Germany

GE-5:CHP Law (Kraft Wärme Kopplungsgesetz)

Policy Description

In April 2002, the German CHP Law or co-generation act (Gesetz für die Erhaltung, die Modernisierung und den Ausbau der KWK) was implemented. The Law was amended several times, the latest version dates from January 1st, 2009. A new update is planned for 2012 (not available at the time of writing).[1] The CHP Law protects existing CHP plants that feed electricity into the grid for a limited period by giving financial incentives for accelerating the modernisation of these plants, and favouring the building of new small CHP plants and fuel cells. In addition, operators of CHP that meet specified requirements for the power-to-heat ratio receive a financial bonus for their electricity production fed into the public grid on top of the revenue at market price.

Description

In April 2002, the German CHP Law or co-generation act (Gesetz für die Erhaltung, die Modernisierung und den Ausbau der KWK) was implemented. The Law was amended several times, the latest version dates from January 1st, 2009. A new update is planned for 2012 (not available at the time of writing). [1]

 

The CHP Law protects existing CHP plants that feed electricity into the grid for a limited period by giving financial incentives for accelerating the modernisation of these plants, and favouring the building of new small CHP plants and fuel cells. In addition, operators of CHP that meet specified requirements for the power-to-heat ratio receive a financial bonus for their electricity production fed into the public grid on top of the revenue at market price. The bonus varies according to the plant type and is progressively being reduced (except for fuel cells and new small plants). In 2009 the maximum tariff was set at EUR 5.11 Ct/kWh for very small CHP installations. The costs of paying for the premium are spread equally over all grid operators under the same principle as the renewable energy Law. The incentives are financed by a levy: in 2011 the net levy was 0.03 cent per kWh, in 2012 this was strongly reduced to 0.002 cent per kWh. [1], [6]

 

Compared to its predecessors, the 2009 CHP Law considerably broadened its scope and application. Whereas promotion of new plants was first limited to a total output of 2 MWel, it now also includes promotion of larger CHP plants. Furthermore, the thresholds for determining eligibility for support not only take into account the amount of electricity supplied to the grid, but also own consumption. The eligibility criteria for financial support specified in the 2009 CHP Law follow the definitions of high-efficient CHP as specified in the EU CHP Directive (*1).

 

The CHP laws serve to achieve targets specified for CHP as part of the overall climate and energy package as adopted by the German Federal Cabinet in August 2007. At the time of the first CHP Law, these were the targets set in the 2001 voluntary agreement, saving 10 Mt CO2 by CHP until 2005 (compared to the base year 1998) and 23 Mt until 2010 (at least 20 Mt). The 2009 Law aims to achieve the government's goal to double the share of electricity production from CHP plants from 12.5% in 2008 to 25% in 2020, as defined in the package. [1], [2]

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Incentives & Subsidies

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 2002

End Date: 2016

Policy Linkages

Supported By EU emissions trading system (EU ETS) Effort Defining
Supported By Rebate on energy and electricity tax for energy intensive companies “Spitzenausgleich” Supporting Measure

Agencies Responsible

Federal Ministry of Economics and Technology (BMWi)
German emissions trading authority (DEHSt)

Primary Objective: GHG Emissions

Objective

­Reducing greenhouse gas emissions by increasing the overall efficiency of energy production.

Target Group

Energy companies, Energy-intensive industry

Driver of energy consumption or emissions affected by policy: Total emissions / Relative efficiency

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

Not available (but target group similar to target group GE-1 which has an approx 49% coverage)

Quantitative Target? yes

Target:  The government aims to achieve 25% of total electricity production from CHP plants by 2020 (2009 CHP Law)  Emission reduction targets of the first CHP Law are 10 Mt CO2 saving by CHP until 2005 (compared to the base year 1998) and 23 Mt until 2010 (at least 20 Mt).

Progress Monitored? yes

Verification Required? no

Enforced? no

Sanctions: None

Requirements on the Target Group

None except qualify for eligibility criteria for high-efficiency CHP as defined by the EU CHP Directive (*1).

