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Kyoto and the regulation of small CHP plants in DK

Henrik Lund Aalborg University

Denmark

Environmental Management 7. Semester 2003Environmental Management 7. Semester 2003Sustainable Energy System Analysis (SESA)Sustainable Energy System Analysis (SESA)

7th lecture7th lecture

Content:Content:

Rio, Kyoto and Johannesburg Rio, Kyoto and Johannesburg declarationsdeclarationsDanish Energy Planning 1972Danish Energy Planning 1972--20032003The new Danish energy strategyThe new Danish energy strategyProposals for new CHP regulationProposals for new CHP regulationEnergyPROEnergyPRO analyses of optimal analyses of optimal investments under different regulationsinvestments under different regulations

UN 1987: Our Common FutureUN 1987: Our Common Future

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UN 87: Low 2020 and High UN 87: Low 2020 and High 2030 Energy Scenarios2030 Energy Scenarios

Brundtlandreport Low Energy Scenario year 2020, 11,2 TW

0123456789

1011

0 1000 2000 3000 4000 5000 6000 7000 8000

Million inhabitants

kW /

inha

bita

nt

Industrial Development

Brundtlandreport High Energy Scenario year 2030, 35 TW

0123456789

1011

0 1000 2000 3000 4000 5000 6000 7000 8000

Million inhabitants

kW /

inha

bita

nt

Industrial Development

Year 1984, 10 TW

0123456789

1011

0 1000 2000 3000 4000 5000 6000 7000 8000

Million inhabitants

kW /

inha

bita

nt

Industrial Development

35 TW year 2030

11,2 TW year 2020

10 TW year 1984

UN 87 Report ConclusionsUN 87 Report Conclusions

Low Energy Scenario:Low Energy Scenario:is best way to achieve sustainabilityis best way to achieve sustainabilitydoes not necessarily means lack of does not necessarily means lack of important energy servicesimportant energy servicessame level in next 50 years with only same level in next 50 years with only half the resources is possiblehalf the resources is possibleFundamental institutional changes is Fundamental institutional changes is neededneeded

Low Energy Scenario 2020:Low Energy Scenario 2020:

Industrialised countries decrease Industrialised countries decrease from 7,0 to 3,9 TWfrom 7,0 to 3,9 TWDevelopment Development countries countries increase from increase from 3,3 to 7,3 TW 3,3 to 7,3 TW

Brundtlandreport Low Energy Scenario year 2020, 11,2 TW

0123456789

1011

0 1000 2000 3000 4000 5000 6000 7000 8000

Million inhabitants

kW /

inha

bita

nt

Industrial Development

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ImplementationImplementationRio Declaration 1992

Kyoto Protocol 1997Johannesburg 2002

Rio 92 DeclarationRio 92 Declaration

Adopting the objective of stabilising Adopting the objective of stabilising GHG at a level that will prevent manGHG at a level that will prevent man--made climate change.made climate change.Forming the framework for the Forming the framework for the continuation of international actions.continuation of international actions.Commitment from industrialised Commitment from industrialised countries to reduce GHG emissions. countries to reduce GHG emissions.

KyotoKyoto--ProtocolProtocol

Annex B countries: Develop countries Annex B countries: Develop countries + some economies in transition + some economies in transition (Croatia, Slovenia, Czech Rep., (Croatia, Slovenia, Czech Rep., Romania, Russia, etc.)Romania, Russia, etc.)NonNon--annex B countries: annex B countries: Developing countries Developing countries + some economies in transition (Bosnia, + some economies in transition (Bosnia, Yugoslavia, Macedonian, Albania) Yugoslavia, Macedonian, Albania)

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Annex B CountriesAnnex B Countries

Adoption of measurement of GHGAdoption of measurement of GHGStabilise GHG emission to the 1990 Stabilise GHG emission to the 1990 level before year 2000level before year 2000Reduce 6 GHG by at least 5% below Reduce 6 GHG by at least 5% below 1990 levels in period 20081990 levels in period 2008--2012 2012 according to annex B (Denmark according to annex B (Denmark -- 8%, 8%, USA USA -- 7%, Norway +1% etc…)7%, Norway +1% etc…)

All CountriesAll Countries

Adopt national programs for the Adopt national programs for the mitigation of climate changemitigation of climate changeTake in consideration climate change Take in consideration climate change into relevant social, economic and into relevant social, economic and environmental policies.environmental policies.CoCo--operate on scientific matters etc.operate on scientific matters etc.Promote Public education and inform.Promote Public education and inform.

