Download Flexible climate mechanisms and district heating

Flexible climate mechanisms and
district heating
RE suppliers as well as manufacturers and
climate change consultants.
Mr. Lars Grue ,
Director, Grue &
Hornstrup
By Ms. Christina
Meyer, Climate
Change
Consultant,
Rambøll
With the growing attention to climate
change and the ever increasing oil and
gas prices, renewable energy, district
heating and combined heat and power
are becoming more and more interesting
solutions to energy supply worldwide.
The Danish renewable energy (RE) and
district heating (DH)/combined heat and
power (CHP) sector is highly developed
compared to other countries. This is
due to the relatively long tradition of
supporting research, development and
implementation.
The Kyoto Protocol, which entered into
force in February this year, commits its
ratifying countries to reduce their greenhouse gas emissions (GHG), e.g. through
an increased use of renewable energy or
through implementation of energy efficiency projects. The flexible mechanisms,
joint implementation (JI) and clean development mechanism (CDM), forming
part of the Kyoto Protocol, open up new
revenue possibilities for RE and DH/CHP
projects, improving the return on investment of the projects.
The combination of an increased interest
in RE and DH/CHP investments from industrial or municipal entities in developing
or transition countries, Danish experiences
with RE and DH/CHP technologies and
with the Kyoto protocol mechanisms, and
additional project income from sale of JI
or CDM carbon credits is interesting. It
could result in an increased number of
RE and DH/CHP projects implemented
in countries less experienced in the field
of RE and DH/CHP than Denmark – thus
bringing them benefit from the experiences
and know-how of Danish DH/CHP and
Climate change and the Kyoto Protocol
The Kyoto Protocol to the UN Convention on Climate Change is an international
agreement to reduce the emission of greenhouse gases and thereby mitigate climate
change. Parties to the Convention, who
have ratified the protocol, have accepted to
reduce their GHG emissions with specific
amounts. In total, the goal is to reduce
emissions in the period 2008-2012 with at
least 5% compared to the 1990 levels. EU
has committed itself to an 8% reduction,
and within EU a burden sharing agreement
has been made, with all the EU countries
being assigned an amount of emissions that
they must not exceed. The Danish emission
reduction commitment is 21% compared
to the 1990 level emissions. I.e., Denmark
has an assigned amount of emissions of
79% of its emissions in 1990.
Greenhouse gas emissions are a global
problem, and the actual geographical place
of emission reductions is not important.
Therefore, the Kyoto protocol provides
for three flexible mechanisms, allowing
reductions to be made where costs are
the lowest.
1) Clean development mechanism
(CDM)
2) Joint implementation (JI)
3) Emissions trading
the largest emitters of Greenhouse Gas
Emitters and the state. All large entities
emitting CO2 are given CO2 quotas, forcing them to reduce their emissions or to
acquire additional quotas from others, and
these entities and the state are allowed to
use JI, CDM and emission trading to meet
their obligations.
This means that a market for carbon credits
will develop in Denmark, as in other EU
countries, in the coming years.
Not only the CO2-quota entities and the
Danish state will have an interest in this
market. The entities (municipalities,
industry, or utilities) in Eastern Europe,
Central Asia or elsewhere considering
whether to engage in an RE or DH/CHP
project activity have an interest, too, as
their project will benefit from the revenue
of sale of emission reduction units if the
project qualifies as a JI or CDM project.
Finally, the producers and suppliers of RE
and DH/CHP technologies have a natural
interest, as the likelihood of projects
being implemented will increase as the
projects’ return on investment increase.
The market for RE and DH/CHP projects
will increase.
Examples of Danish RE-based district
heating JI projects
During the past 3-4 years, the Danish
state has engaged in the development of
JI projects in Eastern Europe. Some of
them have dealt with RE supply to district
heating networks.
The first two of them are project mechanisms, allowing for the parties to the One example is a biomass energy project
Kyoto Protocol to buy emission reduction in Romania. The goals of the project were
units, or carbon credits as they are often to improve the environment by implementcalled, from emission reduction projects ing new modern biomass-based district
in other countries. The third mechanism heating systems in five towns and securing
provides for trading with assigned amount a stable heat supply to inhabitants using
units (AAUs); i.e. parties with excess as- local wood waste resources (sawdust),
signed amounts of
emissions can sell Seven priests from the Orthodox church are preparing for the
their surplus AAUs blessing of the new plant in Vatra Dornoi.
to parties that are
short of AAUs.
