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Asian Power Asia-Pacific Power Management

November 2000

2000-11 Equal Opportunities Cogeneration

Mr. Vishvjeet Kanwarpal CEO GIS-ACG
Global InfraSys - Asia Consulting Group
Published: November 2000 by Asian Power ICOM

Gaining
momentum
India market report India’s ambitious plans
Time to deliver for wind power

Cogeneration
Equal opportunities
i co m
P ublications
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Contents November 2000, Volume 8, Number 9

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Sutton, Surrey, S M I 1JB, UK 2 REGIONAL & INTERNATIONAL NEWS
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Taiwan's fourth nuclear plant suffers further setback; Partners announce agreement
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12 GAINING MOMENTUM
Editorial Assistant: Sanjima DeZoysa
sanjima@icompub.com (ext. 120) IN D IA ’S AM BITIOUS PLANS FOR W IND POWER
Asia-Pacific Regional Office:
India has the fifth largest installed wind energy capacity
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users, India’s wind power programme is supported by
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D Hayes C Ashmore N D Gupta assessment programme. Investment in wind power
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17 EXECUTIVE INTERVIEW: Q&A W ITH SIEMENS T&D
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20 INDIA MARKET REPORT: T IM E TO DELIVER
India’s power sector presents potential and problems in equal measure. A vast,
Asian Power is published twelve times a year for
electricity industry business managers. For highly populated land mass with huge resources, but desperately underdeveloped
subscription details please see the enclosed card. infrastructure. With a series of reforms that have been in place since 1991, the
pressure is now on India to fulfil its promises, both to its energy users and its
I c D M investors. N. D. Gupta from India’s Council of Power Utilities and Asian Power
P u bl ica tio n s ^ provide this overview of the Indian energy market.

Total Qualified Circulation: 12,002 26 INDIA'S NEED FOR NUCLEAR

Power Group S ales Manager: James Lewis India has the most ambitious nuclear-power programme in South Asia. With an
jamesl@icompub.com (ext. 110) installed capacity of 2,240MW, 1.440MW under construction, and a further
Assistant Advertisment Manager: Garry Edwards 2.440MW at the development stage, I.M. Sahai looks at the fast-growing nuclear
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industry in India, which is forecast to increase to 20,000MW by 2020.
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Senior S ales Executive: Clive Digance
29 COGENERATION: EQUAL OPPORTUNITIES
clive@icompub.com (ext. 116) Cogeneration is not a new technology. However, historically it has lagged behind
Senior Sales Executive: Sarah Lelarge other forms of power generation, mainly due to market barriers hindering wider
sarahl@icompub.com (ext. 113) implementation. Sanjima DeZoysa reports on the forces driving its revival, and
Production Director: Lily C liff whether, after a century on the sidelines, cogeneration can finally enter the energy
Production Controller: Caroline Fisher market as an equal player.
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 Cogeneration

EQUAL
OPPORTUNITIES
Cogeneration is not a new technology. However, it has
historically lagged behind other forms of power generation,
mainly due to market barriers hindering wider implementation.
Sanjima DeZoysa reports on the forces driving its revival, and
whether, after a century on the sidelines, cogeneration can
finally enter the energy market as an equal player.

O
ver the past decade cogeneration has
become increasingly important, due
to a culmination of various driving
forces. Creating equal opportunities
for cogeneration is a long-term goal, but
there will be no progress unless organisations
and institutions start changing policies, and
effecting these changes in the short-term.
A landmark event in the global energy
market, the first International Cogeneration/
CHP Symposium held in Washington earlier
this year, reflected grow ing international
interest.
tection Agency, and the International
Cogeneration Alliance (ICA).
Conference co-chair, Michael Brown, Di­
rector of the ICA, asserts that: "The main mes­
sage was that the global cogeneration market
is a potentially massive one, if the policies can
be put together in the right way. It could be a
US$20 billion-a-year global market opportu­
nity, and for developing countries in particu­
lar, it offers so much in terms of economic de­
velopment, electrification opportunities, local
environmental improvements and energy
modernisation."

