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Germany calls for a CHP subsidy boost

Apr. 18, 2012, London, UK - A group of seven German energy associations have urged the government to increase subsidies for combined heat and power plants or risk jeopardizing investment in the sector.


April 18, 2012
By Argus Media

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Apr. 18, 2012, London, UK – A group of seven German energy associations have urged the government to increase subsidies for combined heat and power (CHP) plants or risk jeopardising investment in the sector.

The associations — including energy and water association BDEW and municipal utility association VKU — are calling for at least a €0.05/kWh increase to subsidies for CHP plants that are required to buy emissions allowances from 2013, when phase 3 of the EU emissions trading scheme (ETS) begins.

This exceeds the government's plan — proposed in a draft law presented at the end of last year — to add €0.03/kWh to subsidies for such plants with an installed capacity of more than 20MW, lifting the subsidy to €0.18/kWh.

“We welcome the proposed introduction of a compensation scheme for plants that will participate in the ETS scheme, but this will not incentivise new investments,” the associations said in a joint paper published today. “It should be noted that the draft amendments [to the CHP act], would mean that investments in new [CHP] plants or retrofitting will not happen.”

CHP plants will need the higher subsidy to offset the impact on profitability created by rising fuel costs, a rising share of renewable power in the country's generation mix and consequently falling load hours and prices on the German power wholesale markets, according to the associations. This makes CHP unprofitable to run over longer periods, they added.

The warning comes ahead of a 23 April hearing by the lower house of parliament's (Bundestag) committee for economy and technology, when the government's draft law on the amended CHP act will be discussed.

The government passed amendments to the CHP act in December with the aim of introducing incentives to increase the share of CHP plants in Germany's generation mix to 25pc by 2020, from around 15pc in 2010. The 25pc target will require the addition of 10-12.5GW in CHP generation capacity, according to a study from research group Oko-Institut. But only 2GW of new CHP units are currently under construction, the study said.

And the institute expects that only around half of the required additional capacity will come on stream by 2020 under current market conditions, saying that larger CHP plants are hardly economically viable.

The seven associations signing the paper are BDEW, VKU, industrial energy consumer association VIK, energy efficiency association AGFW, CHP association BKWK, engineering association VDMA and trade union Verdi.

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