Overview of Cogeneration and Its Status in Asia

PART 1:
OVERVIEW OF COGENERATION AND ITS STATUS IN ASIA

The concept of cogeneration 3
CHAPTER 1: T HE CONCEPT OF COGENERATION
1.1 Introduction
Industries and commercial buildings all over the world are the major energy end-users. In the
developing countries of the Asia-Pacific region, electricity accounts for only around 20 per
cent of the total energy demand of the industrial sector, the remaining demand being mostly
in the form of thermal energy. Likewise, as much as 60 per cent of the energy demand of
modern high-rise buildings in the tropical climate comes from comfort cooling. Typically,
state-owned power companies assure electricity supply whereas on-site boilers and chillers
meet the heating and cooling needs of the users, respectively.
Thermal power plants are a major source of electricity supply in many developing countries.
The conventional method of power generation and supply to the customer is wasteful in the
sense that about a quarter of the primary energy fed into the power plant is actually made
available to the user in the form of electricity. The major source of loss in the conversion
process is the heat rejected to the surrounding water or air due to the inherent constraints of
the different thermodynamic cycles employed in power generation. Moreover, users may be
far from the point of generation, which results in additional transmission and distribution
losses in the network. The concept of cogeneration is based on the principle of thermal
cascading which consists of generating power on site where a substantial fraction of waste
heat produced is recovered to satisfy the heating/cooling demand of the end-user. There is
thus a considerable enhancement of the overall conversion efficiency.
Combined heat and power generation (CHP), or cogeneration as it is popularly known, is

widely recognized world-wide as an attractive alternative to the conventional power and heat
generating options due to its low capital investment, shorter gestation period, reduced fuel
consumption and associated environmental pollution, and increased fuel diversity.
Though the concept of cogeneration has been in existence for over a century now, it found its
popularity and renewed interest during the later half of the 70s and the early 80s. The main
factors that attributed to this phenomenon are the two oil shocks that led to spiralling energy
prices and the availability of efficient and small-scale cogeneration systems which became
cost-effective and competed well with the conventional large-scale electricity generation
units. A variety of measures were undertaken by several national authorities to promote the
growth of cogeneration.
As energy prices started to fall during the mid-80s, some countries lost interest in this
technology, particularly those that had excess generating capacities. Taking the example of
Europe, a great diversity can be observed among the member countries; electricity produced
from cogeneration ranged from over 34 per cent in the Netherlands whereas it was less than
1.5 per cent in France.
The main reasons that have revived the interest in cogeneration once again are the rapidly
increasing demand for electricity, constraints faced by the national authorities to finance
additional power generating capacities, and the growing concern to limit the environmental
emission and pollution associated with the use of energy. Cogeneration is presently being
recommended when there is plan for expansion of existing facilities, development of new
industrial zones, replacement of outdated steam generation systems, or when the cost of
energy is high and there is scope for selling power.
4 Part I: Overview of cogeneration and its status in Asia
1.2 Principle of Cogeneration
Cogeneration is defined as the sequential generation of two different forms of useful energy
from a single primary energy source, typically mechanical energy and thermal energy.
Mechanical energy may be used either to drive an alternator for producing electricity, or
rotating equipment such as motor, compressor, pump or fan for delivering various services.
Thermal energy can be used either for direct process applications or for indirectly producing
steam, hot water, hot air for dryer or chilled water for process cooling.
Cogeneration provides a wide range of technologies for application in various domains of

economic activities. The overall efficiency of energy use in CHP mode can be up to 80 per
cent and above in some cases. A typical small gas turbine based CHP unit can save about
40 per cent of the primary energy when compared with a fossil fuel fired conventional power
plant and a boiler house (see Figure 1.1 below). Along with the saving of fossil fuels,
cogeneration also allows to reduce the emission of greenhouse gases (particularly CO2
emission) per unit of useful energy output. The production of electricity being on-site, the
burden on the utility network is reduced and the transmission line losses eliminated.
Electricity
Input for
Input Power
30
Energy Generation
Heat
100 86
50
Input
Heat Loss Energy
56
Heat Loss
20 Input for
Boiler 142
56
Heat Loss
6
(i) Cogeneration System (ii)Conventional System
Figure 1.1 Conventional energy system versus cogeneration system
Cogeneration makes sense from both macro and micro perspectives. At the macro level, it
allows a part of the financial burden of the national power utility to be shared by the private
sector; in addition, indigenous energy sources are preserved or the fuel import bill is reduced.
At the micro level, the overall energy bill of the users can be reduced, particularly when there
is a simultaneous need for both power and heat at the site, and a rational energy tariff is
practised in the country.
1.3 From Self Electricity Generation to Cogeneration
In Asian developing countries, it is not unusual to come across situations of grid power
supply interruptions either due to technical failure of the system or because the consumer
demand during a given time period exceeds the utility supply capacity. Industries and
commercial buildings normally adopt stand-by power generators for taking care of their
essential loads during these periods. It is essential to assure continuity of some activities to
minimize production losses or guarantee minimum comfort of the clients. The stand-by
generators have limited use in the year; moreover, these devices require investment and
incur operation and maintenance costs while contributing practically nothing to reduce the
overall energy bill of the site.
Since these generators serve the main purpose of assuring emergency power to priority
areas of the site, no financial analysis is carried out to assess their economic viability.
However, these generators offer the possibility of continuous power generation so that the
monthly power bill of the site can be reduced. Such benefits accrued can well justify the need
for higher investment that is associated with prime movers which are designed to operate
continuously and at higher efficiencies.
In a gas turbine or reciprocating engine, typically a third of the primary fuel supplied is
converted into power while the rest is discharged as waste heat at a relatively high
temperature, ranging between 300 and 500ºC. At sites having a need for thermal energy in
one form or the other, this waste heat can be recovered to match the quantity and level of
requirements. For instance, steam may be needed at low or medium pressures for process
applications. Any heat recovered from the exhaust gases of the prime movers will help to
save the primary energy that would have been otherwise required by the on-site conversion
facility such as boilers or dryers.
An ideal site for cogeneration has the following characteristics:
• a reliable power requirement;
• relatively steady electrical and thermal demand patterns;
• higher thermal energy demand than electricity;
• long operating hours in the year;
• inaccessibility to the grid or high price of grid electricity.
Typical cogeneration applications may be in three distinct areas:
a) Utility cogeneration: caters to district heating and/or cooling. The cogeneration facility
may be located in industrial estates or city centres;
b) Industrial cogeneration: applicable mainly to two types of industries, some requiring

thermal energy at high temperatures (refineries, fertilizer plants, steel, cement, ceramic
and glass industries), and others at low temperatures (pulp and paper factories, textile
mills, food and beverage plants, etc.);
c) Commercial/institutional cogeneration: specifically applicable to establishments having

round-the-clock operation, such as hotels, hospitals and university campuses.
1.4 Technical Options for Cogeneration
Cogeneration technologies that have been widely commercialized include extraction/back

pressure steam turbines, gas turbine with heat recovery boiler (with or without bottoming
steam turbine) and reciprocating engines with heat recovery boiler.
1.4.1 Steam turbine cogeneration systems

The two types of steam turbines most widely used are the backpressure and the extraction-
condensing types (see Figure 1.2). The choice between backpressure turbine and extraction-
condensing turbine depends mainly on the quantities of power and heat, quality of heat, and
economic factors. The extraction points of steam from the turbine could be more than one,
depending on the temperature levels of heat required by the processes.
Steam
Steam
Fuel
Turbine
Fuel
Turbine
Boiler
Boiler
Condenser
Process
Process
Cooling
Water
(i) Back-Pressure Turbine (ii) Extraction-Condensing Turbine
Figure 1.2 Schematic diagrams of steam turbine cogeneration systems
Another variation of the steam turbine topping cycle cogeneration system is the extraction-
back pressure turbine that can be employed where the end-user needs thermal energy at two
different temperature levels. The full-condensing steam turbines are usually incorporated at
sites where heat rejected from the process is used to generate power.
The specific advantage of using steam turbines in comparison with the other prime movers is
the option for using a wide variety of conventional as well as alternative fuels such as coal,
natural gas, fuel oil and biomass. The power generation efficiency of the cycle may be
sacrificed to some extent in order to optimize heat supply. In backpressure cogeneration
plants, there is no need for large cooling towers. Steam turbines are mostly used where the
demand for electricity is greater than one MW up to a few hundreds of MW. Due to the
system inertia, their operation is not suitable for sites with intermittent energy demand.
1.4.2 Gas turbine cogeneration systems

Gas turbine cogeneration systems can produce all or a part of the energy requirement of the
site, and the energy released at high temperature in the exhaust stack can be recovered for
various heating and cooling applications (see Figure 1.3). Though natural gas is most
commonly used, other fuels such as light fuel oil or diesel can also be employed. The typical
range of gas turbines varies from a fraction of a MW to around 100 MW.
Gas turbine cogeneration has probably experienced the most rapid development in the recent
years due to the greater availability of natural gas, rapid progress in the technology,
significant reduction in installation costs, and better environmental performance.
Furthermore, the gestation period for developing a project is shorter and the equipment can
be delivered in a modular manner. Gas turbine has a short start-up time and provides the
flexibility of intermittent operation. Though it has a low heat to power conversion efficiency,
more heat can be recovered at higher temperatures. If the heat output is less than that
required by the user, it is possible to have supplementary natural gas firing by mixing
additional fuel to the oxygen-rich exhaust gas to boost the thermal output more efficiently.
Flue Exhaust
Gases Heat (~ 150 °C)
(~ 500 °C)
Steam
Fuel Air
Water
Boiler
Electricity
Generator
Gas Turbine
Figure 1.3 Schematic diagram of gas turbine cogeneration
On the other hand, if more power is required at the site, it is possible to adopt a combined
cycle that is a combination of gas turbine and steam turbine cogeneration. Steam generated
from the exhaust gas of the gas turbine is passed through a backpressure or extraction-
condensing steam turbine to generate additional power. The exhaust or the extracted steam
from the steam turbine provides the required thermal energy.
1.4.3 Reciprocating engine cogeneration systems

Also known as internal combustion (I. C.) engines, these cogeneration systems have high
power generation efficiencies in comparison with other prime movers. There are two sources
of heat for recovery: exhaust gas at high temperature and engine jacket cooling water system
at low temperature (see Figure 1.4). As heat recovery can be quite efficient for smaller
systems, these systems are more popular with smaller energy consuming facilities,
particularly those having a greater need for electricity than thermal energy and where the
quality of heat required is not high, e.g. low pressure steam or hot water.
Though diesel has been the most common fuel in the past, the prime movers can also
operate with heavy fuel oil or natural gas. In urban areas where natural gas distribution
network is in place, gas engines are finding wider application due to the ease of fuel handling
and cleaner emissions from the engine exhaust.
These machines are ideal for intermittent operation and their performance is not as sensitive
to the changes in ambient temperatures as the gas turbines. Though the initial investment on
these machines is low, their operating and maintenance costs are high due to high wear and
tear.
1.5 Classification of Cogeneration Systems
Cogeneration systems are normally classified according to the sequence of energy use and
the operating schemes adopted.
Exhaust ~ 200 °C
Heat
Steam or Hot Water
~ 450 °C
Boiler
I.C. Engine
Coolers
Process
Oil Air Water
Figure 1.4 Schematic diagram of reciprocating engine cogeneration
A cogeneration system can be classified as either a topping or a bottoming cycle on the

basis of the sequence of energy use. In a topping cycle, the fuel supplied is used to first
produce power and then thermal energy, which is the by-product of the cycle and is used to
satisfy process heat or other thermal requirements. Topping cycle cogeneration is widely
used in pulp and paper, food processing, textile industries, districting heating, hotels,
hospitals and universities. In a bottoming cycle, the primary fuel produces high temperature
thermal energy and the heat rejected from the process is used to generate power through a
recovery boiler and a turbine generator. Bottoming cycles are suitable for manufacturing
processes that require heat at high temperature in furnaces and kilns, and reject heat at
significantly high temperatures. Typical areas of application include cement, steel, ceramic,
gas and petrochemical industries.
Cogeneration systems can also be classified according to the operating scheme whose
choice is very much site-specific and depends on several factors, as described below:
1.5.1 Base electrical load matching

In this configuration, the cogeneration plant is sized to meet the minimum electricity demand
of the site based on the historical demand curve. The rest of the needed power is purchased
from the utility grid. The thermal energy requirement of the site could be met by the
cogeneration system alone or by additional boilers. If the thermal energy generated with the
base electrical load exceeds the plant’s demand and if the situation permits, excess thermal
energy can be exported to neighbouring customers.
1.5.2 Base thermal load matching

Here, the cogeneration system is sized to supply the minimum thermal energy requirement
of the site. Stand-by boilers or burners are operated during periods when the demand for heat
is higher. The prime mover installed operates at full load at all times. If the electricity demand
of the site exceeds that which can be provided by the prime mover, then the remaining
amount can be purchased from the grid. Likewise, if local laws permit, the excess electricity
can be sold to the power utility.
1.5.3 Electrical load matching

In this operating scheme, the facility is totally independent of the power utility grid. All the
power requirements of the site, including the reserves needed during scheduled and
unscheduled maintenance, are to be taken into account while sizing the system. This is also
referred to as a “stand-alone” system. If the thermal energy demand of the site is higher than
that generated by the cogeneration system, auxiliary boilers are used. On the other hand,
when the thermal energy demand is low, some thermal energy is wasted. If there is a
possibility, excess thermal energy can be exported to neighbouring facilities.
1.5.4 Thermal load matching

The cogeneration system is designed to meet the thermal energy requirement of the site at
any time. The prime movers are operated following the thermal demand. During the period
when the electricity demand exceeds the generation capacity, the deficit can be
compensated by power purchased from the grid. Similarly, if the local legislation permits,
electricity produced in excess at any time may be sold to the utility.
1.6 Important Technical Parameters for Cogeneration
While selecting cogeneration systems, one should consider some important technical
parameters that assist in defining the type and operating scheme of different alternative
cogeneration systems to be selected.
1.6.1 Heat-to-power ratio

Heat-to-power ratio is one of the most important technical parameters influencing the
selection of the type of cogeneration system. The heat-to-power ratio of a facility should
match with the characteristics of the cogeneration system to be installed.
It is defined as the ratio of thermal energy to electricity required by the energy consuming
facility. Though it can be expressed in different units such as Btu/kWh, kcal/kWh, lb./hr/kW,
etc., here it is presented on the basis of the same energy unit (kW).
Basic heat-to-power ratios of the different cogeneration systems are shown in Table 1.1
along with some technical parameters. The steam turbine cogeneration system can offer a
large range of heat-to- power ratios.
Table 1.1 Heat-to-power ratios and other parameters of cogeneration systems
Cogeneration System Heat-to- Power output Overall

power ratio (as per cent efficiency
(kWth / kWe) of fuel input) (per cent)
Back-pressure steam turbine 4.0-14.3 14-28 84-92
Extraction-condensing steam turbine 2.0-10.0 22-40 60-80
Gas turbine 1.3-2.0 24-35 70-85
Combined cycle 1.0-1.7 34-40 69-83
Reciprocating engine 1.1-2.5 33-53 75-85
1.6.2 Quality of thermal energy needed

The quality of thermal energy required (temperature and pressure) also determines the type
of cogeneration system. For a sugar mill needing thermal energy at about 120°C, a topping
cycle cogeneration system can meet the heat demand. On the other hand, for a cement plant
requiring thermal energy at about 1450°C, a bottoming cycle cogeneration system can meet
both high quality thermal energy and electricity demands of the plant.
1.6.3 Load patterns

The heat and power demand patterns of the user affect the selection (type and size) of the
cogeneration system. For instance, the load patterns of two energy consuming facilities
shown in Figure 1.5 would lead to two different sizes, possibly types also, of cogeneration
systems.
kW kW
kW
Time Time
(i) Factory “A” (ii) Factory “B”
Electricity Thermal Energy
Figure 1.5 Different heat and power demand patterns in two factories
1.6.4 Fuels available

Depending on the availability of fuels, some potential cogeneration systems may have to be
rejected. The availability of cheap fuels or waste products that can be used as fuels at a site
is one of the major factors in the technical consideration because it determines the
competitiveness of the cogeneration system.
A rice mill needs mechanical power for milling and heat for paddy drying. If a cogeneration
system were considered, the steam turbine system would be the first priority because it can
use the rice husk as the fuel, which is available as waste product from the mill.
1.6.5 System reliability

Some energy consuming facilities require very reliable power and/or heat; for instance, a pulp
and paper industry cannot operate with a prolonged unavailability of process steam. In such
instances, the cogeneration system to be installed must be modular, i.e. it should consist of
more than one unit so that shut down of a specific unit cannot seriously affect the energy
supply.
1.6.6 Grid dependent system versus independent system

A grid-dependent system has access to the grid to buy or sell electricity. The grid-
independent system is also known as a “stand-alone” system that meets all the energy
demands of the site. It is obvious that for the same energy consuming facility, the technical
configuration of the cogeneration system designed as a grid dependent system would be
different from that of a stand-alone system.
1.6.7 Retrofit versus new installation

If the cogeneration system is installed as a retrofit, the system must be designed so that the
existing energy conversion systems, such as boilers, can still be used. In such a
circumstance, the options for cogeneration system would depend on whether the system is a
retrofit or a new installation.
1.6.8 Electricity buy-back

The technical consideration of cogeneration system must take into account whether the local
regulations permit electric utilities to buy electricity from the cogenerators or not. The size
and type of cogeneration system could be significantly different if one were to allow the export
of electricity to the grid.
1.6.9 Local environmental regulation