GLOBAL SUPPORT COGENERATION POTENTIAL IN ASIA

The conference, the first of its kind, attracted Based on analysis across a sample of countries
over 250 delegates from 20 countries. The con­ in Asia, Asia Consulting Group (ACG) assesses
ference was sponsored by the US Department the total cogeneration potential across the re­
of Energy (DOE), the US Environmental Pro­ gion to be in the range of 30-to-40GW.

Asian Power - November 2000 29

Cogeneration
District cooling systems
According to Alan Gonzales, Deputy Execu­
tive Director and Business Advisor, COGEN,
there are two main characteristics that make
cogeneration particularly suitable for coun­
tries in Asia: the simultaneous generation of
electricity and heat for industrial processes;
and, the use of this simultaneous generation
for district cooling systems.
"There is an obvious need for district
cooling systems and air conditioning in Asia,
and cogeneration is an energy efficient op­
tion, because at the same time as producing
electricity it produces heat to run the sys­
tems," Gonzales explains.
Biomass cogeneration
Asia also represents a large opportunity for
biomass-based cogeneration. ACG estimates
that the ASEAN region alone could contrib­
ute as much as 6GW of biomass-based power
from rice, palm, sugar and w ood waste.
However, in spite of the huge potential that
exists, very few Asian countries have ac­
tively taken steps to exploit this huge
potential.
Patrick Keegan, of the National Renew­
able Energy Laboratory (NREL), also af­
firm s that b iom a ss fuel co gen era tion
offers great opportunities. "In many areas
it is a wasted opportunity, where compa­
nies or communities are paying for waste
to be disposed of. It could be used to gen­
erate heat and electricity through
cogeneration."
Keegan offers practical solutions to in­
creasing this biomass potential:
• Finding suitable partners for projects;
• Working on locating appropriate
regional projects;
• Educating people about the benefits of
cogeneration; and
• Convincing and encouraging electric
utilities to buy the energy.
Easy access and installation
Comparing a natural gas-fired cogeneration
unit w ith a b iom a ss co gen era tion
plant, Keegan argues that it is clear that
biom ass cogen erators offer substantial
benefits:
• There is no need to buy gas, biomass
waste is already available in
abundance;
• If the biomass is obtained in a
sustainable way, there are no
greenhouse gas emissions;
• There is often an existing steam load in
the same location where the biomass is
generated, which eliminates the need to
build a distribution system; and
• There is no need to establish an
institution to operate these systems,
because the existing plant or mill can
handle the operation.
30 Asian Power - November 2000
It is clear that biomass has huge potential
which is currently lying untapped in Asia.
A number of factors are likely to ulti­
mately determine how this potential in Asia
is translated into real project opportunities.
Support for cogeneration has wavered over
the decades, and its current revival stems
from a number of factors.
KEY DRIVERS
Pinaki Bhadury of Thermax Limited, India,
attributes the increasing demand for energy
and the rising cost of utility power over the
continent to two main drivers. "The third in­
direct driving force is the greenhouse effect
and climate change policies, which include
the Kyoto Protocol, for example."
Impact of liberalisation
Brown, Director of ICA claims: "Companies
close to the national government often make
things difficult for new, small, competitive
power producers. That is one reason why we
like liberalised and competitive markets, be­
cause they tend to reduce the monopoly power
of the electricity company."
Vishvjeet Kanwarpal of the ACG agrees:
"Deregulation, if anything, results in smaller
projects. In fact, large power projects are typi­
cally a signature of large inefficient state-owned
utilities.
"Com petition does not favour mega
projects as they represent high degrees of des­
patch and payment risk. Deregulation will cre­
ate greater opportunities for cogeneration."
Creating a level playing field
Liberalisation reduces the power of large utili­
ties to dictate what kind of power plants will
develop in the industrial sector, Kanwarpal
continues. "From the point of view of these
state utilities, it is not profitable for them for
or their industrial cus­
tomers to set up their
own facilities, because
of the associated fall in
revenue."
Once the deregu­
lation process begins,
authority moves to a
regulator, whose role
it is to ensure the best
service to consumers Thermax Limited's 1.23MW gas-fired cogeneration plant in India
in terms of cost, and the environment in terms
of emissions. This can only help create fairer
policies for other forms of generation, includ­
ing cogeneration.
Yet sources from the International Energy
Agency (IEA) note, liberalisation can foster
mergers and acquisitions, that direct choice to­
wards 'large-scale, standardised' projects. This
raises the inevitable concern that innovative
technologies such as cogeneration could be
locked out. However, the IEA does support the
view that state monopolies do not provide the
appropriate market conditions for develop­
ment of cogeneration.
G onzales of COGEN, also acknowl­
edges the potential barriers that deregula­
tion can create, yet he does believe, that the
Kyoto Protocol could provide cogeneration
with a "competitive edge", or at least pro­
vide a means to level the playing field. In­
centives such as economic profitability, by
selling or exchanging carbon credits, can be
created through the Clean Developm ent
M echanism (CDM), and help push
cogeneration forward into the competitive
market.
ECONOMICS OF POWER GENERATION
The IEA also argues that in a competitive
market the deciding factor will be price,
and that the cheapest option will almost al­
ways win. Certainly in the long-term, lib­
eralised markets will favour the most effi­
cient generators, but will this simply mean
that it will be a case of 'survival-of-the-fit-
test', for already established players, with no­
room for new innovative entrants.
Avoiding risk
K eegan of NREL, confers: "In stallin g
cogeneration requires capital investment,
and many large energy users are reluctant
or unable to finance new projects, even if
they appear to be the best economic choice
over the life of the investment." Many play­
ers in the energy sector are risk averse, and
favour projects with minimal financing,
which often eliminates cogeneration plants

