Untangling Europe’s energy market through the lens of combined heat and power – Wartsila.com

Report on European Energy Policy and its Alignment with Sustainable Development Goals for Combined Heat and Power (CHP) Systems

The European Green Deal: A Framework for SDG Alignment

The European Green Deal, introduced in 2019, serves as a comprehensive strategy to achieve climate neutrality and sustainable development, directly supporting several United Nations Sustainable Development Goals (SDGs). Its primary objective is to transform Europe’s energy production and consumption models.

• SDG 13 (Climate Action): The Green Deal is the cornerstone of Europe’s commitment to climate action, aiming for a climate-neutral continent.
• SDG 7 (Affordable and Clean Energy): It promotes a fundamental shift towards cleaner and more sustainable energy systems.
• SDG 11 (Sustainable Cities and Communities): The policies encourage the development of sustainable energy infrastructure within urban areas.

Key policies within this framework have specific targets that drive the adoption of efficient technologies like CHP:

1. Renewable Energy Directive (RED III): This directive mandates that 42.5% of the European Union’s final energy consumption must originate from renewable sources by 2030, directly advancing SDG 7.
2. Fit for 55 Package: This package legally requires a 55% net reduction in greenhouse gas emissions by 2030 compared to 1990 levels, representing a critical implementation measure for SDG 13.

These ambitious targets increase the demand for flexible and high-efficiency solutions such as gas engine CHP plants, which support grid stability and reduce emissions, thereby contributing to SDG 9 (Industry, Innovation, and Infrastructure).

Energy Efficiency Directive (EED) and its Contribution to SDG 12

The Energy Efficiency Directive (EED) sets crucial standards for efficient district heating, promoting responsible energy consumption in line with SDG 12 (Responsible Consumption and Production). The directive establishes a clear timeline for the energy transition in heating systems.

• Until 2034: CHP engines operating on natural gas are recognized as contributors to efficient district heating.
• From 2035: Compliance will necessitate a portfolio approach, integrating CHP engines with renewable heat sources like heat pumps and electric boilers, fostering innovation under SDG 9.
• Post-2050: To meet EED requirements, CHP engines must operate exclusively on sustainable fuels, fully aligning with the long-term objectives of SDG 7 and SDG 13.

EU Taxonomy: Financing Sustainable Investments for SDG 9 and SDG 13

The European Union Taxonomy is a classification system designed to channel investments toward environmentally sustainable activities. It acts as a critical enabler for financing the transition required to meet climate and energy goals.

• Guiding Investment: While compliance is not mandatory, alignment with the Taxonomy significantly improves access to financing and public subsidies, steering capital towards projects that support SDG 9 and SDG 13.
• Role of CHP: Under defined conditions, CHP systems qualify as a sustainable activity, particularly when they displace high-emission coal plants. Their ability to transition to renewable fuels such as biogas, synthetic methane, or green hydrogen further strengthens their alignment with SDG 7 and future-proofs the investment.

Capacity Mechanisms: Ensuring Grid Stability for SDG 7

Capacity mechanisms have become a foundational component of European energy market design, ensuring security of supply, which is a key target of SDG 7. These mechanisms are vital for maintaining grid reliability as the proportion of intermittent renewable energy sources increases.

• Incentivizing Reliability: Six capacity mechanisms are currently operational across Europe, providing payments to technologies that deliver firm and reliable capacity to the electricity system.
• CHP Eligibility: Due to their high availability and reliability, gas engine CHP plants are eligible for these payments. Their high de-rating factors translate into significant financial incentives, strengthening the business case for investing in the resilient infrastructure needed for the clean energy transition (SDG 9).

Harmonisation of Ancillary Services: Supporting Renewable Integration

The increasing penetration of intermittent renewables has heightened the need for ancillary services to maintain grid stability. European initiatives are harmonizing the trade of these services to create a more flexible and efficient grid.

• Key Initiatives: Platforms such as the Manually Activated Reserves Initiative (MARI) and the Coordination of Automated Frequency Restoration and Stable System Operation (PICASSO) facilitate the cross-border exchange of balancing services.
• CHP’s Contribution: The flexibility and rapid start-up capabilities of CHP engines enable them to provide essential frequency restoration reserves (aFRR and mFRR). By operating in a non-spinning mode, they conserve fuel and reduce operating costs, contributing to SDG 12 while supporting the large-scale integration of renewables required for SDG 7.

Future-Proofing Assets with Hydrogen for Long-Term SDG Achievement

European policies mandating the phase-out of fossil fuels create a significant risk of stranded assets for long-lifecycle energy investments. Future-proofing technology is therefore essential for achieving long-term sustainability goals.

• Transitional Capability: Modern gas engines provide a viable transition pathway, with current technology capable of operating on blends of up to 25 vol% hydrogen.
• Full Decarbonisation Pathway: The development of 100% hydrogen-ready engine power plants marks a major milestone for SDG 9. This innovation provides a clear and practical route to full decarbonisation, ensuring that energy assets remain viable and continue to contribute to SDG 7 and SDG 13 in the long term.

