4.2.1 Energy conservation targets In the Energy Conservation Action Programme, policy on energy conservation is set for the period from 1999 to 2002. The aim is to increase the rate of energy conservation as quickly as possible from 1.6% to 2.0% improvement in energy efficiency per annum. During this period we shall concentrate on the implementation of policy proposals.
As part of the evaluation of climate policy in 2002, energy conservation policy will be evaluated as well. To this end a new scenario will be developed, partly in order to gain a better understanding of the effects of liberalisation in the longer term. The CPB, the ECN, the National Institute for Public Health and Environmental Protection (RIVM) and the Ministries of Housing, Spatial Planning and the Environment and Economic Affairs are engaged in consultations on an energy conservation protocol. This will include commitments on the further harmonisation of monitoring systems.
Liberalisation and the environment
A distinction must be made between the desired structure of the markets and counteracting undesirable external effects. Both of these objectives require a specific type of regulation. If there is good regulation on both fronts, bothaims can be achieved. Encouraging energy conservation by allowing high prices that can be collected as monopoly profits is not desirable. A better option is to strive to achieve an efficient market and to absorb the effects of lower prices by using an instrument like the energy tax.
In a liberalised and therefore efficient Dutch energy market:31
• The price of fossil energy for small-scale consumers is being sharply increased. In 2001 they will pay over one-third more than would be the case without the energy tax.
• Bulk consumers are encouraged to achieve a very high level of energy efficiency through the Benchmark Agreementand Long-Term Agreements.
• A significant European energy tax also applies to bulk consumers.
• Research and development will continue to receive effective support.
• Various programmes give an added boost to promising environmentally friendly technologies.
• Administrative problems that are hindering a growing supply of renewable energy are being effectively dealt with (see Section 4.3.3).
• Strict requirements still remain in force, for example with regard to SO2and NOx; and
• Energy premiums and increases in the EIA and the EINP offer a good alternative to activities within the framework of the MAP.
As a result, liberalisation and the environment can go well together.
28 This involves power companies, energy suppliers, research institutes, KEMA, Gastec, Gasunieresearch, EnergieNed and the SEP.
29 See: Beleidsstudies Technologie Economie: Onderzoek naar technologie en economie: over witte vlekken en zwarte dozen, 1996,
and Th. J.A. Roelandt e.a., Markets and innovativeness: Does structure influence innovation performance? 1999
30 See: The Industry Letter; with regard to the streamlining operation at Novem, see the letter of 24 August 1999
4.2.2 Combined heat and power Existing situation
Combined heat and power (CHP) has made a significant contribution towards energy conservation in recent years. Since the early 1990s installed capacity has doubled to almost 8000 MW. In future CHP could also contribute significantly towards achieving the aims of climate and energy
conservation policy. Large-scale CHP is a mature technology that is reasonably simple to implement. For small-scale (mini and micro) CHP, there are possible new areas of application that are currently being researched.
Until recently CHP was an attractive conservation option from a commercial point of view. Recently, however, it was found that there is not as much willingness to invest in CHP projects. This was the reason for instructing ECN to carry out a detailed analysis. According to ECN, the advantage of CHP over separate generation has declined mainly because of current market conditions: low energy prices, surplus electricity generation capacity and changes in tariff systems for gas and electricity. The current supply of electricity at relatively low
prices, partly due to the arrival of foreign suppliers in the Dutch market, plays an important part in this. What is more, according to ECN, the cost of investment in CHP stations has increased significantly. The new CDS tariff system (CDS = Commodity Service System) for gas does not favour CHP systems with relatively short annual operating times. All in all this explains why power companies are currently reticent about investing in CHP.
Nevertheless, according to ECN there are still opportunities for CHP in sub-sectors such as larger industrial installations with long operating times, heat distribution in market gardening and small-scale CHP not connected to the electricity network. This emerged from reports by Novem on the progress of Long-Term Agreements and by Senter on the EIA. CHP stations with capacities of a few hundred MW are planned or under construction.
A broader perspective on CHP
Earlier scenario calculations by ECN (on the basis of the Global Competition (GC) scenario) indicated a total installed CHP capacity of 15,000 MW by 2010. With a CHP capacity of this scale, according to calculations by ECN, 80 to 180 PJ of energy will be saved, depending on the efficiency of central electricity generation that is assumed. The scenario calculations, and therefore also this result, are based on all kinds of assumptions about prices, market conditions, economic growth, the demand for electricity and the way in which it will be met. The most decisive factor for the outcome for CHP is the assumption that electricity prices, given economic growth of 3.3% per annum, will rise by an average of 0.5% per annum. There is currently overcapacity in the European electricity market, and prices are actually falling. It cannot be said when supply and demand in the electricity market will be in balance again. The basic principles and outcomes of the GC scenario form the basis for the Energy Conservation Action Programme and the Implementation Policy Document on Climate Policy. If the real situation develops differently from the assumptions in the scenario, a policy response may be required.
CHP policy
The situation with regard to CHP is worrying at present. It is important to keep a close eye on developments. The moment when overcapacity in the electricity market is reduced and new investment in electricity generation capacity comes into the picture again will be significant here. A monitoring system for CHP will be set up before the end of the year. Otherwise, further encouragement of CHP by the government is only possible to a limited extent. The free market, the level playing field for all electricity producers and the EU rules impose limits on the specific support that can be provided to a single technology or field of application. Within these limits the development of CHP will be supported as follows during the coming period:
• Abolition of the capacity limit for CHP stations in the VAMIL list.
• Exemption from the energy tax for electricity that is used within the CHP operator’s establishment.
• Early release of captive customers, so that CHP stations can also supply these customers more quickly.
• Avoiding unfavourable elements in network tariffs. Power companies are given the opportunity to collect a contribution towards the costs of the high-voltage transport network from electricity producers. If this opportunity is not used
adequately, this will provide grounds for considering additional policy measures.
• Support through the new ‘Net’ scheme (being implemented by Senter).
• Extending the CHP incentives by means of the EIA and continuing the support through Novem programmes. • Within the framework of environmental licensing, the use of
heat in electricity generation is considered to be ‘state of the art’. The degree of heat utilisation is considered on the basis of the principle of reasonableness (ALARA).
• In the Benchmark Agreement and the new generation of Long- Term Agreements, CHP will continue to be a significant option in order to achieve the required level of energy efficiency. • Companies not party to the agreement are required to make a
contribution through the licensing procedure comparable to the contribution from those that are party to the agreements, and measures are being considered with a pay-back period of up to five years. CHP forms part of this process.
• The supply of waste heat to homes is encouraged by the increase in the energy tax on natural gas and by the conversion of the tax-free thresholds into a fixed amount per electricity connection.
• In the planned General Administrative Order on Glasshouse Horticulture, within the framework of the GlaMi voluntary agreement (agreement between the government and the glasshouse industry on environmental measures), the use of waste heat and CHP are rated in such a way that this has an incentive effect.
The situation will be reassessed in 2002. If necessary, additional measures will be considered at that time.