Key Challenges in Developing Key Challenges in Developing Small-Scale Heat Generation Small-Scale Heat Generation

Installations Installations

Igor BashmakovIgor Bashmakov

Center for Energy Efficiency, Moscow, RussiaCenter for Energy Efficiency, Moscow, Russia

Market and Technology Developments in Small Scale Heat Generation Market and Technology Developments in Small Scale Heat Generation International Workshop, Baku, Azerbaijan, October 20, 2005 International Workshop, Baku, Azerbaijan, October 20, 2005

Russian District HeatingRussian District HeatingIs regularly ignored, when energy and GHG mitigation policies are Is regularly ignored, when energy and GHG mitigation policies are discussed and determined, whilediscussed and determined, whileIt accounts for about 45% of all domestic energy consumption in It accounts for about 45% of all domestic energy consumption in Russia, and for over 50% of fossil fuel use, andRussia, and for over 50% of fossil fuel use, andIs the largest single product market in Russia split into more than Is the largest single product market in Russia split into more than 50000 local markets with:50000 local markets with:– US$ 30 billion annual sales, and US$ 30 billion annual sales, and – US$ 50 billion efficiency improvement investments potential, but with US$ 50 billion efficiency improvement investments potential, but with

only US$ 500 million annual investments (it will take 100 years to only US$ 500 million annual investments (it will take 100 years to release the potential);release the potential);

– at least 20% of the nation-wide potential for fossil fuel consumption and at least 20% of the nation-wide potential for fossil fuel consumption and GHG emission reductionGHG emission reduction

Over 50% of district heat is consumed by buildingsOver 50% of district heat is consumed by buildingsIndustrial consumption went down by 35% in 1995-2001Industrial consumption went down by 35% in 1995-2001The future for large CHPs in Russia is gloomy. The market for large The future for large CHPs in Russia is gloomy. The market for large CHPs is squeezed by the competition viceCHPs is squeezed by the competition viceGiven the shortage of meters, heat in Russia is still traded in the Given the shortage of meters, heat in Russia is still traded in the mist of heat quantities and real costsmist of heat quantities and real costsLarge businesses have recently moved to the heat marketLarge businesses have recently moved to the heat market

Russian District Heating IndicatorsRussian District Heating Indicators

IndicatorIndicator UnitsUnits   VolumeVolume

Combined heat and power plantsCombined heat and power plants UnitsUnits 485485

Including CHPs of RAO EES Rossii Including CHPs of RAO EES Rossii UnitsUnits 242242

Large boilersLarge boilers UnitsUnits >190000>190000

Individual heat generators and boilersIndividual heat generators and boilers UnitsUnits >600,000>600,000

Heat generationHeat generation Million GcalMillion Gcal 2,3002,300

Own useOwn use Million GcalMillion Gcal 7474

Distribution lossesDistribution losses Million GcalMillion Gcal 442442

Heat networksHeat networks 1000 km1000 km 183.3183.3

Final heat consumptionFinal heat consumption Million GcalMillion Gcal 1,7841,784

Fuel efficiencyFuel efficiency %% 71.571.5

Total energy inputs to heat Total energy inputs to heat generationgeneration

Million toeMillion toe 462462

Heat tariffs, averageHeat tariffs, average $/Gcal$/Gcal 1818

Heat tariffs, rangeHeat tariffs, range $/Gcal$/Gcal 5-3005-300

Heat salesHeat sales $ billion$ billion 30.030.0

Potential savings from efficiency Potential savings from efficiency improvements improvements

$ billion$ billion 10.010.0

Russian Heat Balance. 2000-2001 (million Gcal). Russian Heat Balance. 2000-2001 (million Gcal). Supply sideSupply side