The local environmental regulations can limit the choice of fuels to be used for the proposed
cogeneration systems. If the local environmental regulations are stringent, some available
fuels cannot be considered because of the high treatment cost of the polluted exhaust gas
and in some cases, the fuel itself.
State of art review of cogeneration 13
CHAPTER 2: STATE OF ART REVIEW OF COGENERATION
2.1 Technological Advances in Cogeneration
Cogeneration plants benefit from many of the energy efficiency improvements that are
brought about in utility power generation because the same basic technology is employed in
both cases. However, cogeneration being more attractive for small-scale decentralized
applications, significant technological progress has been made in the development of
modular and packaged cogeneration systems of lower capacities. Moreover, as such
systems are being adopted in industrial zones and city centres, the stringent laws and
regulations put in place for protecting the local environment has obliged the cogeneration
technology providers to innovate incessantly. The greater availability of natural gas in many
parts of the world has helped in the maturing of gas turbine technology. In addition, the
possibility of using alternative fuels such as wood, agro-industrial residues, biogas, etc., for
powering small-scale cogeneration systems has led to further technological progresses by
taking the specific characteristics of the fuels into consideration. This section briefly
describes some of the developments in this domain.
2.2 Reciprocating Engines
Reciprocating engines are mostly employed in low and medium power cogeneration units.
The lower and upper limits of engine sizes are often a function of the fuel in use; these can
range from 50 kW to 10 MW for natural gas, from 50 kW to 50 MW for diesel, and 2.5 MW to
50 MW for heavy fuel oil. One of the major advantages of reciprocating engines is their higher
electrical efficiency as compared to other prime movers.
The two main types of internal combustion engines employed in cogeneration systems are
diesel engines and Otto engines. The characteristic feature of the Otto engine is that an
electric spark from a spark plug ignites a mixture of fuel and air, and this is thus known widely
as a spark-ignition engine. In power generation applications, the Otto engine may be either a
gasoline engine or a diesel engine converted to have spark-ignition operation. Gasoline
engines have the ratings ranging from 20 kW to 1.5 MW. The spark-ignition engines
converted from diesel engines and running on natural gas are available in ratings from 5 kW
to 4 MW. The Otto engines operate at speeds between 750-3,000 rpm and have the electrical
efficiencies of 25-35 per cent. These engines can run on different fuels such as gasoline,
natural gas, producer gas, and digester gas.
As opposed to Otto engines, fuel is injected into the diesel engine cylinders in which it mixes
with air and is ignited by the heat generated when the pistons compress the fuel/air mixture,
and this engine is often known as a compression-ignition engine. Diesel engines can
generally be classified into two main categories, i.e. two-stroke and four-stroke engines. The
two-stroke engine is also known as a low-speed engine, and is characterized by ignition
taking place once every revolution, and by the engine running at a speed below 200 rpm and
delivering an output of 1-50 MW at a high electrical efficiency of 45-53 per cent. In a four-
strike engine, ignition takes place during every other revolution, and this engine can be
divided into two categories. Medium speed engines are those running at speeds between
400 and 1,000 rpm and can be designed for ratings between 0.5 and 20 MW with electrical
efficiencies of 35-48 per cent. High-speed engines are those operating at speeds between
1,000 and 2,000 rpm and with ratings between a few kW and about 2 MW with electrical
efficiencies of 35-40 per cent.
Diesel engines can run on a variety of fuels such as diesel, heavy fuel oil, light fuel oil, LPG,
natural gas, producer gas, digester gas, etc. The diesel engines that are converted to gas
engines are also known as dual-fuel engines. In their operation, the main fuel is gas, which is
ignited by a small quantity of pilot oil, usually diesel oil. The pilot oil is used to make sure that
the gas in the cylinder will ignite. The gas/oil ratio is normally controlled so that the proportion
of pilot oil at full engine power will be around 5 per cent of the fuel quantity supplied. Diesel
engines running in gas engine mode can be classified in another way into two groups: low-
pressure dual-fuel engines and high-pressure dual-fuel engines.
Typical heat balance diagram of a gas engine is shown in Figure 2.1. About 25 per cent of the
heat recovered from the engine cooling system (cooling water, oil cooler and inlet air cooler)
is low grade at a temperature of about 95°C. Considering the same power output, the amount
of heat recoverable at high temperature is lower than that for the gas turbine. That is why
cogeneration with reciprocating engine is more commonly used for producing hot water/hot
air or low pressure steam. However, medium pressure steam can be generated by
employing supplementary firing since exhaust gases from gas engines have an O2 content of
about 15 per cent.
100 %
Mechanical Thermal
38% 62%
Engine Exhaust
Cooling gas
System 5%
Radiation
1.5% losses
Generator
losses
7.5%
Exhaust gas
losses
36.5% 25.0% 24.5%
Electrical Thermal
36.5% 49.5%
Overall efficiency
86%
Figure 2.1 Typical heat balance of a gas engine
In the operation of low-pressure dual-fuel engines, gas at low pressure, i.e. 3-5 bar, is
mixed with the engine combustion air during the induction cycle. The gas/combustion air
mixture is compressed in the cylinder and is ignited at the top dead centre by a small amount
(approximately 5 per cent) of diesel oil being injected into the cylinder and ignited in the usual
manner. Low-pressure dual-fuel engines have relatively low ratings and efficiencies. The
system is sensitive to variations in gas quality.
Gas is compressed outside the engine in a separate compressor in a high-pressure dual-

fuel engine up to 250 bar and is injected into the cylinder with a minor amount of pilot oil
when the piston is in the vicinity of the top dead centre. High-pressure dual-fuel engines have
higher ratings and efficiencies and they are not sensitive to the gas quality. High-pressure
dual-fuel engines are available in both two-stroke and four-stroke versions.
2.3 Gas Turbines
Gas turbines used for cogeneration are usually designed for continuous duty because gas
turbines for stand-by use normally have low efficiencies and are most suitable for
applications where the operating periods are short.
Gas turbines for continuous duty are traditionally divided into two groups on the basis of
differences in design philosophy (there is now some convergence in their design).
The aero-derivative gas turbine, as its name indicates, is more or less derived from an
aircraft propulsion engine. The characteristics of aero-derivative gas turbines are low specific
weight, low fuel consumption, high reliability, etc. The major advantages of aero-derivative
gas turbines are high levels of efficiency and a compact and modular design with easy
access for maintenance. However, because skilled service personnel are required, gas
turbines of this type are often taken off the site for maintenance. Aero-derivative gas turbines
require a relatively high specific investment cost ($/kW e), high quality fuel and may
experience a lowering in output and efficiency after a long period of operation.
The industrial gas turbine, also referred to as the heavy duty or heavy frame gas turbine, is a
robust unit constructed for stationary duty and continuous operation. It has a somewhat lower
efficiency than the aero-derivative type, but usually maintains its performance over a longer
period of operation. Maintenance can be easily carried out on site, and maintenance costs
are low. The industrial gas turbine usually has a lower specific investment cost than its aero-
derivative counterpart. Furthermore, it has the ability to make use of low quality fuel.
The performance of a gas turbine depends on the pressure and temperature of ambient air
that is compressed. Since the ambient conditions vary from day-to-day and from location-to-
location, it is convenient to consider some standard conditions for comparative purposes.
The standard conditions used by the gas turbine industry are 15°C, 1.013 bar (14.7 psia) and
60 per cent relative humidity, which are established by the International Standards
Organization (ISO). The performance of gas turbines is expressed under ISO conditions.
The actual power output of a gas turbine varies with ambient conditions. The power output of
a gas turbine decreases when the ambient temperature rises. In contrast, the power output
increases with the ambient pressure. The variations in power outputs of a typical gas turbine
with ambient conditions are shown in Figure 2.2 as a percentage of ISO power output.
The heat recovery steam generator (HRSG) is one of the major components of the gas
turbine cogeneration system. Since the energy content of the exhaust gas rejected to the
atmosphere is considerably high, HRSGs are designed to produce process steam (or hot
water) by recovering a large share of the energy contained in the exhaust stream. The
exhaust gas at 500-550°C is cooled in the HRSG to about 150°C to extract useful heat. A
temperature of 150°C is recommended at the outlet of the HRSG to avoid condensation of
exhaust gases. At lower temperature levels, gases such as SOx and NO x would form acids
along with the condensation and corrode the materials of HRSG.
120 120
% of ISO Power Output

% of ISO Power Output
110 110
100 100
90 90
80 80
70 70
60 60
10 11 12 13 14 15 -5 5 15 25 35
Ambient Pressure (psia) Ambient Temperature (°C)
Figure 2.2 Power output variation of a gas turbine with the ambient conditions
The basic heat-to-power ratio of a simple gas turbine cogeneration system is about two.
However, supplementary firing can double the heat-to-power ratio. The HRSG with
supplementary firing option contains an additional burner to increase the heat output of the
whole system. This is made possible due to the high oxygen content of the exhaust gases,
typically 14 to 17 per cent, as a result of the need for high excess air in the combustion
chamber (for avoiding very high hot gas temperature that can affect the turbine). By adding
supplemental firing, fuel consumption increases slightly, however the steam production
increases significantly. Addition of supplemental firing is quite common in gas turbine
cogeneration systems.
In a gas turbine cogeneration cycle, the power output can be increased by steam injection.
High-pressure steam produced in HRSG can be injected into the combustion chamber so
that the mass flow rate through the turbine is increased. Steam injection allows the flexibility
of matching with the process steam demand and can increase the power output by about 15
per cent.
40 40
Electrical Efficiency (%)
Electrical Efficiency (%)
35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40
ISO Power Output (MW) ISO Power Output (MW)
(i) Aero-Derivative (ii) Industrial
Figure 2.3 Power generation efficiency ranges of gas turbines
The power generation efficiency ranges of aero-derivative and industrial gas turbines are
compared in Figure 2.3. The overall efficiency of the gas turbine cogeneration system is good
without post-combustion (70 to 85 per cent), which can be further boosted to between 83 and
89 per cent with post-combustion. When the system is opted as a retrofit in a facility already
having boilers, it is at times possible to make use of the existing boilers.
Recuperators are used to increase the power output of gas turbine cogeneration systems if
the heat demands are low. The recuperator is in fact only a heat exchanger that is employed
to heat the air leaving the compressor. The exhaust stream from the turbine is passed
through the recuperator before going into the HRSG so that a part of the energy contained in
turbine exhaust is utilized in the recuperator. The gas turbine cogeneration system with
recuperator is sometimes known as the heat exchange cycle.
2.4 Steam Turbines
Steam turbines are the most commonly employed prime movers for cogeneration
applications, particularly in industries and for district heating. The technology is well proven in
sugar and paper mills having demand for both electricity and large quantity of steam at high
and low pressures. Some steam turbine manufacturers are over 100 years old and have
products ranging from a few kW to 80 MW. However, turbines below two MW may be
uneconomical except where the fuel has no commercial value.
A cogeneration system using a backpressure steam turbine (see Figure 1.2) consists of
boiler, turbine, heat exchanger and pump. In the steam turbine, the incoming high pressure
steam is expanded to a lower pressure level, converting the thermal energy of high pressure
steam to kinetic energy through nozzles and then to mechanical power through rotating
blades. Thermal energy of the turbine exhaust steam is then transferred to another fluid,
water, air, etc., in a heat exchanger, providing heat to the processes. For instance, the air
heated by heat exchanger can be used to dry products in food processing industries.
Depending on the pressure (or temperature) levels at which process steam is required,
backpressure steam turbines can have different configurations. The most common types of
backpressure steam turbines are shown in Figure 2.4. In extraction and double extraction
backpressure turbines, some amount of steam is extracted from the turbine after being
expanded to a certain pressure level. The extracted steam meets the heat demands at
pressure levels higher than the exhaust pressure of the steam turbine.
The backpressure steam turbine has a higher heat to power ratio and higher overall
efficiency. Furthermore, back pressure turbine cogeneration systems need less auxiliary
equipment than condensing systems, leading to lower initial investment costs.
The extraction condensing turbines have higher power to heat ratio in comparison with
backpressure turbines. Although condensing systems need more auxiliary equipment such
as the condenser and cooling towers, better matching of electrical power and heat demand
can be obtained where electricity demand is much higher than the steam demand and the
load patterns are highly fluctuating.
In the reheat cycle, steam is extracted from the turbine and reheated in the boiler during the
expansion process. Reheat cycles improve the overall thermal efficiency and eliminate any
moisture that may form as the steam pressure and temperature are lowered in the turbine.
Steam turbines may also include a regenerative cycle where the steam is extracted from the
turbine and used to preheat the boiler feedwater.
The efficiency of a backpressure steam turbine cogeneration system is the highest. In cases
where 100 per cent backpressure exhaust steam is used, the only inefficiencies are gear
drive and electric generator losses, and the inefficiency of steam generation. Therefore, with
an efficient boiler, the overall thermal efficiency of the system could reach as much as 90 per
cent.
High pressure steam Extracted steam Exhaust steam
(i) Simple backpressure (ii) Extraction backpressure (iii) Double extraction

backpressure
Figure 2.4 Different configurations for back pressure steam turbines
The overall thermal efficiency of an extraction condensing turbine cogeneration system is

lower than that of back pressure turbine system, basically because the exhaust heat cannot
be utilized (it is normally lost in the cooling water circuit). However, extraction condensing
cogeneration systems have higher electricity generation efficiencies.
The techniques available for energy generation from fossil fuels are well established. In order
to make greater use of alternative fuels, efforts have been made to take the specificity of fuel
characteristics into account in order to overcome the technological constraints. The physical
properties of agro-industrial residues vary considerably and can affect the conversion
efficiency. Some areas where technological progresses have been made include fuel
handling, combustion system and pollution abatement equipment.
Fuel handling and transformation is important for appropriate functioning of the installation.
Handling biomass residues depends mainly on the fuel granulometry and moisture content.
Coarse residues can be transformed into homogeneous mass by crushing and chipping.
Reduction of the moisture content by drying represents two main advantages: increases in
the fuel heating value, and decrease in the fuel losses through fermentation during storage.
Suitable technologies are available in the market to cover the handling, drying and storage
requirements of different types of fuels.
The selection of combustion system using alternative fuels depends on parameters such as
the size of the unit, energy required, fuel characteristics, etc. Though grate-fired systems
(Dutch-oven type or spreader-stokers) have been widely used because of the flexibility they
offer, suspension burners and fluidized-bed combustors are emerging as relevant
technologies because of their high conversion efficiencies and improved performance in
meeting the environmental constraints. In suspension burners, ash is dragged out with the
exhaust gases or it falls to the furnace bottom. Fluidized-bed combustors control the
combustion better and make use of an inert material capable of absorbing energy, thus
maximizing the heat transfer from the fuel. These units are capable of burning fuels with very
low calorific values. Modern designs of furnaces offer staging combustion and good control of
air-fuel ratio.
2.5 Trigeneration and Vapour Absorption Cooling
Trigeneration is the concept of deriving three different forms of energy from the primary
energy source, namely, heating, cooling and power generation. Also referred to as CHCP
(combined heating, cooling and power generation), this option allows having greater
operational flexibility at sites with demand for energy in the form of heating as well as cooling.
This is particularly relevant in tropical countries where buildings need to be air-conditioned
and many industries require process cooling. A typical trigeneration facility consists of a
cogeneration plant, and a vapour absorption chiller which produces cooling by making use of
some of the heat recovered from the cogeneration system (see Figure 2.5).
STEAM
Heat HOT
Exchanger WATER
Steam
Hot Chiller CHILLED
Gases WATER
HRSG
Steam Steam
Turbine
Generator
AIR ELECTRICITY ELEC-
TRICITY
Generator
GE
GasFrame 6
Turbine
FUEL Gas Turbine
Figure 2.5 Schematic presentation of a gas turbine based trigeneration facility
Although cooling can be provided by conventional vapour compression chillers driven by

electricity, low quality heat (i.e. low temperature, low pressure) exhausted from the
cogeneration plant can drive the absorption chillers so that the overall primary energy
consumption is reduced. Absorption chillers have recently gained widespread acceptance
due to their capability of not only integrating with cogeneration systems but also because they
can operate with industrial waste heat streams. The benefit of power generation and
absorption cooling can be realized through the following example that compares it with a
power generation system with conventional vapour compression system.
A factory needs 1 MW of electricity and 500 refrigeration tons (RT)1. Let us first consider the
gas turbine that generates electricity required for the processes as well as the conventional
vapour compression chiller. Assuming an electricity demand of 0.65 kW/RT, the
compression chiller needs 325 kW of electricity to obtain 500 RT of cooling. Hence, a total of
1325 kW of electricity must be provided to this factory. If the gas turbine efficiency has an
efficiency of 30 per cent, primary energy consumption would be 4417 kW. A schematic
diagram of the system is shown in Figure 2.6.
1
Refrigeration ton (RT) is defined as the transfer of heat at the rate of 3.52 kW, which is roughly the
rate of cooling obtained by melting ice at the rate of one ton per day.
1325 kW
1000 kW
325 kW
Process
Fuel Input
Generator
4417 kW Compression
Gas Turbine Chiller 500 RT Cooling
Figure 2.6 Schematic diagram of power generation and cooling with electricity
However, a cogeneration system with an absorption chiller can provide the same energy
service (power and cooling) by consuming only 3,333 kW of primary energy. A schematic
diagram of the system is shown in Figure 2.7.
1,000 kW
Process
Fuel Input Generator