Conclusion: The Strategic Role of CHP in a Sustainable European Energy Future

European energy regulations consistently emphasize the need for flexible, efficient, and low-carbon energy systems. CHP gas engines are strategically positioned to help achieve these objectives and advance multiple SDGs.

• Multi-faceted SDG Contribution: CHP systems directly support SDG 7 (Affordable and Clean Energy), SDG 9 (Industry, Innovation, and Infrastructure), SDG 11 (Sustainable Cities and Communities), SDG 12 (Responsible Consumption and Production), and SDG 13 (Climate Action).
• Strategic Investment: Investing in adaptable CHP technology allows businesses to reduce emissions, improve energy independence, and align with Europe’s sustainable development agenda, ensuring long-term profitability and resilience.

1. Which SDGs are addressed or connected to the issues highlighted in the article?

SDG 7: Affordable and Clean Energy

• The article’s central theme is the transition to a sustainable European energy landscape. It discusses increasing the use of renewable energy sources, improving energy efficiency through technologies like Combined Heat and Power (CHP), and ensuring the reliability and security of the energy supply. Policies like the Renewable Energy Directive (RED III) and the Energy Efficiency Directive (EED) are direct efforts to achieve clean and efficient energy for all.

SDG 9: Industry, Innovation, and Infrastructure

• The article highlights the need to upgrade energy infrastructure to be more sustainable and resilient. It focuses on innovation in energy technology, such as the development of gas engines that can run on hydrogen blends and the launch of a “100% hydrogen-ready engine power plant.” This represents a move towards retrofitting industries with clean and environmentally sound technologies.

SDG 11: Sustainable Cities and Communities

• The Energy Efficiency Directive (EED) is mentioned as setting standards for “efficient in district heating.” Efficient district heating systems, often powered by CHP plants, are crucial for creating sustainable energy infrastructure in urban areas, reducing the environmental impact of cities.

SDG 13: Climate Action

• The article is framed around Europe’s climate goals. The European Green Deal and its “Fit for 55” package, which aims for a “55% reduction in greenhouse gas emissions by 2030,” are primary examples of integrating climate change measures into policy and planning to combat its impacts. The shift to lower-emission technologies like CHP and renewable fuels like hydrogen directly addresses climate action.

2. What specific targets under those SDGs can be identified based on the article’s content?

SDG 7: Affordable and Clean Energy

• Target 7.2: By 2030, increase substantially the share of renewable energy in the global energy mix. The article directly references the Renewable Energy Directive (RED III), which “sets a target that 42% of European Union’s final energy consumption must come from renewable sources by 2030.”
• Target 7.3: By 2030, double the global rate of improvement in energy efficiency. The article emphasizes the role of the Energy Efficiency Directive (EED) and describes CHP plants as a “highly efficient solution” that produces “both electricity and heat at the same time, resulting in higher efficiency.”
• Target 7.a: By 2030, enhance international cooperation to facilitate access to clean energy research and technology… and promote investment in energy infrastructure and clean energy technology. The article discusses the EU Taxonomy, which guides investment towards sustainable activities, and the development of hydrogen-ready engines, representing investment in clean energy technology.

SDG 9: Industry, Innovation, and Infrastructure

• Target 9.4: By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies. The article’s focus on future-proofing assets by transitioning CHP engines to run on sustainable fuels like “biogas, synthetic methane, or green hydrogen” is a direct application of this target.

SDG 11: Sustainable Cities and Communities

• Target 11.6: By 2030, reduce the adverse per capita environmental impact of cities. The article’s discussion of the EED promoting “efficient district heating” implies a reduction in energy waste and emissions in urban settings, contributing to this target.

SDG 13: Climate Action

• Target 13.2: Integrate climate change measures into national policies, strategies and planning. The article is built around European policies like the “European Green Deal” and the “Fit for 55 package,” which are comprehensive strategies to integrate climate goals into the energy sector.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

SDG 7: Affordable and Clean Energy

• Indicator 7.2.1: Renewable energy share in the total final energy consumption. The article explicitly states the target of “42% of European Union’s final energy consumption must come from renewable sources by 2030,” which is a direct measure for this indicator.
• Indicator 7.3.1: Energy intensity measured in terms of primary energy and GDP. While not stated numerically, the concept of energy efficiency is a core theme. The article describes CHP plants as having “higher efficiency and lower emissions compared to separate heat and power production,” implying progress can be measured by the adoption rate and operational efficiency of such technologies.

SDG 9: Industry, Innovation, and Infrastructure

• Indicator 9.4.1: CO2 emission per unit of value added. The article implies this indicator by discussing how CHP engines and the transition to hydrogen “reduce their carbon footprint.” The adoption of these technologies in industry would directly impact this metric.

SDG 13: Climate Action

• Indicator: Total greenhouse gas emissions. The article provides a clear, measurable indicator with the “Fit for 55” package’s goal of a “55% reduction in greenhouse gas emissions by 2030.” This serves as a primary metric for tracking progress.

4. Table of SDGs, Targets, and Indicators

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