Johannesburg 2002Johannesburg 2002

Climate: Countries that have ratified the Kyoto Protocol strongly urge countries that have not to do so in a timely manner.

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Johannesburg 2002Johannesburg 2002

Energy: The use and production of renewable energy must be substantially increased. Furthermore a regular review of this was agreed upon. Finally, the EU launched a coalition of like-minded countries that wish to go even further and establish specific targets and timetables for the increase of renewable energy.

The Kyoto MechanismThe Kyoto Mechanism

JI (Joint Implementation): Between JI (Joint Implementation): Between Annex B countries.Annex B countries.CDM (Clean Development Mechanism): CDM (Clean Development Mechanism): Annex B countries financing projects in Annex B countries financing projects in Non Annex B countriesNon Annex B countriesEmission Trading: Trade between Emission Trading: Trade between Annex B countries. Annex B countries.

30 years 30 years Primary Energy SupplyPrimary Energy Supply

Danish Primary Energy Supply

0

200

400

600

800

1000

1200

1972 1980 1988 1996 2001

PJ

R.E.N-gasCoalOil

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Danish Danish electricityelectricityproduction production

Big power Big power stationsstations

Small CHP Small CHP plantsplants

Wind Wind turbines turbines

Case: DenmarkCase: Denmark

CO2-målsætninger og udslip

0,010,020,030,040,050,060,070,080,0

1980 1990 2000 2010 2020 2030

Mio

.tons

Faktisk Korrigeret Energi 21

CO2-målsætninger og udslip

0,010,020,030,040,050,060,070,080,0

1980 1990 2000 2010 2020 2030

Mio

.tons

Faktisk Korrigeret Energi 21 Kyoto Mål

CO2-målsætninger og udslip

0,010,020,030,040,050,060,070,080,0

1980 1990 2000 2010 2020 2030

Mio

.tons

Faktisk Korrigeret Energi 21 Kyoto Mål

CO2-målsætninger og udslip

0,010,020,030,040,050,060,070,080,0

1980 1990 2000 2010 2020 2030

Mio

.tons

Faktisk Korrigeret Energi 21 Kyoto Mål Klima2012

New Government Climate New Government Climate Change Strategy Year 2003Change Strategy Year 2003Objective in focus:Objective in focus:

Cost Effective Cost Effective CO2 reductionCO2 reduction

Strategy:Strategy:

Least Cost Combination of:Least Cost Combination of:Kyoto Flexible MechanismKyoto Flexible MechanismDomestic measures:Domestic measures:–– Heat Pumps in small Heat Pumps in small CHPsCHPs–– Conservation (windows)Conservation (windows)–– Biogas PlantsBiogas Plants

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TheThe CO2 MankoCO2 Manko

Environmental Cost Environmental Cost effectivenesseffectiveness

Kyoto MechanismKyoto Mechanism

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Danish Government Danish Government New Climate StrategyNew Climate Strategy

CO2-målsætninger og udslip

0,010,020,030,040,050,060,070,080,0

1980 1990 2000 2010 2020 2030

Mio

.tons

Faktisk Korrigeret Energi 21Kyoto Mål Klima2012 NYKlima

New Danish Regulation of CHPNew Danish Regulation of CHP

Paper of 13th June 2003Paper of 13th June 2003

Law of 9. June 2004Law of 9. June 2004

Proposal of new Law implementation (In Proposal of new Law implementation (In Hearing November 2004)Hearing November 2004)

New Law from 2005 New Law from 2005

Old RegulationOld Regulation

All CHP and RES: Priortised production All CHP and RES: Priortised production NgasNgas CHP: Triple Tariff + 80 DKK/CHP: Triple Tariff + 80 DKK/MWhMWhfor the first 8000 for the first 8000 MWhMWhWaste CHP: Triple Tariff + 70 Waste CHP: Triple Tariff + 70 DKK/DKK/MWhMWhBiogas, Biomass (wood, straw), PV, Biogas, Biomass (wood, straw), PV, Wind, Hydro: Triple Tariff + 270 Wind, Hydro: Triple Tariff + 270 DKK/DKK/MWhMWh