3,333 kW
Gas Turbine 500 RT Cooling
2.25 Tons/hr of Steam Absorption

Recovery Chiller
Boiler
Exhaust
Heat
Figure 2.7 Schematic diagram of power generation and absorption cooling
It can be seen that the cogeneration system incorporating an absorption chiller can save
about 24.5 per cent of primary energy in comparison with the power generation system and
vapour compression chiller. Furthermore, a smaller prime mover leads to not only lower
capital cost but also less standby charge during the system breakdown because steam
needed for the chiller can still be generated by auxiliary firing of the waste heat boiler.
Since many industries and commercial buildings in tropical countries need combined power
and heating/cooling, the cogeneration systems with absorption cooling have very high
potentials for industrial and commercial application.
2.6 Working Principle of Absorption Chillers
Like the vapour compression chiller (VCC), the vapour absorption chiller (VAC) extracts heat
in the evaporator which is placed in the space to be cooled and rejects this heat in the
condenser. However, VAC needs a heat source as the driving force while VCC requires
mechanical power or electricity for the same duty. Figure 2.8 shows the schematic diagrams
of VCC and VAC.
High Pressure
High Pressure Vapour
Vapour Refrigerant Refrigerant
Condenser Condenser Generator
Heat
Mechanical Input
Heat
Power/Electricity Exchanger
Vapour
Compressor
Evaporator Evaporator Absorber

Low Pressure Low Pressure
Vapour Refrigerant Vapour Refrigerant
(i) Vapour Compression Chiller (ii) Vapour Absorption Chiller
Figure 2.8 Comparison between vapour compression and absorption cycles
The improved version of the VAC, commonly known as the double effect type, is designed
such that it utilizes the vaporized refrigerant as an extra heat source. The generator is divided
into high and low temperature sections. The refrigerant vapour produced in the high
temperature generator gives up its latent heat to the partially refrigerant-rich solution in the
low temperature generator that operates at a low pressure, hence the lower boiling point of
the refrigerant. The energy consumption of a double effect VAC is approximately half that of
the single effect VAC for the same cooling effect. Moreover, heat rejected in the condenser is
also reduced, resulting in smaller condenser and cooling tower.
The performances of absorption chillers strongly depend on the thermo-physical properties of

the working pair, i.e., the refrigerant and absorbent. Binary working pairs such as ammonia-
water (NH3-H2O) and lithium bromide-water (LiBr-H2O) have been employed commercially in
absorption chillers for a long time and these are in commercial use. A single effect LIBr-H2O
absorption chiller requires about 0.8 m 3/h of hot water at around 90ºC or 8.3 kg/h of steam at
1.5 bar to provide 1 RT. On the other hand, a double effect chiller requires only 4.5 kg/h of
steam, though at a higher pressure between 6 and 8 bar.
2.7 District Heating/Cooling Network
Individual buildings and industries may lack economies of scale when setting up cogeneration
facilities and it may not be always possible to optimize the design parameters due to the
peculiarity of the energy demand patterns. In such cases, one may think of developing a
facility that caters to several user-groups with varying demand patterns that can be
complimentary. In the building sector, for instance, offices are active during the daytime
whereas hotels may have high loads at nights. When the two loads are combined, a uniform
composite curve may be obtained with very small amplitude.
Besides, there are a number of justifications for grouping together several buildings and
industries in order to meet their different energy services, such as:
- larger cogeneration system and the economies of scale associated with it;
- system expansion to users for whom individual facility cannot be justified;
- improvement in the overall generation efficiency;
- increased reliability and availability of utility services;
- pooling of maintenance personnel and reduction in manpower cost;
- saving of mechanical room space in the user buildings;
- purchase of fuel at more competitive rate;
- better negotiation power for power purchase/sale to the electric utility, etc.
There are, however, a few drawbacks to district heating/cooling, the most important among
them being the high initial investment on the system. The cost of steam/hot water and chilled
water transportation and distribution can also be high. Because of the down-sizing of the
different components installed at the central plant, capital investment cost can in fact be
reduced by 10 to 20 per cent as compared to those which would have been required in the
individual buildings. This takes into account the piping distribution network cost that is not
required in conventional decentralized systems. For instance, a district cooling network is
installed in Paris which includes three chiller plants with a total of 25,500 RT to supply to a
museum, shopping complex, exhibition centre and offices having a total equivalent area
exceeding one million m2. Decentralized plants would have required a total capacity of
approximately 34,100 RT to be installed. The district-cooling network has thus helped to
achieve an investment saving of over US$ 8 million for the reduced installed cooling capacity.
2
2.8 Evolution of Package Cogeneration
Cogeneration systems traditionally constituted various components which were ordered and
assembled at the site according to the client’s requirements, mostly matching the thermal
energy needs. The minimum power generation capacity was of the order of a few MW due to
the limited products available in the market, some of the reasons being:
1) Investment cost per kW e is considerably higher for smaller units;
2) Limited financing capabilities of small and medium scale enterprises;
3) Additional investment needed by smaller units to cope with environmental regulations;
4) Unavailability of guarantee for the overall system.
2
R. Caillaud, “District cooling with thermal storage for shifting power loads in south-east Asia”, APEC
Demand-side Management Inter-Utility Liaison Group Meeting, Chiang Mai, 26-29 March 1996.
However, trends have changed considerably with the introduction of modular concept which
consists of cogeneration units packaged as “of-the-shelf" products and whose
performances, both electrical and thermal, are guaranteed by suppliers who act as the sole
responsible for the design of the overall system and all its interfaces. This has led to
widespread propagation of cogeneration plants with power generating capacities less than a
MW. Many of these adopted by enterprises that are located at the end of electric networks
and are faced with the problem of getting reliable and uninterrupted power. Moreover, the
expansion of the natural gas network has made it possible to employ gas engines of smaller
capacities in urban areas without violating the environmental regulations. For example, over
2,500 units have been installed in the Netherlands alone in the range between 100 and 300
kW, the main clients being hospitals, community buildings, sports centres, teaching
establishments, commercial buildings, small and medium enterprises, etc.
A typical module of less than one MWe capacity presents itself as a mono-bloc, compact and
soundproofed packaged unit, consisting of the following:
− engine for mechanical energy generation;
− alternator for electrical output;
− heat recovery unit for thermal energy generation;
− component for evacuation of combustion products;
− control system, electrical protection and low voltage connection box;
− soundproofing insulation.
These modules are designed for being installed within a few days with very little structural or
engineering work at the site. Moreover, as the components are well matched, high efficiency
is guaranteed for the overall system. Some of these cogeneration facilities are designed for
“trigeneration” at sites with process or space cooling needs.
The strength of the package units lies with their high overall efficiency and system availability.
Manufacturers propose cogeneration systems whose overall efficiency can be between 84
and 92 per cent (with a mechanical efficiency between 30 and 35 per cent) and 95 per cent
availability. Variations in their performances are a function of the type of prime mover, the
level at which heat is required, and the quality of heat recovery devices.
The package cogeneration plants are well suited for intermittent operations and variable
loads. The nominal power can be delivered within a few seconds after starting (typically 90
seconds) and the loading can be modulated between 50 and 100 per cent without much
reduction in the efficiency. When supplied in soundproof casing, the unit may limit the noise
level to only 65 dB at a metre.
The supplier defines a well-defined maintenance schedule to guarantee long-term operation

without unscheduled breakdowns. Use of the same core prime mover for numerous
applications allows to have improved availability of the spare parts at a lower cost. A well
maintained package cogeneration unit can have a life span of over 60,000 hours. The
maintenance cost on small size engine-based units still remains relatively high compared
with units with capacities exceeding 600 kW.
2.9 Innovation in Exhaust Gas Heat Recovery
Sites requiring more thermal energy than that is available at the exhaust of reciprocating
engine or gas turbine have the option of adopting post-combustion of oxygen-rich exhaust
gases. For this, either the fuel required by the prime mover or an alternate cheaper fuel may
be employed. New types of burners have been designed in the recent years that can be
operated efficiently to provide the varying thermal energy demand of the site.
The “GRC Induct” type of burners has been specially designed by EGCI Pillard for
combustion of either liquid or gaseous fuels, by making use of the gas turbine exhaust gas
(leaving at around 500°C and 13 per cent of O2 content) as the oxidizing air. Located at the
inlet of the heat recovery boiler, it helps to increase the temperature of the gas turbine
exhaust gas, and thus the overall efficiency of the cogeneration installation. In case the gas
turbine is out of operation, these burners can assure steam generation by making use of cold
inlet air from the surrounding. The heat output per burner can range from 4 to 50 MW.
These burners function equally well on natural gas as well as liquid fuels (light or heavy fuel
oil, residual fuel) or in simultaneous mixed mode. Steam or compressed air assures
pulverization of the liquid fuel. The design based on the GRC LONOxFLAM technology,
assures perfect flame stability, a low-pressure drop and an excellent combustion with low
emissions of unburnts and NO x, thus well within the environmental pollution thresholds set by
the regulation. When there is a combustion zone in the boiler, it is possible to reduce the
oxygen level in the exhaust gas to around three to four per cent for further increasing the
efficiency, while still maintaining the emission of pollutants lower than the norms.3
For its operation with cold ambient air, the control flaps close a part of the recovery section.
While using heavy fuel oil, a suitable adaptation is necessary for limiting emissions. One of
the main features of the system is the mechanism for quick dismantling which allows to
change the burners during operation by opening the whole frame laterally within 15 minutes.
2.10 Research and Development on Cogeneration Technologies
There has been a steady rise in the efficiency of gas turbines and diesel engines. The inlet
temperature of a large size gas turbine has risen to 1,350ºC and can be expected to reach
1,500ºC in the near future. The thermal efficiency of gas engines has been increasing thanks
to an increase in compression ratio, and the application of pre-chamber lean burn
technologies. These improvements have been made possible mainly due to the progresses
made in cooling, heat-resist materials, turbo machinery and combustion technologies.
Various projects are ongoing to achieve rapid efficiency improvements by the year 2000.4
These include development of ceramic gas engine and gas turbine that require advanced
technology related to ceramic science. To prove the concept, the Miller cycle gas engine
system is being developed which has a unique intake and exhaust timing mechanism that
allows to power generation efficiency exceeding 35 per cent.
In a ceramic gas engine, ceramic is used as the materials of the combustion chamber to
allow an advanced combustion. Similar to a thermos structure, air gap is provided and
gaskets with low thermal conductivity are placed between the ceramic and metallic parts to
3
Energie Plus, “Lumières et ombres sur la cogénération, No.197, pp. 6, 15 December 1997.
4
M. Motokawa, “R&D efforts for cogeneration technologies with high efficiency”, Proceedings of the
Conference on Natural Gas Technologies: A Driving Force for Market Development, International Energy
Agency, pp. 627-636, Berlin, 1-4 September 1996.
enhance the effect of insulation. The wall temperature of the combustion chamber is
maintained above 1,000ºC, which helps to reduce the heat transfer from the combustion gas
to the wall. Such a structure eliminates the need for a cooling system and renders the engine
very compact. High efficiency is achieved by both diesel cycle combustion and the energy
recovery unit where exhaust energy from the heat insulation is recovered and converted into
electricity by a turbo compound system, an ultra high speed generator, and a highly efficient
converter. As for the ceramic gas turbine, the target is to develop units having efficiencies of
42 per cent or more.
The thermal efficiency of an Otto cycle engine is a function of the difference between the
maximum combustion temperature and the exhaust gas temperature. The maximum
combustion temperature in an engine increases with a higher compression ratio while the
exhaust gas temperature decreases with a lower expansion ratio. But the compression and
expansion ratios of an Otto cycle engine are the same and the engine is adjusted for a lower
compression ratio to avoid knocking. In a Miller cycle, the expansion ratio can be set larger
than the compression ratio by adjusting the intake timing, and this results in an improved
efficiency as well as improved durability due to the lower exhaust temperature.
The gas injection diesel engine can now attain an electrical efficiency of 45 per cent, which is
the highest among commercialized gas engines. The engine no longer requires pilot oil and
glow plugs be used to ignite natural gas ignited into the cylinder at 25 MPa.
R&D efforts are also on going to develop solid oxide fuel cells to exploit the excellent
properties of ceramic materials and achieve efficiencies in the range of 50 per cent. Once
these technologies are commercialized, cogeneration promotion can get a further boost as
an energy saving and environmentally sound technology.
2.11 Cogeneration and the Environment
The high efficiency of cogeneration and efficient use of fuel guarantee a significant reduction
of CO2 emission. However, cogeneration can have environmental implications in the form of
CO, SO2 and NO x emissions to the atmosphere. The quantity of each of the pollutant
generated depends largely on the type of fuel used and the characteristics of the
cogeneration technology adopted.
CO is a poisonous gas produced due to incomplete combustion and can be reduced to

negligible levels by assuring satisfactory air-fuel ratio control. SO2 is an acidic gas produced
when sulphur-containing fuels such as oil or coal are burned. Its emissions cause acid rain.
Sulphur-containing exhaust gases are the main cause of corrosion of heat recovery devices
when the SO2 in the gas is cooled below its condensation temperature. NO x is a mixture of
nitrogen oxides produced due to the combustion of a fuel with air, and its formation is a
function of the combustion condition, characterized by the air-fuel ratio, combustion
temperature, and residence time. It also causes acid rain and can result in ozone and smog
after undergoing several chemical reactions in the atmosphere.
Technologies which have undergone rapid development are those based on spark and
compression ignition engines and gas turbines, primarily using natural gas as the fuel.
Natural gas is considered the cleanest among the fossil fuels as it does not practically
contain any sulphur, nitrogen and is free of dust particles. However, the emission of NO x is
greater, particularly for the prime movers operating at high temperatures.
Appropriate designing of the combustion chambers and control of the flame characteristic
help to reduce NO x formation in engines and turbines. Engine design alone cannot eliminate
NOx formation. Moreover, efforts to reduce NO x emission can lead to increase in CO
emissions while adversely affecting the power output and efficiency. Therefore, end-pipe NO x
abatement technologies such as those based on catalytic reduction systems must be
applied to assure very low emission.
2.11.1 Gas engine

Technical options adopted to minimize emissions from gas engines are optimal combustion
process and flue gas cleaning. Lean-burn techniques are used for self-igniting engines using
natural gas as fuel. With high load pressure and excess air (typically, 35 to 60 per cent), NO x
emission can be reduced to 200 mg/m 3, below the standards set by many industrialized
countries.
Flue gas can be cleaned with a 3-way catalyst; as its name implies, NO x, CO and
hydrocarbon emissions are reduced. In order for it to function efficiently, a constant NO x-CO
ratio needs to be maintained by proper control of air-fuel ratio and ignition.
2.11.2 Gas turbine

Three commonly employed methods for eliminating NO x emissions from gas turbines are
water or steam injection, use of dry low NO x burners, and selective catalytic reduction.
Water or steam injection are well established techniques which boost the power output due
to increased mass flow rate in the turbine. These also help to lower the flame temperature
and the partial pressure of oxygen, thus inhibiting NO x formation. There is an upper limit to
NOx reduction by this method without affecting gas turbine performance. Beyond a certain
injection rate of water or steam, there is greater flame instability that leads to formation of CO
and emission of unburned hydrocarbons.
More modern gas turbines make use of dry low-NO x systems instead of water or steam
injection in order to avoid the costs of treating and pressurizing water or producing high
quality steam. The fuel is mixed with combustion air to a homogeneous mixture in a mixing
chamber before being sprayed into the flame; this reduces the peak flame temperature and
assures less NO x generation. Such systems are effective at high loads but perform poorly at
partial loads. Where the cogeneration system is required to have a wide range of operating
conditions, a hybrid design of low NO x burners is employed which incorporates a small
diffusion pilot flame for stabilizing flame at low loads.
At sites where stringent environmental standards are applied, selective catalytic converters
can be adopted as an end-of-pipe technique. A reducing agent, normally ammonia, is used to
convert NO x to nitrogen and water in the presence of a catalyst, the most common being
vanadium oxide.
2.11.3 Steam turbine