IndicatorIndicator Public utility Public utility companiescompanies

Industrial and Industrial and municipal municipal boilers boilers

Individual Individual boilers boilers

TotalTotal

GenerationGeneration 1515.71515.7 613.2613.2 170.7170.7 2299.62299.6

CHPCHP 680.0680.0         

RAO EES RossiiRAO EES Rossii 494.0494.0    170.7170.7 73.973.9

Industrial CHPsIndustrial CHPs 176.0176.0 21.221.2 0.00.0 2225.72225.7

Own use Own use 52.752.7 592.0592.0 441.7441.7

Sold to the networkSold to the network 1463.01463.0 157.0157.0    20%20%

Heat losses Heat losses 284.7284.7 27%27%    91.091.0

Share of heat losses (%)Share of heat losses (%) 19%19% 1717%%      

Heat lossesHeat losses attributed to attributed to      

IndustryIndustry 74.074.0 17.017.0 91.091.0

AgricultureAgriculture 8.88.8 3.63.6   

Residential buildings Residential buildings 61.461.4 86.086.0 12.312.3

Public buildingsPublic buildings 105.3105.3 48.448.4 147.4147.4

OtherOther 35.135.1 2.12.1 153.7153.7

Large is not always bad, while Large is not always bad, while small is not always goodsmall is not always good

Municipal plans need to decide on the level of heat supply Municipal plans need to decide on the level of heat supply centralizationcentralizationIn Helsinki, over 90% of customers are connected to large DHSIn Helsinki, over 90% of customers are connected to large DHSLarge DHS are attractive, if appropriately managed and if heat Large DHS are attractive, if appropriately managed and if heat loads density is high loads density is high Nevertheless, the market niche for small-scale heat generators Nevertheless, the market niche for small-scale heat generators (SSHG) is growing, as the distributed power trend progresses (SSHG) is growing, as the distributed power trend progresses This niche is divided into two sectors:This niche is divided into two sectors:– over 600,000 individual heat generators, andover 600,000 individual heat generators, and– over 100,000 small district heating systemsover 100,000 small district heating systems

Put together, they generate about 15% of heat in RussiaPut together, they generate about 15% of heat in RussiaSSHG are applied predominately in the agricultural sector, SSHG are applied predominately in the agricultural sector, residential, public and commercial buildingsresidential, public and commercial buildings

Small heat supply systems design Small heat supply systems design and performance problemsand performance problems

Substantial supply overcapacitySubstantial supply overcapacityExcessive estimates of consumers’ heat loadsExcessive estimates of consumers’ heat loadsExcessive centralization of small DHSsExcessive centralization of small DHSsLow density of heat loads and corresponding high Low density of heat loads and corresponding high level of distribution losses in small DH networkslevel of distribution losses in small DH networksNo regulation of heat supply parameters to balance No regulation of heat supply parameters to balance with demandwith demandHigh distribution systems maintenance costs High distribution systems maintenance costs undermine the competitiveness of small DHSsundermine the competitiveness of small DHSsLack of benchmarking indicators to assess and Lack of benchmarking indicators to assess and compare DHS performancecompare DHS performanceLack of incentives to improve efficiency and shortage Lack of incentives to improve efficiency and shortage of qualified personnel, especially in small-scale HGsof qualified personnel, especially in small-scale HGs

Installed heat capacity surplus (shortage) for the Installed heat capacity surplus (shortage) for the sample of 210 local DHSs sample of 210 local DHSs

(assuming normal capacity reservation 35%)(assuming normal capacity reservation 35%)

-500%

0%

500%

1000%

1500%

2000%

0 20 40 60 80 100 120 140 160 180 200

Reported data CENEf's estimate

Mainly small DHS

Specific fuel consumption in heat Specific fuel consumption in heat generation generation

(sample of 230 Russian boiler houses)(sample of 230 Russian boiler houses)

0

200

400

600

800

1000

1200

0 20 40 60 80 100 120 140 160 180 200 220

кгу

т/Г

кал

КПД 80% КПД 60%

КПД 40% Газ

Нефть и нефтепродукты Дрова

Уголь

Mainly small coal and oil

powered DHS

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 100 200 300 400 500 600 700 800 900 1000

reverse indicator of heat load density

heat

supply

losses,

%

Real losses estimates by CENEf Normative losses estimates

Heat losses in DHSs as a function of Heat losses in DHSs as a function of heat load density heat load density

