Supported by economic revival, renewed industrial investment and changing power ...

Supported by economic revival, renewed industrial investment and changing power policies of governments, the struggling European cogeneration equipment market is on course for strong recovery, according to industry analyst Frost & Sullivan. Emerging from its recent downturn, this mature $1,481.7mn market is forecast to experience annual average growth rates of above 3% between 2005 and 2010. ‘The current decline in the market has been mainly due to the global economic recession, excess generation capacity and low demand for power due to low industrial growth,’ notes the analyst. ‘High gas prices, low electricity prices, absence of price incentives, interconnection issues with national grids and a historic lack of framework have also served to dampen the market.’ However, there are now signs that the cogeneration market is on the rebound. The ability to effectively utilise waste heat is giving cogeneration a distinct advantage over conventional thermal power generation processes where levels of heat energy wasted are considerably higher. The waste heat recovered through cogeneration can be channelled towards additional power generation, generating process steam, district heating and cooling applications. The subsequent saving in energy costs is likely to appeal to end users who would otherwise need to invest money in these applications. From a policy perspective, the new EU Cogeneration Directive is likely to boost the prospects of the cogeneration sector over the next two to five years, comments the analyst. ‘While unlikely to offer an immediate or all- encompassing solution to existing problems, this pioneering legislative initiative is geared to break down market and institutional barriers and advance the use of this energy-efficient power generating option.’ At the same time, existing government incentives in terms of electricity tariff, lower interconnection charges and emission credits have played a key part in promoting the installation of cogeneration plants in several European countries. Forecast to grow steadily from 2006 to 2009, annual cogeneration capacity addition is estimated to reach 4,000 MW by 2010, up from 3,345.9 MW in 2002. One factor in this spurt is expected to be escalating fuel costs, with customers increasingly adopting energy-efficient equipment so as to reduce operational expenditure and maintain profitability. Positive signs notwithstanding, a series of challenges await market participants. In some countries, for instance, cheaper power from old and depreciated power plants is posing a serious threat to the viability of cogeneration plants. Another critical challenge has come from intensifying competition and excess manufacturing capacity, which has led to price erosion and low profitability.