In steam turbine cogeneration systems, sulphur and nitrogen oxide emissions are important
in oil-fired boilers whereas particulate and nitrogen oxides have to be considered in wood-
fired boilers.
As far as the boilers are concerned, technologically advanced equipment has been
developed to meet increasingly stringent environmental requirements. A significant
development is the use of a secondary combustion chamber where complete combustion of
the unburned gases occurs. Better monitoring of combustion parameters through adequate
instrumentation has allowed the operator to better regulate the combustion.
Four types of emission control devices widely used in boiler systems are electrostatic
precipitation, fabric filters, multi-tube cyclones and wet scrubbers. Chemical agents such as
lime, magnesium oxide, etc., are used for flue gas desulphurization. Commonly used
techniques employed for NO x emission abatement in steam turbine cycles include low NO x
burners, selective catalytic reduction, flue gas recirculation, ammonia injection, etc.
Economic and financial aspects of cogeneration 27
CHAPTER 3: E CONOMIC AND FINANCIAL ASPECTS OF COGENERATION
3.1 Introduction
Cogeneration is a proven technology that saves fuel resources, but it does not necessarily
imply any assurance of economic benefits. Irrespective of all its technical merits, the
adoption of cogeneration would principally depend on its economic viability, which is very
much site-specific. The equipment used in cogeneration projects and their costs are fairly
standard, but the same cannot be said about the financial environment that varies
considerably from one site and/or country to another. The best way to assess the
attractiveness of a cogeneration project is to conduct a detailed financial analysis and
compare the returns with the market rates for investments in projects presenting similar
risks.
Well-conceived cogeneration facilities should incorporate technical and economic features

that can be optimized to meet both heat and power demands of a specific site. A
comprehensive knowledge of the various energy requirements as well as characteristics of
the cogeneration plant is essential to derive an optimal solution. As a first step, the
compatibility of the existing thermal system with the proposed cogeneration facility should be
determined. Important user characteristics which need to be considered include electrical
and thermal energy demand profiles, prevalent costs of conventional utilities (fossil fuels,
electricity) and physical constraints of the site. A factor that should not be overlooked at this
stage is the need for reliable energy supply as some industrial processes and commercial
sites are extremely sensitive to any disruption of energy supply that may lead to production
losses.
To fully exploit the cogeneration installation throughout the year, potential candidates for
cogeneration should have the following characteristics:
a. adequate thermal energy needs, matching with the electrical demand;

b. reasonably high electrical load factor and/or annual operating hours;
c. fairly constant and matching electrical and thermal energy demand profiles.
These are essential for full exploitation of the cogeneration installation; moreover, part-load
operation of the plant can be avoided, which would otherwise have affected the economic
viability of the project.
3.2 Some Points to Consider for Cogeneration Project Development
Cogeneration project is the same as any other commercial project requiring high investment,
relatively longer period, and presenting certain financial risks. Therefore the steps which
should be followed in developing a cogeneration facility would be quite the same as those
employed for any investment project (see Figure 3.1). Projects will obviously vary from one to
another on the basis of factors such as who is the project developer, what is the size of the
project, who is financing the project, etc.
Prior to undertaking any economic analysis to assist the commercial benefit of a

cogeneration project, technical parameters which need to be considered first have been
discussed in Chapter 1 and are summarized below:
- heat-to-power ratio;
- quality of thermal energy needed;
- electrical and thermal energy demand patterns;
- fuel availability;
- Required system reliability;
- Local environmental regulations;
- dependency on the local power grid;
- option for exporting excess electricity to the grid or a third party, etc.
Some of these concerns are further elaborated below.
1-Technical Analysis 2-Economic Study
3-Selection of Best Solution
4-Financial Arrangement
5-DECISION
7-Starting off
8-Technical &Financial
6-Execution Result
Figure 3.1 Typical steps for cogeneration project development
A cogeneration system may be sized to meet either the electricity or the heat demand of the
site. When the local power utility allows selling excess electricity generated at the site, one
should make sure that the buy-back rate is attractive enough before over-sizing the
cogeneration plant.
As the electrical and thermal loads of the site tend to vary with time, the cogeneration system
may require that any shortfall in the electricity supply be met by the purchase of electricity
from the grid. Likewise, any shortfall of thermal energy should be met by either post-
combustion of exhaust gases in the case of gas turbines or reciprocating engines, or from an
auxiliary source such as a stand-by boiler. These solutions will certainly have consequences
on the annual average efficiency and the economics of the project. The ideal operation would
thus consist of the use of the maximum electricity on site, while assuring continuous
operation of the processes at nominal conditions and avoiding the generation of excess
thermal energy.
If the thermal load is negligible or if it is required to produce only low-pressure steam or to

heat a fluid at low temperature, gas engine may be preferred because of its higher efficiency.
When opting for gas turbine, it is advisable to first verify gas supply pressure. If the pressure
of gas in the pipeline is low, it will necessitate additional investment on the gas compression
station. Moreover, some amount of electricity generated would be diverted for running the
compressor, and the operation and maintenance costs will be higher.
The availability of fuel, its price and guarantee of its long-term supply are the major factors
determining the choice of the prime movers. As prime movers can operate with different
types of fuels, the option for fuel switching should be taken into consideration.
Designing of the cogeneration facility at the initial stage should incorporate the possible
evolution of future energy demand. This would help in the appropriate choice of equipment
and in planning the schedule for expanding capacity according to the changes in need.
Modern cogeneration plants are highly reliable and have a high load factor; one cannot
however ignore the occurrence of stoppages for scheduled maintenance or unscheduled
breakdown. There may be a need for back-up power to assure continuous operation of
activities at the site. One solution would be to provide stand-by generation capacity at the
site, which will increase the investment further. Alternatively, a stand-by contract may be
signed with the power utility so that electricity can be tapped from the grid up to the maximum
contracted demand whenever the cogeneration plant stops operating.
3.3 Key Parameters for Cogeneration Economic Analysis
Cogeneration may be considered economical only if the different forms of energy produced
have a higher value than the investment and operating costs incurred on the cogeneration
facility. In some cases, the revenue generated from the sale of excess electricity and heat or
the cost of availing stand-by connection must be included. More difficult to quantify are the
indirect benefits that may accrue from the project, such as avoidance of economic losses
associated with the disruption in grid power, and improvement in productivity and product
quality.
Following are the major factors that need to be taken into consideration for economic
evaluation of a cogeneration project:
1. initial investment;
2. operating and maintenance costs;
3. fuel price;
4. price of energy purchased and sold.
Initial investment is the key variable that includes many items in addition to the cost of the
cogeneration equipment. To start with, one should consider the cost of pre-engineering and
planning. Barring a few exceptional cases, the cogenerator would normally hire a consulting
firm to carry out the technical feasibility of the project before identifying suitable alternatives
that may be retained for economic analysis. If the cogeneration equipment needs to be
imported, one should add the prevailing taxes and duties to the equipment cost. If one plans
to purchase cogeneration components from different suppliers and assemble them on site,
one should take into account the cost of preparing the site, civil, mechanical and electrical
works, acquiring of all auxiliary items such as electrical connections, piping of hot and cold
utilities, condensers, cooling towers, instrumentation and control, etc. Table 3.1 provides an
example of the breakdown of typical costs for a 20 MWe gas turbine cogeneration plant.
Table 3.1 Cost breakdown (US$) of a 20 MWe gas turbine cogeneration plant1
Gas turbine plant equipment 9,000,000

- Gas turbine gen-set package (FOB) 8,100,000
- Auxiliary systems 370,000
- Fuel gas compressor/ skid 420,000
- Back-up distillate storage 110,000
Steam equipment 2,580,000

- Heat recovery boiler with auxiliary firing 1,840,000
- W ater treatment system 320,000
- Condenser, feedwater pumps 420,000
Electrical equipment 8 5 0 , 0 0 0
- Substation transformers 320,000
- Switch gear and controls 110,000
- Utility interconnections 420,000
Services and Installation 4,680,000

- Engineering design 1,100,000
- Civil works 630,000
- Control and maintenance building 320,000
- Electrical field work 840,000
- Mechanical field work 1,470,000
- Freight and handling 320,000
Total plant cost 18,810,000

- Equipment, design and installation 17,110,000
- Contingency (approximately 10% ) 1,700,000
If cogeneration is being adopted as a retrofit at an existing site, the cost items will depend
greatly on the existing facilities, some of which may be retained while others are discarded,
replaced or upgraded.
The cost of land may be a crucial factor at some sites where cogeneration facility is
commissioned, particularly in the case of urban buildings or when additional space is
required for storage and handling of fuel.
Integration of the cogeneration plant into the existing set-up may lead to some economic
losses to the cogenerator (e.g. production downtime). Costs associated with such losses
should be included in the total project cost.
The operating and maintenance (O&M) cost should include all direct and indirect costs of
operating the new cogeneration facility, such as servicing, equipment overhauls, replacement
of parts, etc. The cost of employing additional personnel as well as their training needed for
operating the new facility must also be taken into account. Present technology allows
complete automation of small pre-packaged and pre-engineered units, helping to reduce the
O&M costs considerably.
1
Gas Turbine World, The 1990 Handbook, Pequot Publishing.
Annual costs incurred due to the cogeneration plant, such as the insurance fees and property
taxes should be included in the analysis. These are often calculated as a fixed percentage of
the initial investment.
Fuel costs may form the largest component of the operating expenditures. If cogeneration is
added to an existing plant, only the fuel cost in excess of that used earlier for heat and power
generation may be considered. Since the cogeneration plant is expected to operate for a long
time period, escalation of the fuel price over time should be included in a realistic manner.
The price of energy purchased and sold is a decisive parameter. This includes the net value
of electricity or thermal energy that is displaced as well as any excess electricity or thermal
energy sold to the grid or a third party. A good understanding of the electric utility’s tariff
structure is important, which may include energy charge and capacity charge, time-of-use
tariff, stand-by charges, electricity buy-back rates, etc. As for the fuel, there should be
provision to account for electricity price escalation with time. This is particularly true where
power utilities depend heavily on fuel in their power generation-mix.
3.4 Source of Financing of Cogeneration Projects
Cogeneration systems are capital intensive projects and the sources of capital financing can
be an important consideration in the investment analysis in which different sources may be
used. It is important, therefore, to know the rate of return for each alternative. The sources of
capital financing could be one of the following:
1. self financing: capital generated from cogenerator’s own activities;

2. borrowing: requiring certain equity and guarantee;
3. leasing: ownership maintained by the leasing company;
4. third-party financing: undertaken by an energy service company; and
5. facility management: reduction of energy bill for user with zero capital risk.
Self-financing can be in various forms, such as equity capital, depreciation fund and retained
profit. Equity capital is supplied and used by its owner in the expectation that a profit, of a
minimum acceptable level, will be earned. In equity financing, however, the owner has no
assurance that a profit will actually be made or that even the equity capital invested will be
recovered.
When the funds that are set aside out of the revenue as the cost of depreciation are a part of
the net cash flow, these can be retained and used for capital financing of expansion projects
like cogeneration. The equipment may continue to be used after its original value has been
recovered through normal depreciation procedures. Hence the accumulated funds may be
available for use until the original equipment is actually replaced. Also, if the depreciation
procedures used in accounting are such that they provide large recoveries of the first costs
during the first few years of equipment life, there will usually be funds available before the
equipment must be replaced. Thus, the depreciation funds may provide a revolving
investment fund that will become a source of capital for new ventures like cogeneration.
Obviously, the management of these funds must ensure the availability of required capital
when the time does come for replacement of essential equipment.
Existing enterprises have an important source of capital financing for expansion of activities,
like setting up cogeneration power plants, through retained profits. Normally a part of the profit
earned by an enterprise is retained after payment of adequate dividend to the shareholders,
and this capital is then re-invested for a further increase in profits.
In reality, the enterprise concerned may prefer to save the capital for financing its main
activity that may present a smaller risk and can be a source of greater financial profitability.
As an alternative, borrowed financing may seem more attractive because the suppliers of
debt capital do not get a share of the profits accrued from the use of their capital. Here, a
fixed rate of profit, or value of money, must be paid to the supplier of the capital and the
repayment of the borrowed funds is negotiated on the basis of the amount borrowed,
duration, and the interest rates. Normally, the terms of the borrowed financing (loan) may
place some restrictions on the uses to which the funds may be put. Moreover, any amount
borrowed will require a certain percentage of equity investment and guarantees may be
required in the forms of mortgages or securities.
Leasing is only one of the several ways of obtaining working capital and a decision to lease,
rather than purchase, should be based upon the cost of capital financing by other possible
methods, some of which have been described above. The leasing company guarantees full
financing of the cogeneration plant, which remains its owner till the user buys it back
according to the conditions of the contract. Most leases cannot be cancelled, or cancelled by
incurring costly penalties, whereas borrowed financing works on some fixed obligations and
may provide better terms.
Some indirect costs, which are difficult to determine in most cases, are associated with the
ownership that may not apply to the equipment under lease. In many cases, leasing turns out
to be cheaper than owning, but the actual comparative costs and all other factors must be
considered before a decision is taken.
An Energy Service Company (ESCO) often does third party financing which, after preliminary
analysis of the requirement of the client and feasibility study of the cogeneration project,
implements the project in agreement with the client. When the ESCO covers the whole cost
of financing the project, it is repaid by sharing the actual savings realized according to a
predetermined contract. Accurate measurement of the actual monetary saving is essential to
assure fairness to the ESCO as well as the client. Here, the client does not have to
investment in the cogeneration project and starts getting benefits from the day the
cogeneration plant is in operation.
The concept of facility management is not very different from third party financing, except that
the facility manager does more than an ESCO in meeting practically all the requirements of
the site which are not directly involved with the main line of activity of the client. For example,
a facility management firm can assure the supply of all utilities including electricity, steam,
compressed air, water, etc., to the client, while also handling the wastes or effluents
generated from the production process. This firm signs a contract with the client to meet the
present and future requirements of the site and invests in the development of infrastructure
and undertakes to operate and maintain it. By adopting innovative schemes such as
cogeneration, sizing the components appropriately, operating the facility reliably and
maintaining it efficiently, the facility management firm manages to reduce the overall cost
considerably. Moreover, a part of the benefits accrued is shared with the client in the form of
reduced bill.
Facility management is normally feasible for bigger clients or where one firm can cater to the
needs of several clients in the same locality. Then it becomes economical to make
investment on a bigger facility and employing a limited number of personnel who can deal
with several clients at the same time.
3.5 Tools for Financial Analysis of Cogeneration Projects
Regardless of whether the cogeneration project is a totally new facility or a retrofit of an

existing operation, the project will materialize only if it is financially attractive. There are a
number of financial indicators to measure the attractiveness of a project. Some indicators are
used to compare several projects to decide which one is the best alternative.
The sizing of the cogeneration system is sometimes carried out by financial analysis in grid
dependent cases where there is an option for importing electricity instead of self-generation
of all the electricity. In such circumstances, the optimum size of cogeneration would
correspond to a system that has the minimum annual total cost (or maximum annual net
profit).
Commonly employed financial indicators for cogeneration feasibility study are the payback
period (PBP), net present value (NPV), and internal rate of return (IRR).
The easiest and basic measure of the financial attractiveness of a project is the payback
period (PBP). It reflects the length of time required for a project to return its investment
through the net income derived or net savings realized. It is the most widely employed
quantitative method for evaluating the attractiveness of a cogeneration system. Assuming
uniform energy cost saving every year, PBP is expressed as:
Total installation cost

Payback Period =
Annual energy cost saving (or annual net benefit)
The simple payback period gives an idea of the time frame necessary for the net energy cost
saving (or cash benefits) to pay the total installation cost of a cogeneration system. It
disregards the salvage value, and the time value of money.
The net present value (NPV) of a stream of annual cash flows is the sum of discounted
values of all cash inflows and outflows over a certain time period. For a cogeneration project,
initial investment costs are assumed as cash outflows and net annual energy cost savings
(or net annual benefits) are cash inflows. Thus, NPV is expressed as
A1 A2 An S
NPV = - Io + + + .................... + +
(1+i) (1+i)2 (1+i)n (1+i)n
n Aj S
= - Io + +
j=1 (1+i)j (1+i)n
Where, Aj = Net saving (or profit) in time period j (j=1,2,.....,n)

Io = Initial investment cost
i = Discount rate
NPV = Net present value
S = Salvage value
When cogeneration system alternatives of different capacities are being compared, the net
present value is an important financial parameter. The project that has the highest net
present value would be chosen as the best alternative system.
The internal rate of return (IRR) is defined as the discount rate that equates the present value
of the future cash inflows of an investment to the cost of the investment itself. Actually, the
IRR is the rate of return that the project earns. The equation for calculating the internal rate of
return is given as:
A1 A2 An S
0 = - Io+ + +.....+ +
(1+IRR) (1+IRR)2 (1+IRR)n (1+IRR)n
Manual computation of IRR is generally an iterative process. One starts with an assumption
of the rate first and calculates the net present value of the cash flow stream. If the net present
value is negative, the process is repeated with a lower assumed IRR. The iterative process
would be repeated until the net present value becomes zero (or nearly zero). However, many
personal computer spreadsheet programs and some hand-held financial calculators have the
ability to compute IRR from a stream of cash flows.
To judge the suitability of a cogeneration project, comparison is made between IRR and
discount rate (or required minimum rate). If IRR happens to be less than the discount rate,
the project would be rejected.
3.6 Assessment of Financial Feasibility of Cogeneration Projects
Once a client is satisfied with the rough payback period of a specific cogeneration project, a
common and simple procedure of financial feasibility of that particular alternative may be
pursued, as shown in Figure 3.2.
Cost Data of Financial

the System Parameters
Estimate
NPV
Is No
NPV > 0
Yes
Estimate
IRR
Is
No
IRR>Expected
Rate
Yes
Accept the Reject the

System System
Figure 3.2 Flowchart of cogeneration feasibility analysis
In the estimation of NPV for a cogeneration project, the total investment costs are taken as
cash outflows, and cash inflows are the difference between the annual total cost of
cogeneration system and that of the conventional energy supplies.
Sometimes, the total discounted costs of different cogeneration alternatives are estimated
instead of the NPV of a single alternative, e.g., the case of a grid independent project. All the
cash outflows are considered and discounted to the present value. The option that has the
least discounted costs would be selected as the best system.
Investment decisions are based on the above mentioned financial indicators which are
calculated from cash flow streams. The cash flows are estimated based on a number of
factors such as future costs, interest rates, fuel costs, expected investment levels, tax rates
and so on. Therefore changes in these parameters affect drastically the financial indicators
and investment decisions. It is necessary to analyze how the value of a financial indicator
(e.g. internal rate of return) changes when one or more of the input parameters (e.g. discount
rates, fuel prices, investment costs) deviate by a certain amount (or percentage) from the
expected value. This is known as the sensitivity analysis.
If the system to be installed has no access to the utility grid, the financial feasibility study will
lead to the best cogeneration alternative since the sizing of different alternatives would have
been carried out in the technical feasibility study. Financial indicators are estimated for each
cogeneration system retained after the technical feasibility study. The best cogeneration
alternative that has the highest NPV (or the least total discounted cost) would be selected.
For systems having access to the utility grid, the optimum size of alternative cogeneration
systems is determined by the financial feasibility study. The optimum size of each alternative
would be that which has the highest net present value (or least discounted cost). After sizing
each alternative system, the best alternative that has highest net present value (or least
discounted cost) would be selected. Normally determination of the optimum size of a
particular cogeneration system is done by computer software because it is a repetitive and
time-consuming process, dealing with a large number of variables and parameters. The
objective function of the optimization process may be the maximization of the net present
value or the minimization of the total discounted costs.
Finally, the best cogeneration system would be identified after the sensitivity analysis is
carried out to make sure whether the selected cogeneration system is still financially
attractive with possible variations in the values of some critical parameters.
To summarize, assessment of the feasibility of a cogeneration project involves four distinct

steps, as follows:
1. Analysis of the energy demand pattern (electricity, thermal energy);

