High energy prices are taking their toll, driving inflation and impacting interest rates. If natural gas and electricity costs are reducing your company’s margins, you may want to learn whether cogeneration is right for you.
Cogeneration (Cogen) or Combined Heat & Power (CHP) technologies burn fuel to simultaneously produce both electricity and heat. There are many benefits of using these systems:
- Higher Fuel Efficiency: A CHP system captures the heat given off from generating electricity and uses it to supply a building’s heating needs. Harnessing the heat from electricity production increases the fuel efficiency of cogeneration plants to as high as 85%-90%, compared to 55%, or less, in conventional power plants.
- No Line Losses. Cogeneration units are typically installed close to where the power and the heat are used. As the energy does not need to be transmitted long distances, a CHP system can significantly reduce transmission and distribution (T&D) line losses.
- Increased Energy Security and Reliability: Cogen units can potentially provide greater security and reliability. They can be operated independently from the electrical grid – without a connection – in “island mode.” Cogen units connected to the grid can produce power, even in the event of a grid power outage. In this instance, however, islanding safeguards must be provided to protect utility and repair workers.
- Fuel Choice Diversification: CHP systems can use a diversity of fuels such as biomass (woodchip or wood pellet), biogas, natural gas, or other combustible energy sources. The fuel choice depends on the CHP owner’s financial and environmental goals.
- Energy Cost Management: Energy is one of the biggest operating expenses for many companies. Controlling energy use benefits the financial bottom line. It’s much easier to secure advantageous future energy price contracts for the CHP input fuel when actual power and heating consumption is known.
- Power Purchase Agreement: A company that uses CHP for its heating and power needs can also generate additional revenues by selling power to others or to the grid. With power purchase agreements (PPA), the CHP owner can fix the energy rate and export power for a negotiated price.
- Participate in the Demand Response: A CHP owner can take advantage of power grid demand response (DR) programs if doing so is financially beneficial. A business that participates in demand response agrees to curtail or reduce the power it draws from the grid in response to predetermined requirements. The CHP unit could, in appropriate circumstances, displace grid-supplied power.
- Reduce Carbon Emission: A CHP system may be less carbon-intensive than a jurisdiction’s grid. In such cases, a CHP owner can reduce their Scope-1 and Scope-2 emissions by using low-carbon energy sources such as woodchips, biogas, or even natural gas for the cogen input fuel. Potentially, this could help reduce carbon compliance costs.
Even though a CHP system has many benefits, it is not suitable for every business. Using a CHP system could have disadvantages, depending on the specific circumstances:
High CapEx and O&M Costs: A commercial cogen system that does not have financial support, such as government rebates or external investors, might be prohibitively expensive. Lacking financial incentives, a cogen CapEx project may have a relatively long payback period and low Return on Investment (ROI). Also, a cogen unit can have higher operation and maintenance (O&M) costs than traditional energy sources.
Constant Load Requirement: CHP systems are generally suitable for facilities with constant power and space heating requirements throughout the year. A CHP unit, to be financially viable, should be able to run at its full capacity. An example would be a greenhouse that has high power and heating demand during the winter months but very low demand during the summer months. It might not be financially beneficial to run the CHP system only in wintertime and keep it idle during the summertime. Inconsistent power and heating demand and too much downtime can make cogeneration a less-than-optimal investment.
Environmental Issues: Operating a CHP unit with diesel or other high carbon-intensive fossil fuels can be a less environmentally-friendly solution in a jurisdiction with a clean electricity grid. If the carbon tax is levied on the input fuel, the additional cost may render such a cogen system uneconomic.
Is Cogen right for you? Undertake financial and environmental analyses. A financially viable CHP system depends on numerous factors: the initial investment cost, interest rates, the facility’s operating hours, seasonality, fuel price, and type of Cogen technology.
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