from consideration. Overcoming these bar­
riers often requires government policies or
programmes to level the playing field. The
market must be balanced to push big-end
users and IPPS into making a decision,
based on a project's lifecycle cost and not
just the up-front cost.
Big Vs Small
"There are very few companies developing
small-scale generation projects, and this will
not change unless governments take steps to
give them greater support," Keegan continues.
"For example, it takes almost as much time to
put together a small cogeneration project as it
does a larger fossil-fuelled one. Project devel­
opers have to go through all the same steps to
finalise financing and sales agreements." This
provides little incentive to pursue smaller
projects where, with the same effort and time,
larger projects can be completed.
However, it would be unfair to admonish
IPPs and project developers for wanting to
make a profit. What is vital, is that market in­
frastructure is improved to allow smaller
projects to compete on an equal footing.
POLICY CHANGES
Kanwarpal of the ACG, believes that policy
changes will encourage the development of
cogeneration. "It cannot move forward on
theoretical potential alone, there needs to
be clear incentives for industry to drive it
forward." The real issue is how to create
policy frameworks that translate this 'theo­
retical potential' into real projects. "The
most important among these are policies
that allow cogeneration plant interconnec­
tion into the grid and financial incentives
for en ergy efficien cy m easures", he
claims.
Keegan suggests policy changes, such
as allocating a percentage of generation for
cogeneration, as the UK and US have done.
NREL are involved with the US CHP Chal­
lenge, which is using methods such as re­
gion a l w orksh ops, transference of
knowledge, and developing interconnec­
tion systems to reach their cogeneration
targets.
He believes that these measures, al­
though modest, are still important in promot­
ing cogeneration developm ent. "There
should be more aggressive efforts within sec­
tors, such as setting up programmes that link
in with financial insti­
tutions or industrial
associations." These
kinds of partnerships
could encourage tax
incentives and re­
duced levies, making
cogeneration a more
attractive option to
utilities.
THE KYOTO
PROTOCOL
The Kyoto Protocol
has certainly fuelled the resurgence of inter­
est in cogeneration, particularly with regard
to implementing the CDM in the Asia-Pacific.
In fact the ICA claims that, 'possibly the sin­
gle greatest market incentive for cogeneration
in the future, will be the development of an
environmentally credible international sys­
tem for greenhouse gas trading of permits
and credits under the Kyoto Protocol.'
The Sixth Conference of the Parties
(COP6) meeting of the UN international climate
negotiations in the Netherlands this month,
will finally decide on the 'Principles, modalities,
rules and guidelines'. For the world's
cogeneration industry, it is important that
agreement is reached so that CDM projects can
become reality rather than remaining forever
as project potential.
International finance
The International Finance Corporation (IFC),
part of the World Bank Group, has joined with
several other private and public sector groups
Cogeneration
to invest in the Renewable Energy and Energy
Efficiency Fund (REEF), the first global private
equity fund devoted exclusively to invest­
ments in renewable energy and energy effi­
ciency projects.
The fund will invest up to $100 million
in these projects and is intended to stimu­
late investment in environmentally friendly
energy tech n ologies in the d ev elop in g
world. The ICA claims: 'This initiative has
the capability to play a large catalytic role
in supporting the development of biomass
cogeneration systems in developing coun­
tries - an application for which there im­
mense potential.'
MARKET BARRIERS
It is clear that it is not a lack of knowledge
or awareness that is determining the rela­
tively low reliance on cogeneration in the
Asia-Pacific. The policy frameworks to en­