2. Identification of the different technical options (considering technical constraints,
equipment availability, space constraints, etc.);
3. Optimization of each technical option (overall efficiency, part load performance);
4. Financial analysis for selecting the best option (payback period, internal rate of return).
Policy framework for promoting cogeneration 37
CHAPTER 4: P OLICY FRAMEWORK FOR PROMOTING COGENERATION
4.1 Introduction
Small and medium size cogeneration projects extend indisputable benefits to both the
cogenerator as well as the utilities/governments. Cogeneration projects are environmentally
benign or have greater scope to limit the environmental impact as compared to large-scale
fossil-fired or hydropower plants. Moreover, small to medium-scale projects are less risky to
implement as they may have a lower life cycle cost as a result of three factors:
shorter construction time in comparison with large scale power plants;
lower project development expenses due to less complex negotiation process; and
perception of lower financial risk by the potential lender.
In addition, site selection for setting power generating facility by the utilities is a rather
complicated procedure. In comparison, cogeneration is suitable for any site closer to end-
users and can lead to savings on costs associated with transmission of electricity. There is
thus a great scope for providing electricity in remote areas at a lower cost than from the
centralized utility grid.
In spite of the above facts, cogeneration development so far has been rather slow because
there is a general feeling among the Asian energy policy makers that only large scale thermal
power generation projects can be economically and financially viable to tide over the
impending electricity capacity shortage. In the process, they have underestimated the risks
involved in the implementation of large-scale power generation projects with private sector
participation and overlooked the potential contributions from a great number of small-scale
cogeneration and renewable energy projects.
Secondly, most electric utilities look down upon cogeneration projects as unreliable. It is true
that many industries, such as steel, cement, petrochemical and agro-processing, having
cogeneration potential consider the output power as a by-product, thermal energy being their
main energy source for matching the process energy demand. As the demand for thermal
energy may fluctuate with time and production, these industries will find it difficult to optimize
firm power purchase agreements with the utility. Instead of looking for innovative risk
allocation and pricing schemes, utilities often limit the amount of power that can be sold to
them in the power purchase agreement to minimize the risk of depending on the
cogenerators. Any additional electricity supplied by the cogenerator is purchased using non-
firm pricing which discourages the cogenerators in investing on such projects.
In countries where energy prices have not been rationalized, there is a tendency for the state-
owned utilities to charge the industrial and commercial sectors more for the electricity they
consume in order to cross-subsidize other sectors. A number of industrial and commercial
sector clients have economically viable cogeneration potential. But as they pay a high
electricity price to the utilities, any attempt by them to generate their own power is perceived
as a loss of revenue and a threat by the utilities.
The following section will cover some of the barriers to cogeneration development in general.
This will be followed by discussion on the policy, institutional and regulatory measures
necessary for overcoming the obstacles and promoting cogeneration.
4.2 Barriers to Cogeneration Development
Obstacles to cogeneration development can be classified into the following: technical

barriers, financial drawbacks, poor institutional framework, short-sighted electric utility
policies, and low environmental concern.
In most instances, these barriers are country specific because there are a lot of differences
in the energy demand patterns, electricity supply structures, fuel pricing, fuel availability,
climatic conditions, environmental considerations among the countries in the different
continents. For instance in Europe, the share of cogeneration in the overall power generation
in a country like France is low because the national policy in the past had been to depend
mainly on power generation based on nuclear energy. In Netherlands and Germany where
more natural gas and coal are available, the government policy has favoured cogeneration
development. In a country like Spain having no need for heating of buildings throughout the
year, there is a trend to recover the waste heat for comfort or process cooling applications
using vapour absorption chillers in the hotter months. In colder climates, urban cogeneration
schemes have been closely associated with district heating schemes to meet the space
heating and hot water requirements. The problems associated with industrial or commercial
cogeneration are quite different from those encountered in district heating applications which
contribute to about 40 per cent of the European Union’s electricity generation through
cogeneration.
4.2.1 Technical hurdles

First technical barrier is the lower level of awareness about the soundness of cogeneration
technologies due to the lack of technical information at the level of local utilities, industries,
potential cogenerators and governments. In fact, awareness building about cogeneration is
the very first step to promote cogeneration systems.
Lack of capability to locally manufacture some energy supply equipment can lead to higher
investments linked with higher cost of imported equipment. Inferior quality of equipment
produced by local manufacturers with poor technologies also hampers the propagation of
cogeneration systems.
In many developing countries, the technical expertise to design, construct and operate energy
efficient cogeneration systems is quite limited. For grid-dependent systems with the option of
electricity export to the grid, advanced electrical control systems are necessary for both
cogeneration plants and local electric utilities. The local electric utilities must have competent
personnel who are capable of operating a more complicated system consisting of utility-
owned power plants and cogenerators. The cogeneration systems need skilled technicians
for regular maintenance and trouble-free operation.
Lack of infrastructure is also one of the obstacles in promoting cogeneration systems. For
instance, there are natural gas networks in many developed countries. The lack of
infrastructure such as gas handling, storage and distribution auxiliaries in some developing
countries leads to technically more complicated systems for gas powered cogeneration.
4.2.2 Economic and financial constraints

Cogeneration systems are somewhat capital intensive. Investments required are sometimes
out of reach of energy consuming facilities such as industries, commercial buildings,
hospitals, etc., in many developing countries.
Any lack of guarantee for long term availability of fuels can lead to higher risks in investing in
cogeneration systems. For example, unlike the developed economies, the availability of fuels
in most developing countries depends on the government’s policy changes due to the
monopoly of the energy sector. There will be uncertainties about the actual energy cost
savings unless long-term fuel supply is ensured.
A cogeneration scheme may be found to be a good financial investment and provide

reasonable payback period. The hindering factors however are those which limit the income
derived from the products (heat and electricity) or increase the cost of inputs (equipment and
fuel). Among these, electricity pricing appears to be the deciding factor that is beyond the
control of the cogenerator. Some sort of involvement of energy companies and development
of third-party financing schemes can help to reduce the financial uncertainties.
In countries where prices of other fuels and electricity are subsidized, cogeneration systems
cannot be financially attractive for private or public enterprises if the energy consuming facility
has easy access to the grid or can buy other subsidized fuels. The low rate of return on
investment would not justify the high capital requirement of a cogeneration system.
Investors may often look for some form of incentives such as reduced fuel prices, investment
subsidy, tax benefits and attractive tariffs. In countries having no or inadequate incentives,
cogeneration development has been found to be low or marginal. In industrialized countries,
cogeneration has been promoted through financial incentives such as soft loans, subsidies,
tax credit, etc. Experiences show that these financial incentives are effective tools to
enhance the development of cogeneration in industries and utilities.
4.2.3 Poor institutional structure and inadequate regulatory framework

Like other energy efficient technologies, cogeneration can be effectively and rapidly promoted
by the government and appropriate institutions working together in harmony. Institutional
issues are mainly related to the seriousness of the national authorities in promoting
cogeneration in order to achieve conservation of fossil fuels and protection of the
environment.
In some instances, existence of a promotional organization for cogeneration has helped to

establish policy measures and develop cogeneration market. Some developing countries lack
institutions or have inadequate institutions to deal with energy and environment matters. In
such instances, there are no energy conservation campaigns and distribution of information
on energy efficient technology such as cogeneration.
Inadequate regulatory framework can set negative example in the form of poorly planned and
designed projects. For bigger cogeneration projects involving district heating/cooling network
in city centres or industrial estates, the need for investment may be high. When foreign
investment is involved, the question of allocating sovereign risks and guaranteeing utility
payment obligations must be resolved. Lack of experience in planning and lack of transparent
power purchase agreement can lead to prolonged process of negotiation between the project
developers and the concerned authorities, resulting in unnecessary delays in project
implementation and financial losses to the developers.
Some of the regulatory issues concern fulfilling of technical requirements, licensing

arrangements, ability to “wheel” (i.e. allowing cogenerators to sell electricity and heat directly
to energy consumers, not through utilities), etc. While the principle of authorization sounds
reasonable, procedures can be bureaucratic, complex and time consuming, thus perceived
as a disincentive for potential cogenerators with little experience in the power sector.
It is also important that the government and institutions themselves must be aware of the
benefits of cogeneration in achieving higher overall energy efficiency and lower emission of
pollutants. However, the lack of expertise in government body and relevant institutions leads
to lower level of awareness on cogeneration and weak policy on the development of
cogeneration.
Some developing countries have realized the importance of energy conservation in the
economic growth. They have formed a number of institutions to handle the energy matters
including promotion of cogeneration. However, the duty and responsibility of each institution is
not clearly defined or there is an overlapping of responsibility among the institutions. Such an
inefficient institutional structure leads to ineffective cooperation between the government and
industries or other energy intensive facilities. Contradictory policies and complicated
procedures often frustrate the potential cogenerators.
4.2.4 Role of electric utilities

Equally important is the role and attitude of electric utilities towards cogeneration. In spite of
the fact that these utilities are being restructured in many parts of the world including Asia,
many among them remain monopolistic in nature. Significant investments have been made in
the past to develop their generation capacities. As some of these investments have been
written off, relatively inexpensive electricity is produced which is not conducive to the
development of alternative options of power generation even when they are found economic.
If electricity prices are low, there is little incentive for the users to consider supplying their
own power or sell it to the grid with unattractive payback periods. Unhelpful utility attitudes
and actions are manifested in the following recurring themes:
• tariffs fixed for purchasing surplus electricity from cogenerator are too low;
• tariffs for stand-by or back-up supplies to the cogenerator are excessive;
• sale of electricity to third parties is rarely permitted or is too expensive;
• technical authorization to new schemes are not always fully transparent; procedure
followed can be time consuming and costly.
Where utilities do not consider the cost of additional power generation (system avoided
costs) while fixing the power purchase agreement with the cogenerators, they cannot raise
enough funds to expand their generating capacities, while they hinder the growth of private
investment in power generation or cogeneration. In the process, there is a shortfall between
the supply and the demand and there is a slowdown of the national economy.
Sometimes, although there are several energy and environment related institutions in some
countries, they are not capable of formulating suitable energy policies. For instance, they
cannot draft well-structured electricity tariffs. These institutions often imitate the energy
policies directly from other countries that are not always suitable for their respective
countries. Therefore, the lack of ability to formulate and implement sound energy policies
leads to improper dissemination of energy efficient and environmentally sound technologies
including cogeneration.
4.2.5 Environmental issues

Some developing countries feel that environment is a matter of concern of industrialized
countries. They are reluctant to impose environmental restrictions on industries, being afraid
that local industries would lose the competitiveness in world market. Such a situation favours
the use of cheaper and pollution intensive fuels in inefficient manner. Without energy
efficiency standards and environmental regulations, cogeneration systems would not get an
advantage over other systems. Therefore, higher environmental concern is necessary to
promote cogeneration.
Where emission regulations are used to limit air pollution related to various economic
activities, they can be discriminatory against cogeneration installations, as the emission
thresholds set do not always recognize the efficiency of energy conversion of the
cogeneration process. Though a cogeneration plant may increase the local emissions, it
normally displaces even more emissions at the fossil fuel power plant. Any relaxation in the
limit of air pollution can help to reduce the investment on cogeneration facilities.
Natural gas is widely recognized as a clean fossil fuel for cogeneration applications. Where it
is available and the gas network exists, natural gas can be a promising fuel if it is not too
expensive. The Netherlands has been most successful in gas powered cogeneration
whereas the price of gas is cited as a major obstacle for its propagation in Germany.
Other barriers include the lack of skilled manpower and management. In most cases, both
the electric utilities as well as the industrial plants lack skilled manpower and managers to
handle the specific task of heat and power production.
4.3 Policy and Regulatory Framework for Promoting Cogeneration
4.3.1 Establishing right policy framework

The development of cogeneration is basically a policy issue. The first prerequisite therefore is
an ideal policy framework, as has been demonstrated by some countries which have made
considerable progress in this domain, such as Japan, Republic of Korea and Thailand in
Asia, and the Netherlands and Denmark in western Europe. The motives for action may vary
depending on the priorities set, and the methodology pursued may also be different.
Whatever may be the rationale behind such a move and whatever the tools used, the policies
must be supported by a clear political will for achieving any tangible result.
Planning and decision making regarding capacity expansion should involve the national
authorities, electricity producers and distributors as well as potential developers of alternative
energy sources including cogeneration. Fair and transparent criteria such as cost-
effectiveness and environmental benefits will help to create a more competitive and convivial
atmosphere for greater investment.
Certain principles need to be upheld by the policy makers to assure greater private sector
participation in energy generation and cogeneration, so that the capital requirements for
power system expansion can be met. These include:
• preparation of a well structured regulatory framework, including separation of

responsibilities and authorities for efficient and timely project implementation;
• launching of balanced programme in terms of the type of project (project size,

technology, choice of fuel) and the type of market served (sale to utility, third parties);
• systematic implementation of programmes and projects following a well defined work

plan, including completion of important planning activities and establishment of bidding
and contract awarding procedures;
• setting of fair and transparent procedures for soliciting, evaluating and awarding bids,
which will help to maximize competition thanks to a greater participation of lenders and
investors;
• conducting negotiations in an open and transparent manner, without resorting to negative

tactics;
• revising regulatory frameworks, legal and institutional arrangements, bidding as well as

negotiation procedure periodically on the basis of experience gained, and in consultation
with all the other partners concerned.
4.3.2 Adequate regulatory measures

There should be certain regulations that clearly define the cogeneration system by specifying
the fuel to be used, energy efficiency, minimum or maximum ratio of heat to power, etc.
Regulations should allow the purchase and sale of power between cogenerators and electric
utilities. The obligations and rights of cogenerators and electricity utilities must be clearly
defined as well as the interaction between them. A sound investment climate should be
created in order to attract foreign investment into the field of cogeneration.
Development of a positive regulatory framework regarding the role of the electricity industry
will send the right signal to the potential cogenerator. This should include purchase and sale
of electricity, back-up facilities and wheeling of electricity to third parties. There should be
arrangement for the grid to buy back electricity from a cogenerator. The price of electricity
purchased should be based on avoided cost of electricity generation by the utility.
Experiences in many countries show that capacity allowances fixed are inadequate and the
principle of avoided costs is not fully applied while setting up the pricing structure for
purchasing cogenerated electricity.
Small cogenerators are prone to equipment failure or unscheduled breakdown. Penalties for
importing electricity during these periods can have severe impact on the economics of the
cogeneration project, as has been found in a number of countries. The utility should be
lenient in such cases and provide emergency power at a reasonable rate.
The arrangements for “wheeling” or selling electricity to third parties are not widely adopted or
accepted by energy policy makers in many countries. Wheeling should not only be allowed
but also encouraged at sites where there is a shortage of local supply of electricity or when
power is delivered at a lower level than that of the electricity network.
4.3.3 Examples of regulations in selected Asian countries

Some aspects of regulations for cogeneration facilities in Thailand are presented here. The
benefits that can be enjoyed by cogenerators in some other selected countries are also
mentioned in order to give an idea of how cogeneration can be effectively promoted by
means of good regulations.
In Thailand, regulations for the purchase of power from small power producers were
approved in 1992. The sections that are relevant to the cogeneration systems are mentioned
below.1
The operating standard of a cogeneration facility is that the process must involve continuous
use of energy by employing a topping cycle or a bottoming cycle thermal process. The
thermal energy to be used in thermal processes other than electricity generation, must be no
less than an average of 10 per cent of the total energy production during each year.
The efficiency standard of cogenerators is set such that if oil and/or natural gas is used either
as a primary or supplementary fuel, the sum of the electricity produced and one half of the
1
Electricity Generating Authority of Thailand, Regulations for the Purchase of Power from Small
Power Producers, Thailand, 1992.
thermal energy used in the thermal process on an annual average must be at least 45 per
cent of the total energy from oil and/or natural gas (based on Lower Heating Value).
In case of the electricity being exported from a cogeneration facility to the power utilities, the
cogenerator will be qualified as a small power producer if the following criteria are met:
I. Electricity export capacity to utilities should not exceed 60 MW (this can be raised to
90 MW on a case by case basis)
II. The cogenerator must generate and supply electricity to the public utility during the
utility’s system peak months of March, April, May, June, September and October, and
the total hours of electricity production supplied to the utility must be no less than
7,008 hours per year.
The cogenerator is responsible for the cost of system interconnection which includes the
costs of the transmission and distribution systems, metering, protective devices and other
expenses arising from undertaking to purchase electricity from the cogenerator.
The cogenerator is also responsible for the cost of equipment inspection which refers to the
utility system and the expenses to be incurred from corrective actions that may arise in
addition to the normal practices of the utility.
If the electric export contract period is more than 5 years, the qualifying cogenerator can
obtain the capacity payment and energy payment based on long term avoided costs of
electric utility. Otherwise, the cogenerator can obtain only energy payment calculated on the
basis of short run avoided energy cost of utility.
Cogenerators are allowed to use electricity from the public utility as back-up power. In this
case, they must pay demand and energy charges to the utilities.
Cogenerators must be billed energy charges (Baht/kWh) at the same price as other
electricity consumers pay, but they pay only half of the demand charges (Baht/kW/month)
which are applicable to other small power producers.
In Malaysia, the energy policy is geared towards cutting down on the use of oil and
promoting the use of non-oil indigenous resources such as gas, hydro and coal. Major gas
infrastructure developments are being carried out and greater use of gas for power
generation is planned.
The Electricity Supply Act (ESA) of 1990 provides a legislative framework for regulating any
activity in the electricity supply industry in Malaysia. Together with any regulations that can be
made by the Minister (of Energy, Telecommunications and Posts) under section 53 of this
Act, it forms the regulatory framework for those who opt for cogeneration.2 Benefits of
cogenerators under ESA are:
• Electric utilities must sell power to cogenerators’ facilities;
• Electric utilities must provide inter-ties with cogeneration systems, if requested by the
cogenerator;
• Electric utilities must operate in parallel with a cogenerator facility if the cogenerator
wishes to do so;
2
F. X. Jacob, “Development of cogeneration and its regulation in Malaysia”, National Seminar on
Energy for Future Generation, Malaysia, 1995.
• Electric utility rates for the sale of electricity to a cogenerator must be non discriminatory
when compared with other customers;
• The electric utility must provide special services to cogenerators, even though similar
services are not extended to other customers; these include top-up and stand-by power;
• Rates for stand-by power shall not be based on the assumption that outages of all
cogenerator’s facilities on a given electric utility system will occur simultaneously or
during peak periods. The rates for power purchased during maintenance shall take into
account the extent to which the scheduled outages of the cogenerator's facility can be
usefully co-ordinated with those of the utility’s facilities;
• Cogenerators who qualify to sell electricity to the utility will be paid for at the utility avoided
cost.
In the Philippines, Energy Regulations No. 1-95 allows private sector participation in power
generation activities and also covers cogeneration systems.3 Under this regulation, the
benefits gained by cogenerators are:
Electric utilities shall sell power to a cogenerator if requested;
Cogenerators can sell power to the electric utilities and the utilities can purchase at a rate
based on utilities’ avoided cost;
Except for back-up power, rates for sales of electric utilities to cogenerators can be based on
the net interchange of energy between them. The applicable rates in this case shall be the
rates stipulated in a contract between cogenerators and utilities;
Electric utilities shall provide the back-up power and maintenance power at a rate approved
by Energy Regulatory Board;
For small scale cogenerators (having capacities below 10 MW), the electric utilities shall
shoulder all costs needed for establishing the physical connection between the cogeneration
facilities and utilities’ transmission network;
For the cogeneration facility of any size, maintenance costs for the interconnection facilities
shall be borne by electric utilities.
4.3.4 Financing issues