(sample of 190 Russian DHSs)(sample of 190 Russian DHSs) 

High heat supply centralization

efficiency zone

Marginal heat supply

centralization efficiency zone

Effect of low heat supply networks

maintenance quality

Operation of obsolete small heat Operation of obsolete small heat generators faces a long list of generators faces a long list of

problemsproblemsHigh specific fuel consumptionHigh specific fuel consumptionUnsatisfactory metering of fuel consumption and heat Unsatisfactory metering of fuel consumption and heat generationgenerationLow remaining lifetime of equipmentLow remaining lifetime of equipmentLack of regular boilers tuningLack of regular boilers tuningLow quality of fuel leading to failures of burnersLow quality of fuel leading to failures of burnersInsufficient possibilities to regulate heat supply Insufficient possibilities to regulate heat supply parametersparametersLack or poor quality of water preparation systemsLack or poor quality of water preparation systemsHigh fuel costsHigh fuel costsShortage and low qualifications of personnel Shortage and low qualifications of personnel

Seven principles of municipal planningSeven principles of municipal planning

1.1. Clear setting the desired performance indicators for years to come Clear setting the desired performance indicators for years to come based on the benchmarking approach: reliability indicators, energy based on the benchmarking approach: reliability indicators, energy efficiency, quality of service, economic indicators efficiency, quality of service, economic indicators

2.2. Reliability, quality of service and prices as drivers behind the level Reliability, quality of service and prices as drivers behind the level of centralizationof centralization

3.3. Ability to translate performance indicators requirements into Ability to translate performance indicators requirements into municipal measures and actions to improve and modernize heat municipal measures and actions to improve and modernize heat supply systems in place with an account of energy efficiency as a supply systems in place with an account of energy efficiency as a valuable resource valuable resource

4.4. Checking for the ability to mobilize investments to realize the Checking for the ability to mobilize investments to realize the proposed program proposed program

5.5. Shifting the affordability control focus from tariff to customers’ Shifting the affordability control focus from tariff to customers’ purchasing power. Energy costs for households have been staying purchasing power. Energy costs for households have been staying in the narrow range of 2-4% in many countries for decadesin the narrow range of 2-4% in many countries for decades

6.6. Full life-cycle costs analysis with flexibility tests for energy prices Full life-cycle costs analysis with flexibility tests for energy prices volatilityvolatility

7.7. Differentiation of connection charge based on heat loads density Differentiation of connection charge based on heat loads density and reserve capacityand reserve capacity

Investigating heat loads density in Investigating heat loads density in municipal energy planningmunicipal energy planning

Low density – market for

natural gas, other fuels

and renewables

High density

– market for DHS

Consumers’ behavior in the heat Consumers’ behavior in the heat market is poorly knownmarket is poorly known

Uncertainty with the product on saleUncertainty with the product on saleDeprivation of households’ “market rights” to determine the Deprivation of households’ “market rights” to determine the quality and quantity of product they buy and to negotiate the pricequality and quantity of product they buy and to negotiate the priceSubstantial overbilling for heat, which was never deliveredSubstantial overbilling for heat, which was never deliveredLow heat meters and regulation devices saturation rate (below Low heat meters and regulation devices saturation rate (below 10%)10%)Low flat-level water consumption meters saturation rate (below Low flat-level water consumption meters saturation rate (below 10%) 10%) Minor behavioral change in terms of hot water consumption even Minor behavioral change in terms of hot water consumption even after flow meters are installed and heat tariffs are growingafter flow meters are installed and heat tariffs are growingPoor insulation of buildings and insufficient development of Poor insulation of buildings and insufficient development of housing weatherization serviceshousing weatherization servicesLack of energy efficiency incentives where consumption is not Lack of energy efficiency incentives where consumption is not metered, or there are no budget limitationsmetered, or there are no budget limitationsLimited ability and willingness to cover escalating energy costs Limited ability and willingness to cover escalating energy costs and strong opposition to any price increaseand strong opposition to any price increase