courage cogeneration are still at an early
stage.
Keegan places emphasis on the fact
that Asia-Pacific countries are shaping and
adapting their energy markets to the new
world order. "This is a valuable opportu­
nity to integrate cogeneration into the en­
ergy mix at this formative stage, rather
than entering an already established infra­
structure later on."
Strength of legislation
The passage of PURPA (Public Utilities
Regulatory Policies Act) in 1978, which al­
lowed cogenerators to interconnect with the
electric utility grid, dramatically boosted
the cogeneration market in the US. Within
a span of two decades the cogeneration in­
dustry and small pow er producers had
added in the region of 35-40GW of capac­
ity. Kanwarpal affirm s that legislation
such as PURPA, is critical to opening the
market to cogeneration. It will take several
years for countries to develop and formu­
late effective policy, however, what is
vital is the package of incentives. Incentives
are strong catalysts in driving markets and
w ill b oost the viability of cogeneration
projects.
Competing with utility companies
Changing institutional framework is not the
only problem. Changing the mindset and atti­
tude of large utility companies to cogeneration
is another challenge. Bhadury of Thermax
Ltd., outlines various hurdles that
cogeneration project developers face from util­
ity companies, preventing them having fair
access to the energy market.
• The captive power plants, of which
cogeneration plants are a sub-set, are
decentralised power generators and
are seen by the large utility companies
as competition in the market;
Asian Power - November 2000 31
Cogeneration
• The user, or generator, has to get
permission from utility companies to
set up these projects, and the
companies are not always receptive
towards them;
• Cogeneration plants need standby
power during outages which is a
mandatory requirement every year.
Cogeneration plants approach utility
companies for this standby power, as
well as maintenance. Again utilities are
not always fair, charging huge costs for
supplying this energy, on top of a fixed
cost, which does not help the
development of cogeneration projects;
and
• The quality of the utility companies'
power fluctuates in voltage and
frequency, and when cogenerators try
to hook up to the utility grid, they can
suffer in terms of quality, availability
and reliability.
It is clear that all these factors make life diffi­
cult for cogeneration projects. Cogeneration
plant developers also end up with higher im­
port duties, taxes and levies, compared to IPP
projects. Perhaps this is one of the most
difficult challenges, changing policy can be
achieved over time, but what is harder, is
changing perceptions about cogeneration.
As the US DOE notes: "Replacing the 'embed­
ded infrastructure' of ageing ideas and
outm oded ways of thinking is one of the
most important barriers that needs to be
addressed."
THE US EXAMPLE
The US Combined Heat and Power Associa­
tion and its member com panies have
accepted charge of the CHP Challenge in the
US. They have launched a roadmap process
to reach its goal to double the amount of
installed CHP capacity in the US by 2010,
including:
• Developing a national interconnection
standard and increased experience
with the interaction of various types
and quantities of distributed
generation and cogeneration systems;
• Minimising utility pricing practices
and tariff structures, which make
distributed generation and
cogeneration projects uneconomic;
• Minimising environmental
regulations and permitting, which can
both delay and increase the costs of
distributed generation and
cogeneration projects; and
• Challenging existing business
practices and business models, which
reflect the traditional regulated utility
industry, dominated by vertically
integrated monopolies and large
central station power plants.
32 Asian Power - November 2000
O b v iou sly these strategies en v elop
US standards and conditions, but the
strategies they are embracing are transfer­
able and applicable to overcoming hurdles
facing cogeneration developm ent in the
Asia-Pacific. In terms of maximising the