Cogeneration systems are somewhat capital intensive. Many countries in the region face a
major obstacle to the development of innovative energy technologies such as cogeneration
due to lack of investment financing, particularly when there is a rapid economic growth taking
place and the energy prices are low. It becomes imperative to look for financing techniques
that will have less impact on a firm’s financial balance sheet. In some cases, grants can help
to reduce investment costs and to promote the financing of remaining investment. The aim of
the grant should not be merely subsidized to improve the company’s profit, but to minimize
financial risks associated with innovative technologies.
Incentives provided by the public authorities may include tax relief and accelerated
depreciation for investments in cogeneration systems. Interest rate subsidies and loan/equity
guarantees may also be considered for reducing the risks associated with private sector
investment in small and medium enterprises. As an energy efficient device, some equipment
3
Department of Energy, Implementing Rules and Regulations, Executive Order No. 215, the
Philippines, 1995.
to be used in cogeneration systems should avail duty-free or low duty benefits. Several
countries in Asia have already adopted a number of these measures in their efforts to
encourage efficient energy generation and utilization. For example, the government of India
has listed a number of energy generating devices which are eligible to apply for reduced
import taxes and duties, accelerated depreciation, income tax holiday, capital and interest
subsidy, etc. (for more details, please see Part II, Chapter 1).
In Europe, apart from the national incentives given to private companies, there are several
European Union energy programmes that provide grants to encourage investment in energy
efficiency (e.g. JOULE, THERMIE). The concept of third party financing is strongly supported
by the European Commission in order to help companies finance investment without
affecting their balance sheets. Projects suitable for third party financing can get assistance
from the SAVE programme and the Technology Performance Financing (TPF) system
developed under the SPRING programme of the European Commission.
4.3.5 Role of electric utilities

A factor of prime importance appears to be an adequate definition of the structure and activity
of the electric utility. There is a trend across the globe for liberalization, restructuring and
gradual disintegration of the traditional vertical energy supply monopolies. Some Asian
developing countries are already envisaging to separate the production and distribution
operation of the vertically integrated utilities. The emphasis should be clearly to bring forth
progressive changes in the utilities so that they gradually become suppliers of energy
services.
The public and monopolistic natures of electric utilities in many developing countries lead to
subsidized price of electricity and improper tariff structures that hinder the promotion of
cogeneration systems. The electric tariff should be acceptable to all parties concerned and
not protect the interest of any specific entity. For projects with long term commitments, the
tariff structures should reflect the long-run marginal cost of electricity generated. There
should be rules and regulations for the sale and buy-back rates for electric utilities and
cogenerators; the latter should get benefits for their installed capacities and exported
electricity based on the avoided costs of electric utilities.
The active and supportive role of electric utilities in different forms, such as promotional
activities on behalf of cogenerator, investment in schemes, establishment of joint ventures
and setting up conducive tariff structures, can be crucial to the development of cogeneration.
For example, utility owned cogeneration is quite common in Denmark and Germany that have
a long record of adopting district-heating networks. In countries like the Netherlands, Spain
and the United Kingdom of Great Britain and Northern Ireland (United Kingdom), joint ventures
have been established between utility and cogenerator. Similar initiatives have also been
taken in Japan, Republic of Korea and Thailand.
A contentious issue related to private participation in power generation is the decision on

fixing the new capacity that should be added. Capacity planning should not only have
representation from government and electricity producers and distributors, the interests of
those willing to contribute to decentralized power generation and cogeneration, should also
be protected. The procedure applied should be fair and transparent, taking into account
factors such as cost-effectiveness, location of the plant, environmental benefits, etc. If a
cogeneration facility shows the same economic promise as a conventional power plant, it is
obvious that the former should be given a priority.
The idea of the power utilities implementing a competitive bid process seems the right
approach to determine the realizable potential for cogeneration. This helps to avoid situations
of the supply of power greatly exceeding the demand.
4.3.6 Internalization of environmental costs

Fossil fuel and electricity prices are forecasted to remain low for the short and medium
terms. As a result, there is likely to be a lack of market forces to support energy efficiency
projects, including cogeneration using fossil fuels. In the absence of other specific incentives
for cogeneration development, there is a need to develop a mechanism to internalize external
environmental costs. Though Denmark and Sweden have succeeded in introducing such
measures for energy conservation, the European Union proposal for an energy/carbon tax
has met with significant resistance. The tax revenues on fossil fuel and electricity, similar to
the one introduced in Thailand (a small tax imposed on oil products to sustain the Energy
Conservation Promotion Fund), could be used to promote all activities leading to energy
conservation, including cogeneration.
4.3.7 Setting targets for cogeneration development

It is important to set ambitious but realistic targets for cogeneration development as it
demonstrates a clear political commitment. If insufficient action is being taken, pressure may
be applied by the organizations that are in-charge of promoting cogeneration. In the European
Union, specific targets have been set by a number of countries including the Netherlands,
France, Spain and the United Kingdom. This obliges the concerned authorities to monitor the
evolution of cogeneration on a regular basis, and intervene, if necessary, in a proactive
manner by taking timely policy and implementation decisions in consultation with all the
beneficiaries.
Cogeneration in Asia today 49
CHAPTER 1: C OGENERATION IN ASIA T ODAY
1.1 Introduction
The concept of cogeneration is not new to Asia. What is new, on the other hand, is the
renewed interest in cogeneration associated with the recent changes in government policies
regarding the role of private sector in the power sector. Deregulation of the power sector has
given the right thrust towards revitalization of the cogeneration concept, and has provided an
excellent opportunity for cogeneration to flourish. Experience in some countries have shown
that while independent power producers (IPPs) are facing some teething problems, the small
to medium sized cogeneration projects, despite their relatively small scale, have been more
successful under the small power producer (SPP) programme. Based on location,
environment and small-scale advantages, these projects have been capable of providing
surplus power at highly attractive rates.
The technology of cogeneration has matured over the years and equipment of all capacities
and designs are readily available in the market. Moreover, the Asian region has a very large
and growing industrial base from which cogeneration projects can be easily developed. Given
the right policy and regulatory framework, and rational pricing mechanism, cogeneration is
guaranteed to bring economic and environmental benefits at the micro and macro levels.
The degree of cogeneration development varies widely from one country to another. There are
several determining factors, including the level of economic and industrial development,
status of power sector in terms of demand versus supply, availability of fuels, government
policies regarding the role of private sector in energy supply, local climatic conditions, etc.
Each country should develop its own strategy and set targets for developing cogeneration on
the basis of above factors.
In this context, the examples set by Japan as an industrialized country, and Thailand as a
developing country, are noteworthy and their cogeneration experiences have been given in
some details in this section. The status of cogeneration in some other Asian countries is also
briefly covered here.
Many Asian countries have a strong agriculture base and do generate large quantities of
residues from agro-processing industries. These residues have proved to be an excellent
primary energy source for cogeneration, not only meeting the thermal energy and power
needs of the industries concerned, but also providing excess power which can be exported to
the utility grid or sold to neighbouring industries. The last part of this section gives an overview
of cogeneration from wood and agro-industrial residues in South-East Asia.
1.2 Status of Cogeneration in Japan1
Following the Third Conference of Parties held at Kyoto in December 1997, Japan has set
itself a target of reducing the greenhouse gas emission by 6 per cent by the year 2010, taking
1990 as the base year. An Environmental White Book was released in June 1998 wherein
cogeneration appears as one of the important measures to reduce CO2 emission.
1
A. Ishiyama, “Use of cogeneration system in Japan”, ESCAP South-east Asia Sub-regional Seminar
on Promotion of Energy Efficiency and Pollution Control through Cogeneration, Hanoi, 10-11 November
1998.
50 Part II: Cogeneration experiences in Asia and elsewhere
Cogeneration is a well known concept in Japan, and the total cogenerating capacity of public
power plants and industrial and commercial cogenerators represents 1.8 per cent of the total
power generation capacity of the country. As of March 1998, there were 1,490 units totalling
789 MW installed for commercial use and 1,051 units totalling 3,507 MW for industrial
applications. The details of capacities installed according to the type of prime mover are
summarized in Table 1.1. As can be observed, industrial cogeneration plants with an average
power generation capacity of 3.34 MW tend to be much bigger in size compared to the ones
used for commercial applications, typically around 0.5 MW. Gas turbines are popular as prime
movers for bigger capacities, followed by diesel engines, and gas engines are widely applied
at sites with very low demand, ranging between 220 and 450 kW. Gas turbines have a low
generating efficiency but higher heat recovery rate, making them more attractive for industries
having high demand for steam. On the other hand, diesel engines with high generating
capacities but low heat recovery rates are recommended for sites with high electricity
demands and less heat, mostly in the form of hot water. Gas engines perform somewhere
between the other two types of prime movers.
Table 1.1 Cogeneration plants by types and capacities in Japan (March 1998)
Type of application Projects Prime movers

Number Total Capacity Average capacity Number Average capacity
(MW) (kW/project) (kW/unit)
Commercial Use
- Gas turbines 45 156 3,467 81 1,926
- Diesel engine 768 407 530 1,347 302
- Gas engines 677 226 334 1,022 221
Industrial Use
- Gas turbines 255 1,986 7,788 333 5,964
- Diesel engine 563 1,366 2,426 1,075 1,271
- Gas engines 233 155 665 344 451
1.2.1 Cogeneration development trend

The number of installations as well as the capacity has been steadily increasing over the last
decade (see Figure 1.1). After a sharp rise in 1990, the growth rate slowed down in 1992 due
to recession and decline of energy price. There has been a renewed interest in cogeneration,
proven by the fact that over 850 MW of cogeneration capacity was added between March
1996 and March 1998.
Data of commercial and industrial cogeneration by type of activity, including number of

installations and generating capacities, are summarized in Table 1.2. Among commercial
applications, hotels rank first in terms of number and total capacity, followed by shopping
centres and offices. The main features of these sites include long and continuous operating
hours, constant demand of thermal energy for hot water, steam and chilled water. Though a
few in number, the district heating and cooling network projects with much higher average
sizes, contribute significantly to the total capacity. Among industrial uses, pharmaceutical and
chemical industries have the largest share in terms of number and capacity. Other sub-
sectors having high cogeneration capacities are oil and gas, pulp and paper, iron and metals,
and machinery. In contrast, the food industry uses many smaller systems.
1.2.2 Government support for promoting cogeneration

The support extended by the government for promoting cogeneration may be classified into
four categories: special taxation, low interest loan, investment subsidy, and subsidy for new
technology development.
MW Generating Capacity
4,000
Industrial
Commercial
3,000
2,000
1,000
0
79 83 87 91 95
Fiscal Year
Figure 1.1 Cogeneration development trend in Japan
Table 1.2 Details of commercial and industrial cogeneration projects in Japan

(March 1998 data)
Commercial Cogeneration Industrial Cogeneration

Building type No. of Total capacity Industry type No. of Total capacity
projects (kW) projects (kW)
Office 193 95.7 Food 186 271
Hotel 292 161.9 Textile 70 171
Sports facility 164 74.2 Pulp and paper 65 319
Petrol station 86 5.5 Pharmaceutical/chemical 205 938
Shops 194 138.8 Metal 89 398
Training centres 89 33.8 Electrical equipment 87 191
R&D centres 52 33.2 Machinery 123 275
Hospitals 153 81.6 Oil and gas 49 596
Bath houses 87 11.9 Water works/sewage 24 20
District heating/cooling 13 69.7 Mining 16 46
Others 165 83.0 Others 138 282
The cogenerator may avail either 30 per cent depreciation on the installation cost or 7 per cent
of tax exemption in the first year of acquisition of cogeneration plant. Low interest loans (2.3
per cent per year) can be had for 40-70 per cent of the total investment cost.
Types of subsidies given by different organizations depend on the type of projects, as follows:
• Subsidy by New Energy and Industrial Technology Development Organization (NEDO):

- large scale cogeneration for district heat supply (15 per cent of the investment, up to a
maximum of US$5 million);
- high efficiency natural gas cogeneration system (less than one-third of investment; if
the project is implemented by the local government, the amount can be as much as
one-half of investment, with an upper limit of US$174,000);
• Subsidy by Ministry of International Trade and Industry (MITI): cogeneration for petrol
stations (up to one-fifth of investment but no more than US$43,000);
• Subsidy by LPG Gas Centre: LPG cogeneration for LPG Depots (a maximum of
US$150,000);
• Subsidy by the Local Government: Cogeneration in regional central disaster hospital (up to
one-third, not exceeding US$1.5 million).
Lastly, grants can be obtained for development of new generation environment-friendly

technologies such as ceramic gas turbines, ceramic natural gas engines, large-scale high
efficiency fuel cells, etc.
1.2.3 Revision of electricity supply law

Under the Electricity Supply Law, nine regional electric utilities had the monopoly to supply
electricity in the whole country. This law was revised in 1995, which now helps in further
propagation of cogeneration. The law now allows the private sector to:
• Sell self-generated electricity to the electric utilities - Private sector was invited by the
electric utilities to supply 2.7 GW of electricity by tender for the period from 1999 to 2002;
all the offers added up to 11 GW capacity of which 3 GW was finally approved. In the
second phase for 2001-2004, another invitation was extended for sending tenders for 2.9
GW capacity and 14 GW of offers were received; the selection process is on for
accepting 3 GW of capacity;
• Wheeling self-generated electricity to other areas through the utility transmission network
(from April 1998) – The transmission cost is about one-third of the electricity price set by
the power utilities. Some companies have benefited from this option by exporting
electricity from one site to another, such as Ooji Paper Company (such as the Kure
factory, and the Nobeoka factory), Sumimoto Chemical Company and Asahi Chemical
Company;
• Supply self-generated electricity to third parties – this has helped in strengthening Energy
Service Companies. For example, 10 companies in Suwa area have established an
energy supply company that uses gas turbine cogeneration to supply 3 MW of electricity
and steam as well as chilled water to hospitals and other users. A utility service company
has installed 3 units of gas turbines, each of 4.3 MW capacity, to supply electricity, steam
and chilled water to 67 clients in Amagasaki city.
While concentrating efforts on promoting cogeneration, adequate measures have been taken
in the country towards air pollution control from cogeneration plants in urban areas. Standards
of NO x and particulate emissions have been set for prime movers, keeping in view the
availability of appropriate and affordable technologies to attain those values.
Lastly, as cogeneration is perceived as the most important energy conservation technology in

Japan, a country which relies heavily on imports of primary energy supplies, the government
is keen on developing new cogeneration technologies which can reduce cost, increase power
generation and heat recovery efficiency, and minimize NO x emissions.
1.3 Thailand
Thailand can be considered as an excellent showcase for many of the Asian developing
countries as far as the promotion of small power generation and cogeneration is concerned.
The government of Thailand approved a policy in October 1988 to encourage private sector
involvement in power generation through cogeneration, renewable energies and waste fuels.
The Energy Policy Sub-committee established a working group with the task to develop
regulations for the purchase of power from small power producers. After experts reviewed the
draft regulations, a revised set of regulations was announced by the power utilities of
Thailand, defining the conditions for the purchase of power from small power producers
(SPP). This was followed by the first request for proposal of 300 MW and an amendment in
the EGAT 2 Act, allowing direct sale to third party if not connected to the grid. It took a little
while to build up awareness in the private sector but once the ideas were understood, there
was a tremendous response. This is proved by the fact that from only 13.3 GWh of electricity
purchased from SPP in 1994, the figure went up to 2,152 GWh in 1997. By June 1998, EGAT
had issued notification of acceptance of electricity from 70 SPPs with a total power capacity
of 2,951 MW.
1.3.1 Potential for cogeneration in Thailand