Support by Government

  • Electric grid operators are obliged to connect CHP to the grid and take over the delivered CHP electricity with priority (treated similar to renewable electricity)
  • Feed- tariffs are paid depending on type of technology and size. In 2010 tariffs ranged from 1.59 ct/kWh for modernisation of plants to 5.11 ct/kWh for new, small-scale plants. From 2011 modernisation of old plants no longer receive support. [7]

Implementation Toolbox

None

Complexity of Implementation

Government

Monitoring progress and specification of support tariffs requires quite some effort. Once that is set the administration is relatively straightforward.

Target Group

Administration to obtain financial support is relatively straightforward.

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions ­- Analysis by IER in 2006 shows that approximately 87% of CHP potential capacity in Germany is installed as a result of the CHP Law. [3] (*3) ­- In 2009, about 60-65% of net electricity from cogeneration was funded by the CHP Law. [5] ­- Between 2002 and 2010 the share of CHP in net electricity generation increased by 1.5% points to 15.4%. The increase in the years 2008 and 2009 alone was 1.4%. Total increase in the period 2002-2010 was about 14 TWh. [5] ­- Total CO2 reductions in 2010 from CHP compared to the reference value for separate heat and power generation was 46 million tons of CO2. [5] ­It has been hard to ascertain the impact of implementation of the EU CHP Directive in Germany as the new CHP law was introduced at the height of the financial crisis in 2009 and investment in CHP slowed concurrently. [4]
Estimated costs/benefits for industry Investments in 2002-2010 new built and modernized CHP plants are estimated to be € 10 billion. [5]
Estimated cost for government ­- Budget reserved for 2002-2010 is € 4.488 billion. In the 2006 review conducted by IER total expected financing for that period is € 5.6 billion, split up in € 3.2 billion for new systems, € 1.3 billion for modernized facilities, € 0.9 billion for older plants and € 0.15 billion for small CHP plants and fuel cells. [3] (*3) ­- Annual budget in the 2009 Law is €750 million. - ­Feed-in tariff payments were about € 800 million per year between 2003 and 2006. When the support for existing plants expired in 2010, payments reduced to € 521 million in 2008. Payments were expected to further decrease to € 384 million in 2010 following ending of payments for existing plants from the previous CHP Law. [5]

References & Footnotes

References

[1] CHP Law 2009, http://www.bhkw-infozentrum.de/download/kwkg_2009_bundesgesetzblatt.pdf 2002-Law at: http://www.gesetze-im-internet.de/bundesrecht/kwkg_2002/gesamt.pdf

[2] Mure Industry II, Heat-Power Cogeneration Act, http://www.isisrome.com/data/mure_pdf/industry/GER3.PDF , accessed 16/2/2012

[3] BMU and BMWi, Zwischenüberprüfung des Kraft-Wärme-Kopplungsgesetzes, October 2006, http://www.bmu.de/files/pdfs/allgemein/application/pdf/zwischenbericht_kwk.pdf

[4] CODE project, http://www.code-project.eu/wp-content/uploads/2011/10/D5.1-Nothern-Europe-Regional-Report.pdf

[5] Prognos AG and Berliner EnergiAgentur, Zwischenüberprüfung zum Gesetz zur Förderung der Kraft-Wärme-Kopplung, September 2011, http://www.bmwi.de/BMWi/Redaktion/PDF/Publikationen/Technologie-und-Innovation/zwischenueberpruefung-gesetz-kraft-waerme-kopplung,property=pdf,bereich=bmwi,sprache=de,rwb=true.pdf

[6] Stromio, Ihr Strompreis, http://www.stromio.de/ihr-strompreis.html, accessed 02/04/2012

[7] KWKG-Novelle.de, KWK Zuschlag, http://www.kwkg-novelle.de/kwk-gesetz_kwk-zuschlag.html, accessed 02/04/2012

Footnotes

(*1) Directive 2004/8/EC of the European Parliament and of the Council of 11 February 2004 on the promotion of cogeneration based on a useful heat demand in the internal energy market and amending Directive 92/42/EEC

(*2) Fuel for CHP is exempted from energy tax. Exemption applies to CHP plants with a load factor of over 70%.

(*3) Note that this progress monitoring dates from 2006 so prior to the planning of the 2009 CHP Law and before the economic crisis.