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Two different regulationTwo different regulation

One for Natural Gas One for Natural Gas CHPsCHPs

Another for Biogas (and Biomass Another for Biogas (and Biomass CHPsCHPs))

New Regulation: ContentNew Regulation: Content

Cancel prioritised production statusCancel prioritised production statusAll electricity sold on the market at All electricity sold on the market at market pricesmarket pricesCompensation of difference compared Compensation of difference compared to triple tariffto triple tariffNo change in 70, 80, 270 DKK/No change in 70, 80, 270 DKK/MWhMWh

New Regulation: PurposeNew Regulation: Purpose

Better market for electricity without Better market for electricity without prioritised production (More prioritised production (More competition)competition)Stop of CHP in low price hours (Socio Stop of CHP in low price hours (Socio economic savings of 0economic savings of 0--90 MDKK/year)90 MDKK/year)Potential of using small CHP for Potential of using small CHP for ancillary servicesancillary services

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How to compensate difference How to compensate difference compared to triple Tariffcompared to triple Tariff

For each CHP the Triple Tariff income For each CHP the Triple Tariff income form year 2001form year 2001--2003 is compared to 2003 is compared to the payment, IF the same production the payment, IF the same production were sold on the market.were sold on the market.After January 2005 this amount is paid After January 2005 this amount is paid independent from the actual electricity independent from the actual electricity production production Instead the payment is dependent on Instead the payment is dependent on the spot price level. the spot price level.

Balancing paymentsBalancing payments

Approximately 10 DKK/Approximately 10 DKK/MWhMWh (Added to (Added to the compensation) the compensation)

How to make the paymentHow to make the payment

Payments each Payments each month 1/12 of month 1/12 of the annual the annual amount amount compensated compensated for the for the dependency of dependency of the spot price:the spot price:

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DurationDuration

20 years form connection to the 20 years form connection to the electricity gridelectricity gridAt least 10 years from January 2005At least 10 years from January 2005

Additional RegulationAdditional Regulation

Replacement of oil and Replacement of oil and NgasNgas in the in the peak load boiler by biomass is not peak load boiler by biomass is not allowedallowed

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New Regulation: New Regulation: Biomass Biomass CHPsCHPs

New Biogas New Biogas CHPsCHPs and RES plants (with and RES plants (with “innovation perspectives”) before 2008: “innovation perspectives”) before 2008: 600 DKK/600 DKK/MWhMWh in the first ten years and in the first ten years and 400 DKK/400 DKK/MWhMWh in the next ten years.in the next ten years.New RES (without “innovation New RES (without “innovation perspectives”): Market price plus 100 perspectives”): Market price plus 100 DKK/DKK/MWhMWh (or RES(or RES--certificates).certificates).

Optimising Small CHP-plant Performance in a Competitive Market

Henrik Lund, Aalborg UniversityAnders N. Andersen, EMD softwareErik Lundsgaard, Hashøj CHP Plant

DENMARK

Russia Power Conference & ExhibitionRussia Power Conference & ExhibitionMoscow, March 10Moscow, March 10--11, 200411, 2004

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ContentContent

Introduction: Introduction: CHP and Competitive electricity markets: 3 different CHP and Competitive electricity markets: 3 different

sales conditions.sales conditions.

Methodology: Methodology: Optimisation of performance and investment designs Optimisation of performance and investment designs

(15 years experience).(15 years experience).

Results: Results: Compare optimal designs for 3 different market Compare optimal designs for 3 different market

conditions.conditions.

Electricity Market ConditionsElectricity Market Conditions

1. Introduction phase: Fixed prices 1. Introduction phase: Fixed prices Electricity sold on a contract with fixed prices.Electricity sold on a contract with fixed prices.

2. Demand adjustment: Triple tariff 2. Demand adjustment: Triple tariff Name Hours Weekdays Month PricePeak load High load Low load

8:00-12:00 17:00-19:00

6:00-21:00

(Apart from peak load)

The rest

Monday-Friday Monday-Friday

Monday-Friday

Monday-Sunday

January-December October-March

January-December

January-December

542 DKK/MWh

424 DKK/MWh

183 DKK/MWhTable 2: The triple tariff electricity sales price setting of the western Danish TSO, Eltra.

Electricity Market ConditionsElectricity Market Conditions

3. Spot Market 3. Spot Market Prices: Prices: NordNord Pool Pool

Electricity sold on Electricity sold on international spot market.international spot market.