According to the report of a survey commissioned by the National Energy Policy Office
(NEPO) of Thailand in April 1992, industries were found to have an installed generating
capacity of over 876 MW, 22 per cent of which was set aside as the spare capacity. A
detailed study undertaken for each of the industrial sub-sectors revealed a technical potential
for increasing the existing generation capacity by over 3,000 MW. A rigorous financial analysis
using the prevailing economic and financial parameters and relatively conservative
assumptions indicated that about one-half of the estimated technical potential, over 1,500
MW, could be financially viable.
Table 1.3 Existing and potential cogeneration in Thai industries (1992 data)
Type of Existing Additional Additional Remarks

industry cogeneration technical financial
capacity (MWe) potential potential
(MWe) (MWe)
Chemical industry 8.4 626 236 many small factories
Food industry 15.3 681 216 many small factories
Industrial estate - N.A. - pending cabinet decision
Municipal waste - 48 69 requires low cost fuel
Oil refinery 27.0 141 20 expansion in production
Palm oil mill 6.0 32 - high-pressure system retrofit
Petrochemical 64.1 268 100 all financially viable
Pulp and paper 68.4 252 45 smaller size not feasible
Large rice mill 47.2 444 200+ use of surplus husk at 50 bar
Saw mill waste - - - unsteady supply
Sugar mill 630.0 329 100 buy-back at 1.2 Baht/kWh
Textile mill 9.4 277 33 grid purchase reduction only
2
EGAT: Electricity Generating Authority of Thailand
The National Energy Policy Office (NEPO) has estimated the technical potential for
cogeneration in about 20 industrial estates alone to be as high as 5,000 MW.
1.3.2 Institutional initiatives and government policies

Apart from the government’s policy to encourage private sector participation in power
generation in the form of independent power producers (IPPs), the energy authorities of the
country recognize that energy generation from non-conventional energy, waste or residual
fuels, and cogeneration:
1. promotes the use of indigenous by-product energy sources and renewable energy for
electricity generation;
2. increases the efficiency in the use of primary energy;
3. encourages the participation of small power producers (SPPs);
4. reduces the financial burden on the public sector with respect to investment on electricity
generation and distribution.
The power utility has the obligation to purchase electricity from any SPP who cogenerates
using any type of fuel, meeting certain requirements. These include the type of thermal cycles
to be used, the minimum amount of thermal energy to be used from the cogeneration plant,
and the minimum overall efficiency on the basis of the type of fuel used.
Further boost has been given, through the announcement of a special power purchase price
in September 1996, to the SPPs intending to develop waste-to-energy projects. As of April
1997, 22 projects using bagasse, rice husk, wood chips, and palm oil wastes had been
accepted, with a capacity to produce 462 MW of electricity, of which 182 MW will be sold to
the power utility.
The price for purchasing electricity from SPPs is based on avoided cost of electricity. For
those signing contracts to supply a firm capacity, the purchase price is based on the long-run
avoided cost of the utility. On the other hand, there is no contracted demand for non-firm
contracts, and accordingly, there is no capacity payment. As an example, the purchase price
of electricity for a non-firm contract is 1.29 Baht/kWh whereas it can increase to 1.60
Baht/kWh in the case of a firm contract for a period of 25 years. Figure 1.2 shows the
evolution of power purchases from SPPs during the period 1994-97.
1,800
Firm Non-firm
1,500
Purchased, GWh/year
1,200
900
600
300
0
1994 1995 Year 1996 1997
Figure 1.2 Evolution of power purchases from small power producers
1.3.3 Impact of regional economic crises on cogeneration development

Initially, proposals were submitted by 91 potential SPPs to sell over 4,680 MW of electricity to
the utility grid. The power utility issued notification of acceptance of electricity from 70 SPPs
with a total power capacity of 2,951 MW, with 48 firm contracts (2,806 MW) and 22 non-firm
contracts (145 MW). 3
The regional economic crises have had serious impacts on the development of cogeneration
projects, many due to the devaluation of the currency affecting project investment costs.
Thanks to the intervention of the Ministry of Finance in the form of adjusting the currency
exchange system to a Baht float system, many SPPs have managed to survive and continue
their projects. As of June 1998, the number of SPPs proposing to sell electricity had gone
down to 56 in number, and the total capacity proposed amounted to 2,470 MW. Though EGAT
has committed to buy up to 2,436 MW of power from the SPPs, 51 power purchase
agreements have been signed so far between the utility and SPPs for supply of 2,255 MW.
The status of these projects is summarized in Table 1.4.
Table 1.4 Impact of financial crises on the status of SPP projects (June 1998)
Status Number of Total generating Capacity sale to

SPP capacity (MW) EGAT (MW)
PPAs signed 51 4,336 2,255
• in operation 29 1,529 693
• final stage of development 9 887 630
• early stage of construction 3 480 270
• no construction/financing 10 1,439 662
It is estimated that 10 projects totalling 1,479 MW of installed capacity would not be

completed, reducing the power purchased by EGAT to 1,795 MW, of which 1,608 MW will be
on firm-contract basis.
It is interesting to note that 22 of the projects based on natural gas as fuel have all signed firm
contract agreement with EGAT for a period ranging from 21 to 25 years. These are followed
by 13 projects which use bagasse as fuel and which have signed non-firm contracts due to
the seasonal availability of the fuel as a waste in sugar mills.
The first two important SPP projects which went into commercial operation in 1996 with an
aggregated installed capacity of 300 MW, have signed firm contracts with EGAT to make a
total of 180 MW capacity available for a period of 21 years. Located in a newly developed
industrial zone, the plants use offshore natural gas as fuel and sell the cogenerated steam at
two different pressures to several industries in the industrial estate.
Some of the regulations in place may require further fine-tuning and refining on the basis of
experience gained. On the whole, Thailand has set an excellent example to other developing
countries in the region concerning how a combination of good policy initiatives, regulatory
measures, and rational tariff structure can assure a rapid development of cogeneration. An
active participation of the private sector can help to alleviate the financial burden on the
national power utility.
3
P. Srisovanna, “Thailand’s experiences with promotion of cogeneration”, ESCAP South-East Asia
Sub-regional Seminar on Promotion of Energy Efficiency and Pollution Control through Cogeneration,
Hanoi, 10-11 November 1998.
1.4 India
India continues to face serious power shortages in spite of an installed capacity close to
90,000 MW, mainly due to the lack of funds for new installations as well as poor operation of
the power industry managed by the public sector. As a result, the country faces shortages of
more than 18 per cent in peak demand and over 9 per cent in electricity requirements.
Realizing the important role that the private sector can play in power development,
government has recently opened the power sector to the private sector. In addition,
government is also encouraging other low-cost or more efficient alternatives, such as the use
of non-conventional energies and cogeneration in industry.
1.4.1 Assessment of cogeneration potential

A report prepared by the Ministry of Power reveals that considering the various in-house
generating facilities adopted by Indian industries, the installed capacity in industry alone is
around 12,000 MW, without taking into account units of less than 1 MW capacity. Though
some of the industries have already adopted cogeneration plants, additional cogeneration
potential in selected industrial sub-sectors is estimated to be 6,530 MW. The actual installed
capacity is still very low, and aside from the sugar industry, cogeneration has not been
pursued seriously due to various reasons.
According to this report, sugar mills have the highest cogeneration potential, estimated as
3,200 MW. To achieve this, the mills need to be modernized. On supply side, high-pressure
boilers with high efficiency turbo-generators can assure better utilization of bagasse. On the
demand side, replacement of small turbines by hydraulic drives and use of multiple-effect
evaporators can help to reduce the process steam demand.
A recent national survey estimates the overall industrial cogeneration potential to be around
15,000 MW, with the sugar mills alone accounting for one-third of the total, followed by
distilleries, fertilizer plants, rice mills, textile industries and pulp and paper mills, and others.4
1.4.2 Drawbacks in cogeneration development

The main drawback in cogeneration development has been the lack of clear policies and
regulations. The State Electricity Boards (SEBs) have not been supportive of the idea of
captive power plants; cogeneration being regarded as a subset of the captive segment, was
also neglected and never fully promoted. SEBs consider the power from industry to be too
small and its cost to be generally higher than the prevailing tariff. As industries are charged a
higher tariff, utilities are afraid to lose good customers.
Many industries are not aware of the benefits of cogeneration in terms of cost savings, the low
level of incremental investment needed, and the existence of a number of financing options.
They are concerned about the problem of space, shut down and investment necessary for
setting up cogeneration facilities. They are not sure about the long-term availability of fuel for
operating the cogeneration plant. In case there is excess electricity available for export to the
grid, industries are not sure whether the SEBs can pay as most of them are facing acute
financial constraints.
4
A.S. Bakshi, “Status of cogeneration development in India”, ESCAP South-Asia Sub-regional
Seminar on Promotion of Energy Efficiency and Pollution Control through Cogeneration, Dhaka, 14-15
November 1998.
1.4.3 Government initiatives to promote cogeneration

Acknowledging the fact that cogeneration plants are more efficient, have low gestation period,
and can effectively create additional power generating capacity, government has issued
guidelines related to clearance of projects and fixing of tariff for export of electricity by
cogenerators.
Industries will be allowed to develop cogeneration facilities without necessarily going through
competitive bidding process. If the cogeneration plant is a topping-cycle, it must supply at
least 5 MW to the grid for not less than 250 days in a year in order to assure grid stability and
adequate planning of the power system. Depending on the type of fuel used, the plant should
meet certain efficiency criteria to be eligible as a cogeneration facility. If the cogeneration
facility is a bottoming cycle, the total useful power output should not be less than 50 per cent
of the total heat input through supplementary firing.
The schedule for power supply to the grid should be mutually worked out between the SEB
and the cogenerator, keeping in mind that the surplus power may vary during the day and with
season. While negotiating tariff, the basic consideration should be to share the benefits of
higher efficiency. Industry will be assured of power supply, possibly at a lower tariff than that
charged by the utility due to cross subsidization.
Some progresses in cogeneration have been made thanks to the initiatives and proactive role
of the Ministry of Non-conventional Energy Sources (MNES) and the Indian Renewable Energy
Development Agency (IREDA). They have extended financial assistance such as subsidies,
low-cost loans and technical assistance. In order to launch demonstration projects, MNES
provides capital subsidy of Rs 20 million/MW of surplus power (comprising Rs 7 million/MW
as subsidy and balance as soft loan) to cooperatives and public sector sugar mills, and Rs 7
million/MW of subsidy (maximum of Rs 60 million per project) to other sugar mills. 5 In
addition, there is an interest subsidy of Rs 1.5 million/MW for projects with 1-4 MW of surplus
power generating capacity, and Rs 3.5 million/MW for those with more than 4 MW surplus
capacity. IREDA provides up to 75 per cent of the financing of the project at lower than market
interest rates, and allows for a repayment period of 10 years, allowing for a moratorium period
before the cogenerator is actually required to start repaying the loan.
Table 1.5 Incentives offered by state governments for cogeneration projects
States Maharashtra Tamil Nadu Karnataka Uttar Pradesh

Participation Government & Government & Government & Government &
cooperative private private private
Power wheeling 20 per cent of energy 15 per cent of 6 per cent of 12.5 per cent of
rates generated energy; 2 per cent energy energy generated
to sister concern generated
SEB buy-back >4 MW: Rs2.25/kWh; Rs 2.25/kWh; Rs 2/kWh Rs 2.25/kWh;
rate <4 MW: Rs 2/kWh; escalated at 5 per escalated same
escalated at 5 per cent after 5 years as increase of
cent after 3 years H.T. tariff
Sale to 3rd party Allowed Allowed Allowed Allowed within 5
km radius
Capital subsidy Up to 60 per cent Subsidy @ Rs
equity participation for 2.5 million/MW
cooperative mills
5
US$ = Rs 42 approximately
Lately, the Ministry of Power has been involved in simplifying procedures by persuading SEBs
to allow third-party sale of electricity, buy-back surplus power at higher rates (close to Rs 2.25
per kWh in most instances), and offer clear and transparent wheeling and banking policies.
SEBs are now more receptive to the idea of captive power generation and are encouraging
proposals for cogeneration facilities. Some state governments are also providing incentives
for cogeneration, such as capital cost subsidies and exemption from generation taxes (see
Table 1.5).
1.5 Indonesia
In Indonesia, cogeneration technology has been traditionally associated with major process
industries having high steam demand, such as paper, chemicals, refineries, and food and
beverage industries. However, not many industries are presently utilizing cogeneration
technology due to two main reasons. The industrial decision-makers are little aware of the
technology and its economic merits. Secondly, the energy price does not reflect its actual
cost.
On the other hand, captive power plants are commonly employed in Indonesia due to the
geographical characteristics of the country and inability of the national grid system to supply
the amount of energy required by the users. The share of energy from captive power plants
represented 36 per cent of the total in 1990. According to projected figures, the share of
captive power plants will be 9,000 MW, or 29 per cent of the total 20,000 MW in 1998-99.
Majority of cogeneration facilities established in industries is located in East Java. Adopted

mostly by textile and paper industries, the total installed capacity of 11 cogeneration plants in
operation exceeds 530 MW. The units, with capacities ranging from 4 to 38 MW, employ
either coal-fired steam turbines or natural gas fired gas turbines with heat recovery boilers.6
According to the information available with the Indonesian power utility, PLN, there were about
10 plants under construction at the end of 1996, using steam and gas turbines, reciprocating
engine and combined cycle, with a total capacity exceeding 360 MW.
1.5.1 Institutional initiatives and policies for promoting cogeneration

There are two relevant documents that reflect government’s policy on cogeneration. The first
regulation issued in 1993 allows the IUKU holder (the one who has the license to provide
electricity to the public) to allow the industries to adopt cogeneration technology for their own
use within utility’s concession area, and sell the excess power from the cogeneration facility
to the utility. The Ministry of Mines and Energy published the tariff for purchase of electricity
from small power producers. After power generation from solar, mini-hydro and wind
energies, cogeneration from agricultural and industrial wastes was given the next priority,
allowing sale of up to 30 MW for Java-Bali grid system, and up to 15 MW for the other grids.
The third priority was given to cogeneration using conventional fuels, followed by power
generation alone with conventional fuels.
In line with the energy policy, government will look into some factors while issuing permits to
private generators and cogenerators who intend to produce energy for their own use and for
selling excess to others. These include the local grid capability, primary energy source used,
pricing mechanism, security of energy supply, and environmental impact.
6
M. Oetji, “Electric Power in Indonesia: Public-private partnership and opportunity for cogeneration”,
Paper presented at the 1996 Cogeneration in Asia Conference, AIC Conferences, Singapore, 25-27
November 1996.
1.5.2 Launching of innovative facilities management schemes

Many industries have been compelled to go for captive power generation, but do not have the
skill and competence necessary to operate these units efficiently. Though they realize the
importance of increasing efficiency of their generating facility, they are not willing to lose focus
on their core businesses. A captive power plant presents itself as another cost centre, without
giving any return from the investment or directly contributing any profit to the company.
Moreover, it requires qualified staff and management time.
Initiatives have been taken by specialized companies to offer facility management services to
such enterprises so that all their energy supply needs are met and guaranteed, allowing the
enterprises to concentrate on their core business activity, to avoid making investment on
energy supply, and to mitigate operation and maintenance risks. All that they have to do is to
pay their monthly energy bill, as they would have done in the case electricity was purchased
from the grid.
Boundary of Industrial/Commercial Area
Fuels
All forms of
energy
Spare Parts
&
Consumables
Monthly
Industrial or energy bill
Cogeneration
commercial
Plant
activity
Owned by the Facility O&M

Activity of the Enterprise Management Company Activities &
Personnel
Figure 1.3 A typical facility management company (PT. Cogindo DayaBersama)
Having well qualified and experienced staff, the facility management firms shoulder the
responsibility of investing on the cogeneration plant, managing the operation and maintenance
as well as fuel supply, spare parts and supply of consumables. Acting as the sole point of
responsibility, these firms strive to provide quality, reliable and cost-effective energy products
since energy is their core business.
1.6 Philippines
The base-load or stand-by generating capacity of industries in the Philippines is estimated to

be 600 MW, 58 per cent of which is operated in cogeneration mode. Industries with
cogeneration systems have generally designed their equipment to meet only the on-site
electricity needs. Many of these facilities are found to be under-utilized. Most of the
cogeneration installations have been commissioned prior to the oil shock of the 1970s.
Sugar sub-sector alone accounts for about 60 per cent of the total generation capacity of 346
MW. Other sub-sectors having important cogeneration capacities are the pulp and paper,
wood and petrochemical industries.
1.6.1 Policy and institutional framework for supporting cogeneration7