0%

20%

40%

60%

80%

100%

120%

0 2/1 4/2 6/3 8/4 10/5 12/6 14/7 16/8

communal and housing (numerator) and energy expenditures (denominator) as percentage of family income (%)

colle

ctio

n r

ate

Limits to purchasing power: Limits to purchasing power: the Bashmakov wingthe Bashmakov wing

Threshold 2: rigidity of payment collection

measures brings no results

Threshold 1: collection rate

declines

 

Heat costsHeat costs

DHS companies are evaluated mainly based on the DHS companies are evaluated mainly based on the reliability of heat supply, whatever the costs. These reliability of heat supply, whatever the costs. These costs are in the range from US$ 8 to 300 per Gcalcosts are in the range from US$ 8 to 300 per GcalHeat generation and transportation costs are often not Heat generation and transportation costs are often not allocated, but if allocated, heat transportation costs in allocated, but if allocated, heat transportation costs in many DHS exceed generation costsmany DHS exceed generation costsIn many DHS, fuel efficiency improvement is not a In many DHS, fuel efficiency improvement is not a crucial factor for general DHS efficiency improvements crucial factor for general DHS efficiency improvements due to the low (10-25%) share of fuel costsdue to the low (10-25%) share of fuel costs

There is no effective system to control costs, as well There is no effective system to control costs, as well as build-in cost reduction motivationas build-in cost reduction motivation

Heat tariffsHeat tariffs

Lack of tariff flexibilityLack of tariff flexibility– the tariff menu is poorly populatedthe tariff menu is poorly populated– no winter and summer tariffsno winter and summer tariffs– no differentiation in the connection chargeno differentiation in the connection charge– no appropriate fuel costs allocation for CHPs, which no appropriate fuel costs allocation for CHPs, which

undermines its market shareundermines its market share

Cross-subsidies send wrong signals to Cross-subsidies send wrong signals to customers and investors. They make customers and investors. They make decentralization attractive in the industrial sector decentralization attractive in the industrial sector and not attractive in the residential sectorand not attractive in the residential sector

Not just SSHG technologyNot just SSHG technology

In Azerbaijan, small triple generation systems (electricity, In Azerbaijan, small triple generation systems (electricity, heating and cooling) may be a valuable solutionheating and cooling) may be a valuable solution

The problem of establishing small-scale heat generators The problem of establishing small-scale heat generators is not just a problem of technology availabilityis not just a problem of technology availability

SSHG should be assessed based on a comprehensive SSHG should be assessed based on a comprehensive approach accounting for many different factorsapproach accounting for many different factors

Municipal energy plan should allow it to avoid duplication Municipal energy plan should allow it to avoid duplication of gas supply and heat supply systems development of gas supply and heat supply systems development

Evaluation of municipal economic futures becomes a Evaluation of municipal economic futures becomes a key. Used in the FUSSR General plans do not perform key. Used in the FUSSR General plans do not perform this role.this role.

Key Challenges for SSHGsKey Challenges for SSHGs

Uncompromised safetyUncompromised safetyAbility to compete economically with large DHS Ability to compete economically with large DHS Applied mainly in areas with low heat load densitiesApplied mainly in areas with low heat load densitiesOnly small distribution systems attached, if anyOnly small distribution systems attached, if anyHigher flexibility in meeting heat demand fluctuationsHigher flexibility in meeting heat demand fluctuationsReliable fuel supply (possible double fuel or gas/solar combination)Reliable fuel supply (possible double fuel or gas/solar combination)High boiler fuel efficiencyHigh boiler fuel efficiencyAffordability and low capital intensity of boilers with high working Affordability and low capital intensity of boilers with high working resource resource Appropriate balance between building efficiency and boiler capacity Appropriate balance between building efficiency and boiler capacity established through the life-cycle costs analysis established through the life-cycle costs analysis Large variety of boiler capacities on sale and hot water storage to Large variety of boiler capacities on sale and hot water storage to escape oversizingescape oversizingLow equipment service costsLow equipment service costs