public and semi-public sector (up to
1. Green power certificates (for installations 30%). Feasibility studies can be supported by
with electricity production from renewable the national French energy and environment
energy sources; one certificate per kWh agency and also by some regional authorities
produced electricity) and the price per (up to 70%).
certificate = 90 to 95% of the penalty price
GERMANY:
(€ 125);

17
The Cogeneration Act (April 2002) guarantees
temporary bonus-payments from
operators of the public grid for CHP electricity
transferred to the public grid. The amounts of
bonus-payments vary according to the type of
CHP installation, and are declining. An
accreditation from the Federal Office of
Economics and Export Control (BAFA) for the
installation is requested. The amount of the
bonus-payments varies from 1.53 cent/kWh in
2002 reduced annually to 0.97 cent and
phasing out in 2006 for existing CHP plants, to
5.11 cent/kWh for new small installations up to
50 kW if continuous operation is taken up until
end of 2005 as well as for fuel cell plants for
ten years. The estimated total cost of these
bonus payments is € 4.45 billion between
2002 and 2010. 2003 approx. € 700 million
(bonus-element). Vegetable oil and biogas
fired CHP installations are especially funded
by the Renewable Energy Sources Act.
AUSTRIA:
Supported feed in tariff are only available for
certain installations depending on fuel and
electric power output. Fuel used is exempted
from energy tax. Different investment
incentives are available for installations
depending on power output
environmental benefit.
SLOVENIA:
the
Fixed feed in tariff is offered for excess
electricity sold to the greed. Network system
operator is responsible for the purchase of all
offered electricity and obliged to conclude 10
years feed-in contract. CHP operators are not
paying balancing costs. Fuel used by CHP
unit is exempted from payment of CO2 tax
(0.44 kg CO2/kWhel). Subsides for preparation
of investment documentation are tendered by
Ministry of the Environment and Spatial
Planning.
SPAIN:
The Electricity Act (1997) guarantees
temporary bonus-payments for the electricity
transferred either to the grid operator or to the
pool market. The bonus vary from € 22.8
MWh to € 15.2 MWh depending on the
installed capacity. For small installations under
1 MW there is a special feed in tariff of € 68.4
MWh. There are not tax exemptions for fuel
costs. The Government is now giving a
national grant for the feasibility study
(maximum 75% of the study cost) and a
subsidy of 10% (maximum € 200,000) for non
industrial CHP investment.
and
18
COGENchallenge Facilitators

GERMANY: AUSTRIA:

Paul Fay Jan Bleyl

Stadt Frankfurt am Main - Energiereferat
Galvanistraße 28
D- 60486 Frankfurt am Main (Germany)
Tel: +49 69 212 39199
Fax: +49 69 212 39472
Email: paul.fay@stadt-frankfurt.de
Grazer Energieagentur
Kaiserfeldgasse 13/I
A-8010 Graz (Austria)
Tel: +43 316 811 848-20
Fax: +43 316 811 848-9
Email: bleyl@grazer-ea.at

FRANCE: SPAIN:

Reinhard Six
Carlos García
Rhônalpénergie Environnement (RAEE)
Fundación Asturiana de la Energía (FAEN)
10 rue des Archers
Área de Relaciones Externas
FR-69002 Lyon (France)
C/ Fray Paulino, s/n
Tel: +33 4 78 37 29 14
E-33600 Mieres (Spain)
Fax: +33 4 78 37 64 91
Tel: +34 985 46 71 80
Email: reinhard.six@raee.org
Fax: +34 985 45 38 88
BELGIUM: Email: cgarcia@faen.es

Ismaël Daoud SLOVENIA:

Cogeneration Facilitator for Wallonie
Stane Merse
COGENSUD asbl
"Jozef Stefan" Institute - Energy Efficiency
Bd Frère Orsban, 4
Centre
B-5000 Namur (Belgium)
Jamova 39
Tel: +32 81 250 480
SI - 1000 Ljubljana (Slovenia)
Fax: +32 81 250 490
Tel: +386 1 5885 250 or 210
Email: facilitateur@cogensud.be
Fax: +386 1 5885 377
Email: stane.merse@ijs.si

19
Who we are

20