The Danish Climate Strategy
In February 2003,
The Danish Government published
its “Climate Strategy”. The strategy
emphasises that
the responsibility for meeting the
Danish reduction
commitments has
to be shared among
News from DBDH 2/2005
which is normally dumped in different
areas. The project comprised new district
heating systems, including new logistic
equipment for collection of sawdust, five
new boiler plants (4-12 MW heat output
capacity), new distribution networks etc.
in five Romanian towns. Project development and key components were part of
the Danish delivery, whereas civil works
- like erection of buildings, installation of
new pipe networks etc. - were executed by
Romanian contractors. The project was implemented and commissioned in 2004, and
now approximately 45,000 tons of sawdust
is used for heat production each year. 10,000
persons have environmentally friendly heat
supply (in total 44,000 MWh/year), and
CO2 equivalent-emissions are reduced with
approximately 53,000 tonnes/year, thanks
to fuel switch from oil and gas to sawdust,
and to reduced CH4-emissions from the
otherwise dumped sawdust in large stockpiles. The total investment amounted to 13
million Euros.
Another example is a geothermal energy
project, also in Romania. Geothermal reservoirs are utilised to secure a stable and
adequate heat supply for the inhabitants of
The new district heating plant is opened
in May 2004.
Oradea and Beius. The project comprised
the establishment of new and the rehabilitation of existing district heating system
components and an increase of the heat/
water supply from existing geothermal
wells. The project was implemented and
commissioned in the second half of 2004,
and it will result in replacement of the use
of more than 500,000 GJ/year of lignite,
natural gas and oil, and in an emission reduction of approximately 24,000 tonnes of
CO2-emissions/year. The total investment
amounted to 2 million Euros.
None of the projects would have been
implemented had it not been for the added
income from carbon credits, thanks to the
fact that the carbon credit income filled
the financial/investment gap needed for
the project implementation.
What are the barriers for project hosts
and project developers?
The potential market for RE and DH/CHP
solutions in Eastern Europe, the former
Soviet Union and Asia is huge. There are
lots of non-exploited renewable energy
sources, and the energy intensity of most
present solutions is high. Old district heating systems exist in most of the former
Soviet Union – but they are nearly all in
desperate need of renovation, and many of
them are fuelled by lignite or oil.
Often, the major problem for initiating
renovation projects is lack of financing.
Both public and private potential project
owners have problems with creditworthiness, and income from production is low
due to tariff ceilings. Many projects still
have problems in attracting the needed
financing of the investment, despite being
more financially attractive thanks to the
additional income from carbon credits.
Another reason why we still do not see lots
of JI and CDM projects is the still limited
knowledge and experience gained by project
hosts and project developers in using the
flexible mechanisms. This barrier can be
overcome by combining the JI and CDM
project development experiences of climate
change consultants with the technical project
News from DBDH 2/2005
Sawdust storage facility close to the
plant in Vatra Dornei.
implementation experiences of suppliers and
manufacturers. There is no doubt that the
demand for carbon credits is there.
DanishCarbon.dk
The Danish Ministry of Environment
has, through DanishCarbon.dk, built up
a fast, flexible and efficient programme
that meets the needs of both newcomers
in this market and more experienced players. This facility purchases carbon credits
from Central and Eastern Europe, while
the Danish Foreign Ministry’s efforts focus
on other regions. Three alternative carbon
contracting methods are offered under
DanishCarbon.dk, including intensive
development support, funds for carbon
purchase and investment financing, and
quick purchasing from already developed
projects. Information can be gained at
www.DanishCarbon.dk.
For further information please contact:
Rambøll
Att.: Mr. Bjarne Juul/Kristensen
Teknikerbyen 31
DK-2830 Virum
Phone +45 4598 6000
Fax +45 4598 6700
[email protected]
Grue & Hornstrup
Att.: Mr. Lars Grue
Østergade 18
DK-7500 Holstebro
Phone +45 9610 1330
Fax +45 9610 1330
[email protected]