Cogeneration: The Need for Utility-Industry Cooperation

Cogeneration is receiving increasing attention because of its potential for efficient utilization of energy. Many recent cogeneration studies, however, have concentrated on the benefits and costs of cogeneration to industry, giving little consideration to utility roles and perspectives. This paper provides an overview of a project sponsored by the Electric Power Research Institute to evaluate industrial cogeneration applications, taking into account utility interactions and impacts. Recent changes in federal legislation, particularly the enactment of the Public Utility Regulatory Policies Act (PURPA), have attempted to remove many of the institutional barriers which in the past made industry hesitant to invest in cogeneration. However, to implement the most attractive cogeneration systems industry must consider the changing economics of utility power generation. Also, despite the attractiveness of cogeneration, many industrial managers are reluctant to invest scarce capital in an area which they do not consider a natural extension of their business. At the same time, many utilities facing slower load growth and economic/environmental /institutional constraints on capacity expansion are willing to consider cogeneration as an option. Cogeneration projects can be highly complementary to the traditional utility business and possibly offer an attractive profit potential. Also, utilities can offer industry the needed expertise to implement and operate cogeneration systems. Considerable benefits may therefore be derived from cooperative cogeneration ventures among utilities and industrial firms. Many different organizational and financial arrangements can be structured, including third party financing. The, paper will briefly discuss the need for and benefits of cooperative efforts and provide illustrative examples of different institutional arrangements.