1. CODE Project WP3 – Modelling support for cogeneration across the EU27

2. 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

3. Output sought Country Modelled IRR with fiscal supports Modelled IRR with fiscal supports removed Value of fiscal support for augmenting IRR 1ABC=(A-B) 2AB 3AB 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

4. 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

5. 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.

6. 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

7. 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 €.

8. 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

9. 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 Avoided tax Incentive Base price Costs e.g. T and D Taxes Overall fixed gas price including all costs and taxes

10. 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

11. The value of electricity generated and sold (per kWh) Base import price 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 Base export price Export costs or taxes Export Incentive Embedded Benefit

12. 1MWe 1MWe1MWe 12MWe66MWe Financials no benefits Simple Payback 8.63.5 6.14.8 IRR -4.34%13.44% 9.08%11.99% Financials with benefits Simple Payback with benefits 6.83.4 5.73.9 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

13. UK Support mechanisms About 7.5 GW CHP in the UK No UK wide grant schemes for CHP Enhanced capital allowances Set full capital cost of construction against tax in year 1 Embedded benefit Ca. 1 euro MWh electiricy exported

14. 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)

15. 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%