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Optimal PerformanceOptimal Performance

Task: Task: Optimising revenues from electricity sales. Optimising revenues from electricity sales.

Means: Means: Identifying the best performance strategy in terms Identifying the best performance strategy in terms

of when to start and stop CHP units and boilers of when to start and stop CHP units and boilers and when to fill or empty the heat storage. and when to fill or empty the heat storage.

Considerations: Considerations: As few start and stops as possible. Best utilisation of As few start and stops as possible. Best utilisation of

heat storage capacity.heat storage capacity.

Optimal Investment DesignOptimal Investment Design

Task: Task: Identifying optimal CHP size and heat storage Identifying optimal CHP size and heat storage

capacity before making the investment. capacity before making the investment.

Means: Means: Identifying the best performance strategy for Identifying the best performance strategy for

different CHP units and heat storage capacities. different CHP units and heat storage capacities.

Considerations: Considerations: Electricity market sales conditions and sensitivities.Electricity market sales conditions and sensitivities.

MethodologyMethodology

Restrictions: Heat demandRestrictions: Heat demandPlacing CHP productions in high price Placing CHP productions in high price

hours using the following loops:hours using the following loops:Creating continuous productionCreating continuous productionExpanding to neighbour periodsExpanding to neighbour periodsForced start of productionForced start of productionProduction when fuel storage is fullProduction when fuel storage is fullProduction if thermal storage is emptyProduction if thermal storage is emptyFully exploitation of production abilitiesFully exploitation of production abilities

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ToolTool

Methodology is Methodology is implemented implemented into the into the computer tool:computer tool:

energyPROenergyPRO

Case: Typical small CHP plantCase: Typical small CHP plant

District heating demand District heating losses District heating payment CHP investment costs Heat storage investments costs Natural gas fuel price Natural gas energy- and CO2-tax Electricity CO2-subsidy Boiler efficiency CHP electric efficiency CHP thermal efficiency Financing

24,000 MWh/year25 per cent

500 DKK/MWh5 million DKK pr. MW

1700 DKK pr. m31.75 DKK/Nm32.24 DKK/Nm3100 DKK/MWh

0.950.390.51

10 percent, 15 yearsTable 1: General assumptions used in all calculation designs

Result:Result:

Fixed prices optimisation

0

1

2

3

4

5

6

0 1 2 3 4 5 6 7

MW CHP unit

MD

KK/y

ear

54 EUR/MWh40 EUR/MWh27 EUR/MWh

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Result:Result:

Triple tarif optimisation

0

1

2

3

4

0 1000 2000 3000

m3 Heat storage

MD

KK/y

ear 6 MW

5 MW4 MW2 MW0 MW

Result:Result:

Nord Pool market price optimisation

0

1

2

0 1000 2000 3000

m3 Heat storage

MD

KK/

year

6 MW5 MW4 MW2 MW0 MW

Conclusions:Conclusions:Million DKK Reference Fixed prices Triple tariff Market pricesOptimal design: CHP size Heat storage capacity

- -

3 MW

-

4 MW

900 m3 4 MW

500 m3

Sold heat Sold electricity Fuel costs Taxes (fuel) Subsidies (electricity) Operation (CHP Investments (CHP) Investments (Storage) Annual Revenue Potential heat price

12.00

- - 5.02 - 6.43

- - - -

0.55

500 DKK/MWh

12.00

6.09 - 8.69 - 5.13

1.95 - 1.15 - 1.97

-

3.10

390 DKK/MWh

12.00

7.58 - 9.18 - 4.95

2.21 - 1.31 - 2.63 - 0.20

3.53

380 DKK/MWh

12.005.58

- 9.17- 4.95

2.21-1.30

- 2.63- 0.11

1.61

450 DKK/MWh

Table 3: Optimal CHP plant designs for three different sales price conditions

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Kyoto and the regulation of small CHP plants in DK

Henrik Lund Aalborg University

Denmark

Environmental Management 7. Semester 2003Environmental Management 7. Semester 2003Sustainable Energy System Analysis (SESA)Sustainable Energy System Analysis (SESA)

7th lecture7th lecture