Combined Heat and Power in Crisis: Political and Regulatory Shortcomings Hamper Expansion

• Despite rising demand for flexible power generation, the expansion of CHP (Combined Heat and Power) systems falls significantly short of expectations.
• Leading energy industry associations call for a swift extension of the CHP Act (KWKG) and mid-term investment security.
• The associations emphasize: “Due to their decentralized structure, CHP systems are pillars of a resilient energy system.”

A new study reveals alarming deficits in the field of Combined Heat and Power. According to an analysis by Frontier Economics commissioned by the associations Die Gas- und Wasserstoffwirtschaft, AGFW – The Energy Efficiency Association for Heating, Cooling and CHP, and B.KWK – The Federal Association for Combined Heat and Power, the market share of CHP-generated energy has stagnated for years. The associations appeal to the federal government to urgently extend the CHP Act (KWKG) and establish political frameworks to enable the necessary expansion of CHP systems.

The study, titled “CHP 2.0 – Potentials for Secured, Affordable, and Climate-Neutral Energy Supply” by Frontier Economics, paints a grim picture of CHP development. It reveals that the expansion of CHP systems has been stagnant for five years, even as the need for flexible power generation has grown rapidly with the phase-out of coal. “The current trends are a wake-up call. If the government fails to provide a stable investment framework, we risk undermining future energy security,” warns John Werner, Strategy Lead at Die Gas- und Wasserstoffwirtschaft. The study highlights that CHP is expected to play a pivotal role in bridging the capacity gap of 17 to 21 gigawatts (GW) by 2030, yet political uncertainty is paralyzing the market – especially the year-long delay in extending the CHP Act (KWKG). “The good news is that solutions for this capacity gap are available, and CHP systems, which commonly operate on renewable gases, offer compelling arguments,” states Claus-Heinrich Stahl, President of B.KWK.

Regional data from the study underscores CHP’s significant potential for municipal heating supply and industry. In particular, CHP systems in manufacturing sectors such as the chemical and automotive industries provide a competitive and low-emission energy source, bolstering Germany’s economic position. The associations agree: “Due to their decentralized structure, CHP systems are pillars of a resilient energy system.”

Werner Lutsch, Managing Director of AGFW, expresses concern over the declining investment in CHP for the heating market. “Utilities require one thing above all for their billion-euro investments in the heating transition – investment security. It is undisputed that Germany needs to develop new power plant capacity. This, however, necessitates a stable funding framework. We need to leverage a proven and reliable funding program to build high-efficiency power plant capacity,” Lutsch emphasizes. The associations jointly call for an extension of the KWKG before the upcoming election. “In the next legislative term, we also need a substantial further development of the law,” Lutsch adds.

In addition to expansion, modernization is essential, as approximately 75% of Germany’s existing CHP systems are over 10 years old. While countries like the UK and Belgium are expanding their CHP capacities through established capacity markets, Germany is falling behind internationally. “CHP is a key lever for a cost-efficient and resilient energy transition, ensuring economic stability. Other countries are leading the way – it’s time for Germany to catch up,” Werner asserts. Die Gas- und Wasserstoffwirtschaft also advocates for mid-term support of flexible CHP systems within a capacity market framework in Germany to provide planning security for investors and operators. “CHP has the potential to drive the energy transition forward decisively. But without clear political signals, Germany will not be able to realize this potential,” Werner concludes.