Combined Heat and Power Generation in Liberalised Markets and a Carbon-Constrained World

Abstract

Combined heat and power production (co-generation, CHP) is an important option for carbon emission mitigation, the more rational use of energy, and a more sustainable development. This article provides an essentially non-technical overview of co-generation technologies and applications and the potentials, merits and drawbacks involved. The article looks at co-generation within the context of two major prevailing trends - energy market liberalisation and a growing concern about global climate change and the wasteful use of energy resources. We show that, on the one hand, there is a plethora of different commercial and pre-commercial CHP technologies and applications, with varying cost characteristics, diffusion prospects and potential environmental and socio-economic net benefits. On the other hand, we explain why, at least at the moment, liberalisation constitutes a curse and a blessing for the further market penetration of CHP, and that both the Kyoto process and recent technological developments are key drivers for the further deployment of CHP. Effective and long-term oriented policy action is needed in order to further exploit market potentials and to enhance new potentials by removing or alleviating existing non-technical barriers and market failures (e.g. related to financing, institutional inertia, fair access to the electric grid). In order to enhance its effectiveness, such policy action will to some extent also have to take into account the regionally, culturally, and societally varying conditions, despite the ongoing economic integration.