Investments in combined heat and power plants: influence of fuel price on cost minimised operation
Introduction
Since the Swedish electricity market was liberalised in January 1996, electricity prices have decreased substantially due to increased competition. Thus, industries and local district heating utilities have lacked incentives to invest in combined heat and power (CHP) production plants. During 2000, electricity prices may have reached their lowest level, and a trend towards higher prices may be seen in prices on future contracts on the Nordic Power exchange. This turn is primarily due to choked supply from domestic nuclear power producers. In the long run, increased power trade with continental Europe, where the average electricity price level is higher, may establish higher Swedish electricity prices. This should initiate an expansion of Swedish cogeneration, but forecasts of future conditions are always uncertain, and detailed sensitivity analyses of cogeneration profitability is essential to avoid unfavourable decisions [1].
Besides the revenue that can be earned from electricity sales, the cost of fuel supply is an important parameter in assessing the benefit of CHP introduction. The main fuel options in Sweden are natural gas and biomass, primarily woodchips. However, there is now a gas grid only in the Southwest part of Sweden, whereas forests, which can serve as fuel sources, are close to the heat demand in most parts of the country. Historically, the major changes in costs for consumers are related to fuel taxation for heat and electricity generation. The current Swedish taxation includes a carbon dioxide tax on fossil fuels used for heat production.
In this paper, the choice between heat production and cogeneration, as well as the choice between natural gas and woodchips, are evaluated for many combinations of electricity and fuel prices. The applied variation of fuel costs may represent changes in market prices, as well as taxes. The impact of a governmental CHP grant is also analysed.
Section snippets
The optimising model
To perform the study, a linear programming model was used for optimising the municipal energy system, Henning [2], [3]. The model, called MODEST (model for optimisation of dynamic energy systems with time dependent components and boundary conditions), has been developed to find the operation profile of existing plants and potential investments that satisfy the heat (and power) demand at the lowest cost. MODEST has been used for national, regional and local studies. The Simplex algorithm is used
The studied municipal energy system
Several Swedish municipal heat and electricity producers have diversified their fuel supply for heat production in order to meet the frequently changing taxation during the last decades. The oil dependence of district heating production has, for instance, during the last 20 years, been reduced from 90% to 15%, Swedish National Energy Administration [4].
The fight for customers in the liberalised electricity market, as well as pressure on the prices and the following reduction of the margins of
Energy costs and taxation
Present market prices for fuels and the Swedish energy taxation are used in the study, Table 3. There are energy, carbon dioxide and sulphur taxes on the fuel used for heat production. Fuel used for production of electricity may just have a sulphur tax. The taxes are fiscal, as well as promoting a sustainable energy supply. Biomass is, therefore, not taxed.
The profile of the electricity price used in this study is shown in Fig. 3. The time dependence is an approximation of the price
Results
For each combination of woodchips price, natural gas price and electricity price, the optimal sizes of the possible new investments and the most beneficial system operation were calculated. The results are summarised in the following diagrams and discussions.
An overview of the optimal choice of investment, depending on fuel prices at three electricity price levels, is presented in Fig. 4. The result when a grant for the investment in a biomass fired CHP plant is taken into account is presented
Discussion
The study shows that for the analysed representative Swedish district heating system, no investments in new CHP plants will be profitable until the electricity price has increased by more than 40% if current prices and taxation of natural gas and woodchips remain. Otherwise, a new woodchips fired hot water boiler should be installed.
If the natural gas cost decreases slightly, due to lower taxes or to a lower market price, a gas turbine combined cycle may be profitable if the average electricity
Conclusions
To make CHP introduction profitable for local Swedish district heating utilities, significantly higher electricity prices than today are required. The CHP plant type closest at hand is a natural gas fired combined cycle. Very high electricity price and heavily taxed natural gas or a governmental grant and cheap biomass fuel would make a biomass fired CHP plant profitable.
Acknowledgements
ALSTOM Power Sweden AB, Finspang, Sweden, has financed this study.
References (7)
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