An Analysis of Support Mechanisms for New CHPs: The Case of Poland

Abstract

The increasing demand for energy on a global scale, as well as the social pressure related to counteracting the effects of climate change, has created favourable conditions for the transformation of energy sectors towards the possession of low-emission generation sources. This situation, however, requires investment actions in order to modernise the existing power and CHP (Combined Heat and Power) plants and construct new units. These issues, together with the climate and energy policy pursued by the European Union, are the main reasons for the emergence of various governmental mechanisms supporting the replacement of old coal power units with highly efficient cogeneration units based on gas turbines and other units. The support may take different forms. This article discusses two examples of mechanisms available on the Polish market, i.e., (i) the capacity market and (ii) promoting electricity from high-efficiency cogeneration in the form of individual cogeneration premium. The purpose and novelty of the analysis was to identify the pros and cons and the key parameters which determine the advantage of a given mechanism. Both these mechanisms have been characterised and then compared via the example of a planned cogeneration gas unit (an open cycle gas turbine—OCGT). This assessment was made using discount methods based on the FCFF (free cashflow to company) approach. The analysis did not bring forward an unequivocal answer as to the absolute advantage of any of the solutions, but it was able to point out significant problems related to their practical use.