ii3 : Micro-CHP aggregation business can be profitable under certain conditions

Context

Aggregating µCHP in the German Context is not yet profitable. Barriers to profitability must be identified and the gap to profitability must be quantified. Different sensitivity analyses to identify the barriers to be removed for a profitable business have been computed:

  • larger unit with better heat-
  • to-power ratio in a larger dwelling
  • target costs (investment costs)
  • lower amortisation period
  • electrical storage
  • subsidy amount

Challenges

What are the investment costs and subsidy amount required to reach profitability when aggregating µCHP in the German Context?

Results

A market price-based scheme that, in addition, remunerates the CHP flexibility, increases the value of aggregation

The flat feed-in tariffs in the current German regulation don’t allow the flexibility of µCHP to be benefited from, as the electricity is sold at a fixed price whenever it is produced. The challenge is therefore to assess the value that could be created for the system if the subsidiary scheme were more flexible. Besides selling the electricity solely to the wholesale market, as done in some cases (outlined in card ii1 and calculated in card ii2), a new kind of regulatory regime called Market Integration scenario is implemented: the produced electricity is always sold to the wholesale market and is remunerated by the hourly price plus a fixed incentive (corresponding to the current bonus payment) without self-consumption of the produced electricity. Hence, the operator of the unit has to buy the electricity to cover the energy demand at the wholesale market. This means full integration of the units in the market with higher value for aggregation: €67 for the SFH (single family house) respectively €129 per unit per year for the MFH (multi family house) compared to €40 respectively €79.
However, the overall business case (including investment costs) is not profitable in this case, in comparison with cases in the current context due to lower revenues caused by decreasing subsidies (no incentives for investment costs and no indirect subsidies from the self-consumed electricity as all power produced is remunerated through the hourly price plus a fixed incentive and not partially valued by the retail price including grid costs and taxes).
The target incentive for reaching the break-even point in those cases would be about 75 ct/kWh.

Profitability can be achieved when targeting larger customers with higher heat to power ratio

In this analysis, the unit is substituted by a larger unit (higher electric efficiency and larger overall capacity), operated in a multi-family dwelling with 6 apartments, in order to show the impact of a better heat-to-power ratio. The same scenarios are calculated as in ii2 and the results show that this ratio, together with the lower investment costs per kWel, has a significant impact on the business. On the one hand, this is due to the decreased costs and on the other hand, to increased revenues (more opportunity costs for avoided purchase and more electricity sold).
(The results of these computations are shown in Figure 1)

Electrical storage costs must aim for an 80% reduction by 2020

Heat and power demand can be decoupled by using either heat storage or electricity storage. This issue was investigated through modelling some cases with electricity storage and comparing the performance of those cases with the comparable non-storage case. As costs for investing in such electricity storage are very high, the main focus of this analysis is the target cost for the storage. Compared to the “standard” case (without storage) about €80 of additional revenue (EBITDA) can be generated using electricity storage. In conclusion, to reach the same annual profit as for the non-storage case (=€1103 including annual maintenance, and over 15 years of annualised investment costs), the investment costs for an electricity storage of 12,5kWh need to be at €850 at most which involves a decrease of about 80% of the total investment costs.

Target cost analyses allow inferring the level of optimal subsidy to reach break-even point

Three costs analyses are performed: target costs for investment in the unit; target costs of the unit for a shorter amortisation time (7 years instead of 15); and the optimal subsidy level for breaking even. In the table above, the target costs (to reach break-even under given regulations) are listed for the small µCHP engine in every calculated case: it ranges from €4,000 to €7,500.
(The target investment costs for each case are shown in Figure 2)

Figure 1: multi-family house results (annual profit/loss in € per unit) In the Market Integration cases, no further subsidies are considered (direct investment grant, indirect subsidies through valuation of self-consumed electricity, with a retail price that includes current grid costs and taxes, as all produced electricity is sold to the market) which results in lower overall profitability but higher aggregation value (case M - case K)
Figure 2: Target investment costs for the single family house (in €) As no further subsidies are considered (direct investment grant, indirect subsidies through valuation of self-consumed electricity, with a retail price that includes current grid costs and taxes, as all produced electricity is sold to the market) in the Market Integration cases, the overall profitability in these cases is lower and therefore the target costs are also lower compared to the cases for the current context

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