potential of cogeneration, Kanwarpal be­
lieves that the US provides a good bench­
mark. A concen trated effort betw een
countries would go a long way in increas­
ing the percentage of cogeneration in the
region.
RAISING AWARENESS
Regional workshops are an ideal way to bring
"COMPETITION DO ES NOT FAVOUR MEGA PROJECTS AS THEY
REPRESENT HIGH DEGREES OF DESPATCH AND PAYMENT RISK.
DEREGULATION WILL CREATE GREATER OPPORTUNITIES FOR
COGENERATION . "
VISHVJEET KANWARPAL OF THE ASIA CONSULTING GROUP
together key players to identify short- term ac­
tions to overcome barriers and seize opportu­
nities for cogeneration development.
The CHP Challenge also asserts the im­
portance of strengthening communications
through information dissemination activities.
The CHP website is rapidly becoming a na­
tional clearing house for information on tech­
nology markets, and policies.
The US DOE is also committed to advanc­
ing key technologies, policies, and market in­
vestments, and allocated more than $260 mil­
lion to supportive activities during FYOO. In
FY01, more than $300 million has been re­
quested, with a substantial increase for their
international clean energy work.
PROSPECTS FOR GLOBAL SOLUTIONS
Aggressive goals have been established in the
US. The vision for 2020, builds on the CHP
Challenge goal for 2010 and calls for a four­
fold increase in cogeneration installations.
This vision could be expanded to a global
scale, and the DOE is interested in working
with foreign governments and international
agencies to establish a timetable for action on
distributed generation and cogeneration in
order to achieve this.
Leapfrog to cogeneration
A recent report from the President's Council
of A dvisors on Science and Technology
identifies extensive global opportunities
for cogeneration systems. D evelopin g
nations that have not completely 'electrified',
have the opportunity to leapfrog the
need for an extensive transmission and dis­
tribution infrastructure and go directly to
cogeneration.
G onzales agrees: "D ecentralised
cogeneration systems are very appropriate in
areas which are not served by the utility, as
long as the source of fuel is readily available
and economical. Thus, small-and medium­
sized cogeneration systems using for exam­
ple, waste from wood and agricultural indus­
tries are attractive." Big cogeneration projects
of 100MW using fuel such as natural gas are
normally implemented by large industries or
industrial estates, which are normally located
in electrified areas.
Kanwarpal also claims: "As the transmis­
sion grids expand, the last areas to be covered
are usually poorer areas or geographically hard
to reach areas." Therefore the potential for
biomass cogeneration in these areas is substan­
tial, providing there is a degree of infrastruc­
ture in place to organise the cogeneration plant
installation and maintenance.
If Asia-Pacific nations take immediate ad­
vantage of the technological improvements that
are being made in the cost, efficiency, and envi­
ronmental performance of cogeneration
technologies, then this could help push it
forward.
AN EQUAL PLAYER?
Kanwarpal affirms that: "Cogeneration will
probably never become an equal player in
Asia's markets, only ever providing around 15
per cent of the installed capacity." The overall
climate for cogeneration is improving across the
board, but he notes, "although it will be an im­
portant niche player, it will never be the major
source of power."
At over a hundred years old,
cogeneration is clearly a late developer. There
is no doubt that the potential of cogeneration
has always been obvious, and accepted by in­
dustries across the globe. What it has lacked,
is the infrastructure and necessary conditions
to allow this potential to develop. Now, with
increasing deregulation across countries; cli­
mate change policies driving it forward;
changing attitudes and falling barriers,
cogeneration is finally establishing a place for
itself in the market. As Kanwarpal notes it may
never be the largest generation player, but af­
ter a century evolving and growing, it may fi­
nally become an equal player.