Although it is possible to count kilowatt-hours of heat just as we count kilowatt-hours of electricity, Germany has never offered feed-in tariffs for renewable heat. Instead, in 2002, the country adopted the Cogeneration Act.
Cogeneration is when part of the waste heat from a power generator is recovered, thereby increasing the overall efficiency of fuel consumption. The goal defined in 2009, when the first amendments went into effect, was for Germany to get 25 percent of its power supply from cogeneration units by 2020 (compared to 14.5 percent in 2010). Because heat can be much more easily and efficiently stored than electricity, such units could generally be ramped up when power is needed, and heat would be stored for later.
There is a debate in Germany about whether cogeneration units should be run based on power demand as opposed to heat demand, however. Critics of the current policy argue that shortfalls in heat production may require the use of inefficient backup heating systems to cover peak demand, which can worsen overall efficiency. Nonetheless, it is clear that cogeneration is far more efficient than the separate generation of power and heat. German energy conservation organization ASUE puts the potential total efficiency of cogeneration at 87 percent, compared to only 55 percent for separate power and heat generation.
The law sets a bonus for each kilowatt-hour of power produced by the cogeneration unit, and that power has priority on the grid. Interestingly, there is no special payment for the heat generated; the incentive comes in the form of a bonus for the power produced. Furthermore, the only requirement for efficiency is that the cogeneration unit must reduce primary energy consumption by ten percent compared to the provision of the same amount of heat and power from separate generators.
The 2017 Cogeneration Act implemented two main changes. First, the bonus was increased from 5.41 to 8 euro cents per kWh for small cogeneration units; this amount to be paid on top of the average baseload wholesale rate at the European Energy Exchange (EEX), also known as the "cogen index." And second, the duration was changed from 10 years to 60,000 operating hours.