European mills are abandoning "combined heat and power" (CHP) as a fuel source because national governments cannot agree on costs and prices. This disagreement is forcing mills into unprofitable operations, and they have all lost business confidence in the stability of European energy policy. So the mills are now questioning the financial benefits of 'green electricity'.
Unlike the USA, energy in Europe is expensive. Gas, oil and electricity prices are high. Over 20 years ago, British mills in particular, adopted CHP in the belief it would be inexpensive and environmentally friendly. Now they are mothballing their CHP plants.
The CHP plant uses back-pressure and condensing systems to produce electricity to power machinery and provide steam for drying. Additional electricity is bought from the national grid.
The initial enthusiasm for CHP was justified. The environmental benefits were outstanding. In some instances, the benefits dwarfed the contributions of whole sectors of industry—not just pulp and paper—in the drive to reduce greenhouse gases. But while the technical and environmental benefits were widely recognized, the costs rose steadily.
And why? Because national governments discovered that waste management and energy conservation was popular with voters, and fashionable. So the policy wonks got to work.
The policy papers became national strategy, and the UK, a major oil and gas producer, set out to demonstrate to its industries and European partners how to run an energy policy for the 21st century. It soon hit the wall.
Last month, a UK all-party committee warned that there is a deepening division between the government's targets for waste management and what is actually happening on the ground—or in the mills. It concluded that progress has been depressingly slow, targets are not being met and things are getting worse.
The UK government is not entirely to blame. It is trying to follow European legislation.
The problem is that the legislators have done nothing about the high price of electricity bought from national grids. This is a pity because the pulp and paper industry in Europe is a leader in CHP, producing 90% of its energy on-site. This avoids 8 million tons of CO2 emissions, which would be the consequence of separate generation of heat and power.
The energy markets in Europe are being loosened up and the paper industry wants to see real "legislative and economic support" to enable CHP to survive in these markets. Confederation of European Paper Industries' (CEPI) lobbyists point out that in the evolving electricity markets in Europe, obsolete and written-off thermal plants are still producing large amounts of low-cost electricity—often from low-cost fuels such as brown coal and peat, which can be highly polluting. So why continue to give them support?
Energy managers in UK mills are depressed. In three years the paper industry's gas bill has risen by $80 million a year—any mill which had spare electricity from its CHP process was encouraged to sell it to the national grid. But the price has crashed.
In addition, under a confusing government regulation, mills were harshly penalized if they over-, or under-, supplied their export quota. In desperation, the UK government is now trying to exempt exported electricity from any levy. While this is an important tactical advance for all European mills, it has taken four years of intensive lobbying. Yet, the industry is still overshadowed by strategic neglect.
It may be too late for some mills. Graham Barnard, director of business affairs at the UK's Confederation of Paper Industries (CPI) said, "The paper mills and energy supply companies, which funded the multi-million dollar CHP projects of the 1990s, now have to account to their stakeholders for unprofitable investments."
As a result, investment in CHP has come to a halt. In the UK paper industry, at least four major projects have been shelved by packaging and fine papers manufacturers like Papermarc, Tullis Russell and St Regis. Over $1.6 billion of investment in approved projects has stalled. Similar tales are heard from France, Spain, Austria, Belgium and Sweden.
The paper industry in Europe has a huge potential to export clean electricity to national grids, displacing that produced by coal-fired plants. But if CHP is to survive in the paper industry, CEPI states that CHP must be valued at a price that makes investment economic.
