D6.1 Market Assessment

The EU long Term Strategy aims to climate-neutrality by 2050, i.e. aiming to become an economy with net-zero greenhouse gas emissions. The European Green Deal, sets EU-wide targets and policy objectives for the period up to 2030, which translate into (1): at least 40% cuts in greenhouse gas emissions (from 1990 levels), at least 32% share for renewable energy, and at least 32.5% improvement in energy efficiency. The EU Funded SmartCHP project is fully contributing to it, its scope being the development of a highly flexible small-scale Combined Heat and Power (CHP) system (0.1 - 1 MWe), fuelled with Fast Pyrolysis Bio Oil (FPBO) produced from different types of lignocellulosic biomass and/or residues. SmartCHP addresses targets set by the Green-Deal and the EU “Vision to 2050” through (a) its contribution to the improvement of Energy Efficiency, as CHP is by definition an efficient technology, thus (b) contributing to the reduction of GHG emissions per unit of energy used, whereas (c) it uses at the same time a RE fuel -Fast Pyrolysis Bio-oil -for the production of which, biomass is the source. This Market Assessment has been prepared in the frame of the HORIZON 2020 funded project “Smart and flexible heat and power from biomass derived liquids for small-scale CHP application”. This study aims to allow understanding of the size of the potential for the application of the SmartCHP technology offering in the European Market. As this study runs in parallel with other tasks of the project (e.g. the biomass feedstock potential in EU countries, or the enabling environment) there is interaction between them and will be further elaborated in the course of the project. Such interactions are displayed and explained in Chapter 1. The methodology adopted for the study is described in Chapter 2 of this study and involves market trends and factors affecting the employment of CHP technology, the quantification of the CHP / SmartCHP market as well as the existing or upcoming technology competitors. The share of CHP in total electricity generation at EU-27 level has been moving around 11.5% during last decade, varying between 11% and 12,4%. Such variations could be attributed to a combination of reasons, such as the variations of the international primary fuel prices or the increasing penetration of the electricity produced from RE sources. During the same period, the overall CHP electrical capacity has increased by approximately 20%, while CHP thermal capacity has virtually remained the same, leading to a reduction -at EU-27 level- of the Heat-to-Power Ratio. The share of both the share of CHP in total gross electricity generation as well the actual installed electrical (and thermal) capacity displays large differences between European countries. At the same time the Heat- to-Power ratio displays large differences between countries, differences priorities (e.g. CHP for district heating) in each country indicating in terms of or the technology mix employed in CHP. Chapter 3 highlights the increasing penetration of RES and Waste as CHP fuels along with the increasing share of biogas and biofuels in the electricity generation in EU-27. Small scale CHP (up to 1 MWe), which is the segment being addressed by SmartCHP technology, displays large differences between countries in Europe, not only in terms of number of units and installed capacity, but also in terms of the availability of information, which is scattered and dispersed. The small- scale CHP potential which is evaluated in Chapter 6 of this study compared with current CHP penetration levels provide the grounds for assessing the potential market gap, part of which SmartCHP significant can cover. There are several factors driving CHP market, ranging from purely technical and inherent to CHP factors up to the normative/legislative environment including also any incentives in favour of CHP. These are described in Chapter 4, which provides an overview of the CHP market trends through an analysis of the factors driving CHP development in EU27, e.g. Policy actions and support schemes, or barriers affecting the employment of CHP. Policy expressed at central EU level or local/country level has proven to be a prime market driver. CHP penetration has largely been supported by incentives such as Feed-in-tariff and Feed-in Premium schemes as in Germany, Hungary or Italy, Loans or grants as for instance in Finland, Germany or Slovenia, Tax mechanisms as in Belgium, Poland or Greece, among others. Such schemes combined with the inherent to CHP higher than conventional technologies efficiency improvement, thus reduction of fuel related operating costs, supported by awareness actions have proven to be key drivers for the penetration of CHP. On the other hand, regulatory and legislative uncertainty or inconsistency (e.g. removal of incentives before market becomes self-sustained), or the volatility of primary fuel prices (driving also the electricity prices) can decelerate CHP penetration or even reduce its share at local or EU level. Such dependence of the CHP share on fuel prices has been observed in the past years with the decline of international oil prices. SmartCHP, although it can potentially be affected by the policy framework, it seems that it can overcome the pressure by the volatile primary energy fluctuations, under the condition that biomass and consequently bio-oil are available in the market at favourable prices. For testing and assessing the efficiency and effectiveness of the SmartCHP technological proposal, five focus countries have been selected. The selection process is described in Chapter 5 and has been based i) on any existing support schemes, through the analysis of the existing legislative framework and policies, ii) the Electricity prices for the tertiary/commercial, household and industrial sectors for the period 2008-2017, iii) the share of CHP in the each country’s overall electricity production, iv) the geographical characteristics of the countries or v) the availability or lack or availability of biomass in the countries. The latter will allow the research team to evaluate any logistical issues involved in the supply chain of the bio-oil. The countries selected are Croatia, Greece, the Netherlands, Romania and Sweden. The CHP market potential (Chapter 6) in these five countries is quite high across several sectors of the economy including Health sector, the Hotel sector, Office buildings, Education in the tertiary sector, as well as the residential sector and agriculture through the energy needs of greenhouses. Overall CHP potential in terms of number of units in the range between 0.1 and 1 MWe has been calculated in tens of thousands of units, meaning in substance a high commercial potential, as well as the FPBO quantity per tonne, needed for a SmartCHP unit with capacity of 0.1 kWe and 1 MWe. This amount certainly does not constitute a fully exploitable potential since there are several restricting factors, related to the energy load structure, such as seasonality for the Hotel sector, space availability in the office buildings sector, middle to low utilization factor in the education sector, among others. In addition, SmartCHP market potential could be limited by the fuel availability at large quantities and the logistics and limitations involved in its supply chain. Such issues have not been addressed within the scope of this study and will be addressed in the course of other tasks of the SmartCHP project to feed the market assessment at a later stage. Within the CHP market, SmartCHP faces competition at two levels, the technology level including conventional, tested and mature technologies, such as engine or gas turbine driven CHP and the system wise level, i.e. separately heat or electricity, such as heat pumps. Chapter 7 provides an overview of the direct, i.e. competing technologies or indirect competition, which refers high efficiency systems supplying to the supply chain of the biomass reaching the Fast Pyrolysis production facilities and consequently the final users of SmartCHP This market analysis aims to assess and quantify the gross market potential of CHP and consequently SmartCHP at sectoral (ι.e. user) and regional (i.e. country) level. Its value relies in the wide collection of market and contextual data combining a double perspective – geographical and end customer centered. Proxies and calculation steps have been documented so that fine tuning based on more precise values on market parameters could be made. As a starting point five focus countries have been studied indicating a significant potential for CHP and SmartCHP applications expressed in thousands of units, a potential which will be further assessed following the feasibility analyses of cases, which will be implemented in the course of the SmartCHP project. Such market potential by just considering the so-called ‘incremental’ market segments (the ones that are already acquainted with conventional cogeneration systems), could then be easily scaled-up by exploring countries beyond the five focus countries. Beyond market potential, for further implementation of effective go-to-market strategies, next investigation efforts will focus on the system economics of a SmartCHP system in the specific context of a given energy end-user and a given region for the supply side: the future techno-economic studies will complement this assessment on a local / use case basis. The distinctive value of SmartCHP when compared to other cogeneration systems is also confirmed. SmartCHP aims to become a leading technological proposal for cogeneration which, through its flexible nature can provide heat and electricity at high efficiency, while at the same time contributing to the significant reduction of carbon footprint both at user, country and European level