Studies conducted by the Department of Energy (DOE) place the cogeneration potential at
around 400 MW. The government has manifested a growing interest to promote industrial
cogeneration, with the following rationale:
1. development policy: recognizing that adequate power supply is one of the basic pre-
requisites for sustained economic growth, decision was taken to allow private sector
participation in the power sector;
2. additional resources: the private sector can be expected to bring additional resources or
equity funds;
3. efficiency improvement: many industries with continuous demand for low quality steam
can install power generation units and use the waste steam for industrial process needs,
thus high fuel use efficiency can be achieved;
4. environmental benefits: cogeneration offers substantial reductions in exhaust gas
emissions.
Government has therefore instituted policies, incentives and programs for supporting
cogeneration along with renewable energy technologies. The Executive Order No. 215, which
took effect in July 1987, allows for private sector participation in power generation, including
cogeneration. It applies to those intending to sell the generated electricity to the utility or to
third parties. Those wishing to qualify as a cogenerator have to satisfy certain technical,
efficiency, and financial criteria.
Fiscal incentives extended to the cogenerators include income tax holiday for six years,
reduced duty of only 3 per cent on imported capital equipment and spare parts, tax credit on
domestic capital equipment and spare parts and tax deduction for labour expenses.
For purchase of power from cogenerators having less than 10 MW capacity, standard power
purchase rates are adopted which reflect the structure of capacity and energy costs of the
national utility for varying levels of power availability and dispatchability. The electric utility shall
sell power to the cogenerator upon request. The back-up power provided by the utility will be
at a rate approved by the Energy Regulatory Board.
The host utility is obliged to interconnect and wheel the electricity generated to a third party;
for cogeneration with less than 10 MW capacity, the utility will shoulder all the costs. For
cogeneration facility of any size, maintenance cost of the interconnection facility shall be
borne by the electric utility.
In September 1997, the National Power Corporation signed a power purchase agreement for
the biggest cogeneration facility that will add 304 MW of power to the Luzon grid and at the
same time, supply quality steam to an oil refinery and a chemical plant.
7
A. M. Nabong, “Status of cogeneration development in the Philippines”, ESCAP South-East Asia
Sub-regional Seminar on Promotion of Energy Efficiency and Pollution Control through Cogeneration,
Hanoi, 10-11 November 1998.
1.7 Republic of Korea8
The rapid economic growths associated with industrialization in the last three decades have
resulted in sharp increase in power and energy demand. To cope with this, the government
has been actively involved in adopting ways and means for using energy more efficiently,
conserving energy through recovery of waste energy, supplying reliable energy at low cost,
and supplying energy more effectively in a decentralized manner to industrial zones and
satellite cities.
A major outcome of these efforts has been the widespread development of cogeneration
since the 1980s. This is proven by the fact that the share of power generation of cogenerated
plant over the total generating capacity has sharply increased from 4.6 per cent in 1985 to 20
per cent in 1995 (see Figure 1.4).
Cogeneration development that has taken place in the Republic of Korea can be classified
into 4 distinct categories: industries, high-rise buildings, industrial estates, and district heating
networks. The total number of cogeneration plants in these four areas was 90 units in 1995,
with a cumulative power generation capacity of 6,225 MW.
25
Share of cogeneration, %
20
15
10
0
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95
Year
Figure 1.4 Share of electricity from cogeneration over total grid system
The industrial sector has seen rapid growth in cogeneration. As of 1995, there were about 60
units in operation, with an aggregated capacity of 2,534 MW. These plants were adopted by
the sub-sectors that have helped in the industrialization process, namely steel, petro-
chemical, refinery, textile, pulp and paper, and food industries. Data for 1994 shows that the
industry sector had a captive power generation capacity of 3,056 MW and a total of 19,938
GWh was generated. Steel mills alone accounted for one-half of the total installed capacity.
High-rise buildings constructed in recent years have high demands for heating, ventilation and
air conditioning, and are therefore ideal clients of cogeneration. As of 1995, there were 7
cogeneration facilities developed with a total power generating capacity of 59.1 MW.
Industrial complexes have been developed to induce small and medium scale enterprises and
government has a policy to encourage the setting up of cogeneration facilities to supply
different forms of energy to individual factories within the industrial zone. A target has been set
to adopt cogeneration systems in 33 industrial complexes by 2001. Financial assistance and
tax incentives are extended to individual firms that invest in such projects. Loans with
8
R.T.Lee, “Cogeneration projects for industrial sector as well as residential/commercial sector in the
developing countries”, Paper presented at the 1996 Cogeneration in Asia Conference, AIC Conferences,
Singapore, 25-27 November 1996.
favourable terms are provided, offering 8-year grace period and 7-year repayment period in
instalments with interest rates that are about half the market rate. By 1995, 13 industrial
complexes had cogeneration plants with a total capacity to generate 619 MW of power.
The most important cogeneration development has been in connection with district heating
system in the outskirts of Seoul metropolitan city. Government set up an ambitious plan to
provide two million residential units, mostly apartment buildings, outside Seoul city during late
80s and early 90s, in order to disperse the population in newly developed towns. Ten such
projects were commissioned by 1995 in the satellite cities that have a great demand for heat
during the cold season. Cogeneration plants were jointly built by two public sector enterprises;
the Korea Electric Corporation assured the electric power supply, while district heating was
handled by the Korea District Heating Corporation. A total power generating capacity of 3,013
MW was already in place by 1995. Further expansion plans include the southern part of Seoul
city, which will include residential areas for over three million people.
An example of cogeneration and district heating project that has been developed recently is
the one in the town of Bundang. In order to supply electricity and other forms of energy to
approximately 100,000 households in mostly apartment buildings, natural gas fired combined
cycle cogeneration plants were installed with a total capacity of 600 MW of power and 560
Gcal/hour of heating facility. Covering a total heating area of 13.8 million m2, and selling 1.523
million Gcal/year, this installation has been estimated to save around 83,000 toe/year.
1.8 Cogeneration from Agro-industrial Residues: ASEAN 9 Experience
Agricultural residues from rice, sugar cane, palm oil, coconut and timber industries in ASEAN
totalled almost 100 million tons in 1990. These five main agro-industrial sectors convert
between 30 to 70 per cent of total raw material into waste that constitutes an energy
equivalent of 25 Mtoe, approximately equal to the total industrial primary energy demand of
ASEAN. Experts estimate that only 50 per cent of this bio-waste is utilized, generally
employing inefficient and outdated technologies, to generate heat and/or power and to meet
about 20 per cent of the total industrial primary energy demand in ASEAN.
Changes in national policies have led to private participation in power generation and rational
use of indigenous energy resources. Moreover, there is a growing concern for clean energy
and environmentally sound solutions. These have renewed interest among the self-producers
of energy to employ more efficient and modern technologies for added economic benefits and
environmental compatibility. Results of studies conducted by the EC-ASEAN COGEN
Programme10 for assessing the potential of energy generation from agro-industrial residues in
ASEAN are summarized below.
1.8.1 Rice industry

Rice husks produced as residues from the rice milling industry can be used as fuel. In a
typical rice mill, electricity required for milling is purchased and heat needed for either
mechanical paddy drying or for parboiling is generated from fossil fuels or rice husk. Over
200,000 rice mills are estimated to be in operation in ASEAN, producing over 26 million tons of
rice husk annually.
9
ASEAN represents the Association of South-East Asian Nations.
10
The EC-ASEAN COGEN Programme is an economic co-operation between the European
Commission and ASEAN. Co-ordinated by the Asian Institute of Technology, it aims at accelerating the
implementation of proven technologies generating heat and/or power from wood and agro-industrial
residues.
Every ton of paddy processed generates around 250 kg of husk which, when used as fuel, is
capable of producing 100 kWh of electricity on an average. The milling power needed for a ton
of paddy ranges from 20 kWh for white rice production to 60 kWh for parboiling and
mechanically dried white rice. Assuming that 2.7 kg of husk are necessary to produce 1 kWh,
theoretically over 13,000 GWh/year of electricity could be generated. In practice, however,
much less may be expected from the rice-milling sector as financial analyses show power
generation to be feasible only for plants having a capacity above 5 tons/hour. As shown in
Table 1.6, rice-milling capacities of many ASEAN factories are far too small to be financially
attractive for cogeneration applications.
Table 1.6 Status of rice industry in ASEAN
Country Rice mills Paddy Rice husk Generation Milling Generation

(106 tons) (106 tons) potential capacity capacity
(GWh/year) (>5 tph) (MW)
Indonesia >78,000 49.7 10.94 5,472 0 0
Malaysia 380 2.2 47.0 237 62 28
Philippines >13,000 10.5 2.32 1,160 71 68
Thailand 17,000 33.8 7.45 3,725 78 61
Viet Nam >100,000 24.9 5.49 2,746 55 66
1.8.2 Sugar industry

In most sugar mills, bagasse generated as residue is utilized for heat and power generation.
There are over 150 sugar mills in the ASEAN, producing close to 35 million tons of bagasse
annually. A little less than one-third of the raw sugar cane is turned into bagasse. Processing
one ton of sugarcane will generate an average of 300 kg of bagasse. Assuming that bagasse
is consumed efficiently, 3 kg of bagasse is necessary to produce a kWh of electricity. Based
on this, the technical potential for power generation from bagasse in ASEAN can be estimated
at 11,600 GWh/year (see Table 1.7). However, the existing equipment in most facilities is old
and inefficient, often resulting in the generation of low-pressure steam. There is a need for
adopting boilers of higher capacities and pressures greater than 40 bar.
Table 1.7 Status of sugar industry in ASEAN
Country Sugar Sugarcane Bagasse Generation Generating

mills (106 tons) (106 tons) potential capacity
(GWh/year) (MW)
Indonesia 67 29.05 8.72 2,906 792
Malaysia N.A. N.A. N.A. N.A. N.A.
Philippines 36 18.50 5.55 1,777 758
Thailand 46 57.97 17.39 5,797 1,871
Viet Nam 16 11.29 3.39 1,129 54
1.8.3 Palm oil industry

In a palm oil industry, as much as 70 per cent of the fresh fruit bunches (FFB) are turned into
wastes such as empty bunches (23 per cent), fibres and shells (19 per cent), while between
600 and 700 kg of liquid effluent are produced per ton of FFB. Though many palm oil mills
generate combined heat and power from fibres and shells, the use of palm oil residues could
still be optimized. Fibres and shells generated by a ton of FFB can produce approximately 45
kWh; empty bunches could contribute to another 35 kWh of electricity generation.
More than 40 million tons of fresh fruit bunches are processed annually (of which, almost 75
per cent are in Malaysia alone) by about 430 mills in ASEAN. Thus the technical potential for
power generation from solid residues from ASEAN palm oil industry amounts to over 3,200
GWh/year and around 2,470 MW of total generating capacity.
1.8.4 Wood industry

The wood industry - including sawmills, plywood factories and furniture industries - converts
about half of the raw wood into residue during the production process. The wood waste
generated in the plant is capable of generating as much as 150 kWh of electricity. But the
majority of sawmills in ASEAN (mostly located in Indonesia and Malaysia) are either
connected to the national grid or use diesel generators to meet their electricity demand.
The plywood industry requires large amount of power and heat. The wood waste can be
effectively utilized to cogenerate heat and power to satisfy all the energy demand of the plant.
Financial analyses carried out on some specific projects show that the pay-back period on
investment would be around 3 to 4 years, thus making the wood cogeneration market most
lucrative. The owners of integrated factories, combining sawmill, plywood and furniture
making, can benefit a lot through better utilization of the cogeneration plant capacity.
The technical potential for power generation from over 19 million tons of residues in ASEAN
wood industry is assessed to be over 4,800 GWh/year and around 920 MW of total generating
capacity can be expected.
1.8.5 Full-scale demonstration projects

Many biomass energy technologies are technically sound and economically viable, and yet
have not yet been implemented due to a number of reasons, the most important among them
are the lack of awareness and unavailability of suitable technologies. The EC-ASEAN COGEN
Programme attempts to establish references for such technologies and to accelerate the
implementation of proven technologies in ASEAN by launching full-scale demonstration
projects (FSDP). Financial and technical assistance is extended to implement proven
technologies on full-scale basis in the hope that replication of such projects will reduce fossil
fuel dependence and will contribute to the protection of the environment.
To date, about 15 full-scale demonstration projects (FSDPs) have been commissioned under
this Programme. The salient features of some of these projects are highlighted below.
Wood waste-based cogeneration

This is a factory located in Sarawak, Malaysia. The project consists of a 1.65 MW wood
waste-fired power plant that includes a boiler with a capacity to produce 30 tons/hour (tph) of
steam at 21 bar. Steam is supplied to a fully condensing turbine to produce 1,650 kW of
power. About 10 tph of process steam is required at 7 bar to be used for kiln drying of wood.
The total cost of the project is a little less than US$ 2 million and the payback period is
calculated as 3.1 years.
Cogeneration in a rice mill

This is a factory located in Nakorn Ratchasima, Thailand. The project consists of a rice husk-
fired 2.5 MW power plant that includes a boiler producing 17 tph of steam at 35 bar. This
steam is supplied to a condensing turbine to generate 2.5 MW of power. Flue gas from the
boiler is used for paddy drying. The total cost of the project is around US$ 3.87 million and the
payback period is estimated as 3.6 years.
Cogeneration in a plywood industry

This is a factory located in South Sumatra, Indonesia. The installation consists of a turn-key
supply of a wood-waste fired boiler to replace two existing boilers which cannot supply
sufficient steam to operate an existing turbo-generator with a net output of 3.2 MW. About 35
tph of steam generated at 35 bar and 380°C with the new efficient boiler would be adequate
for meeting the turbo-generator requirement as well as that needed for the process. The
overall project cost is US$ 1.6 million and the payback period works out as 2.4 years.
Cogeneration from palm oil waste

The factory is located in Johor, Malaysia. The waste from the mill will be fed to the proposed
steam boiler to produce 35 tph of steam at 23 bar. This steam is expected to pass through a
backpressure turbine to generate 1.2 MW of power and the exhausted steam at 4.1 bar will be
adequate to meet the process steam requirements. The total cost of the project is estimated
as US$ 693,300 and the payback period is calculated as 3.7 years.
Cogeneration in a paper mill

The factory is located in Chachoengsao, Thailand. Earlier, 24 tph of steam was produced in
an existing rice husk-fired boiler at 20 bar and was passed through a pressure-reducing valve
to meet the process heating requirement at 6 bar. The project consists of introducing a
backpressure turbine after the boiler so that the steam at 20 bar can be expanded up to the
required pressure of 6 bar, while generating 600 kW of electricity. The cost of the turbine with
the accessories is US$ 102,000, which leads to a very short payback period of 1.4 years.
Energy from waste water in rubber factory

The factory is located in Selangor, Malaysia. The project consists of wastewater treatment
plant that will treat the liquid effluents from the factory by anaerobic digestion to produce
around 7,820 Nm 3 of biogas per day. This biogas will partially substitute the medium fuel oil
used in the existing thermal fluid heater. The project cost is estimated as US$ 1.5 million and
the payback period works out as 4.1 years.
Examples of cogeneration projects implemented in Asia 67
CHAPTER 2: E XAMPLES OF COGENERATION PROJECTS IMPLEMENTED IN

ASIA
2.1 Introduction
A vast majority of the Asian countries has yet to tap the existing cogeneration potential to the
maximum. Considering the rapid industrial growth in many parts of the region, one would
expect many more new process industries and commercial buildings to be added to the
existing stock within a short span of time. These investments can be even better managed if
the concept of cogeneration is well understood by the developers and investors. The end-
users will have greater choices and more alternatives, in addition to having enhanced scope
for decision making and professionalism. At the same time, the power utilities can have
access to low cost and reliable excess energy produced in some areas faced with chronic
deficit of power supply in the past.
There is also a potential for cogeneration development based on privately funded projects in
close cooperation with potential end-users/customers and power companies. Owners of
existing as well as new industries and commercial buildings will benefit from these schemes
by having access to low-cost and more reliable energy supplies. Moreover, it will help them to
conserve their capital that would otherwise have been required for on-site energy facilities; the
saved resources and capital can be ploughed into their core business for improving their profit
margin and competitiveness.
It is encouraging to note that there are already a large number of cogeneration plants which
have been commissioned in some Asian countries in the last decade or so. The following
sections are aimed at providing sample examples of initiatives already undertaken in the
directions highlighted above. Each of the examples briefly covers the situation that led the
decision-makers to opt for cogeneration and the various benefits accrued from the project.
2.2 Cogeneration in Petrochemical Industry
Reliable power is essential for commercial viability of petrochemical industries. A small power
interruption does not only result in substantial production loss but can also jeopardize the
safety aspects of the plant. Thus, factories located in areas that are exposed to unreliable
power supply are obliged to have their captive power plants to ensure reliability of operation.
Faced with the situation of deficient power supply, one such gas cracking complex in India
decided to install a cogeneration plant to obtain reliable power at a reduced cost.1
2.2.1 Assessing the economic benefits of cogeneration

A preliminary study was conducted to establish the economic merits of the cogeneration
system in comparison with the existing situation where the conventional boilers supplied
process steam and power was purchased from the utility grid.
The power demand of the plant was of the order of 50 MW, and the total process steam
requirement was found to be 93 tons/hour. For analyzing the cogeneration option, the power
requirement was hiked to 65 MW, to include the provision for future expansion. The cost of
having a contract demand of 17.6 MVA with the utility had to be considered for assuring
continuous operation in case of the stoppage of the cogeneration plant. This would assure
1
A.K. Sood, “Commercial role of cogeneration in petrochemical industry”, Paper presented at the
Cogeneration Asia ’97 Conference, AIC Conferences, Singapore, 25-26 November 1997.
undisturbed operation of several power consumers in the plant during any unexpected tripping
by drawing power automatically as and when required up to the extent of 17.6 MVA.
Considering longer outage of the cogeneration plant during major overhauls or during the
recommended inspections, it was decided to include an additional captive power generation
capacity of 20 MW to guarantee power supply without depending on the public utility grid.
Similarly, to avoid the problem of steam shortage during the outage of heat recovery steam
generators, an additional boiler was included as a spare unit. This would also take care of the
start-up constraint of the gas cracker plant when greater amount of steam was required than
during normal operating conditions. Lean gas was considered as the sole fuel for operating
the cogeneration unit. The results of the economic analysis, considering the prevailing costs
of equipment, fuel, O&M, manpower, etc., are summarized in Table 2.1. The cogeneration
case has a clear edge over the existing case as it helps to reduce the energy bill by 36 per
cent and improves the reliability of the production process.
Table 2.1 Economic analysis of cogeneration in the gas cracker complex
Existing Situation:
Process steam from conventional boiler and power purchase from utility grid
Description Annual Cost
(US$/year)
Investment: 3,780.00
Boilers (2 x 136 tons/hour of steam)
Operating & Maintenance Costs:
Electricity purchased from the grid (50 MW) 40,832.00
Fuel gas (6,626 tons/hour) 4,529.00
Other utilities 2,479.00
Maintenance & Chemicals 315.00
Manpower 336.00
Total Costs (existing situation) 52,271.00
Steam cost (US$/ton) 15.37
Power cost (US$/MWh) 102.08
Cogeneration Case:
Power and heat from the cogeneration plant, minimum demand contract with utility grid
Investment: 18,267.00
Boilers (3 x 136 tons/hour of steam)
Gas turbine generators (3 x 20.7 MW)
Steam turbine generator (25 MW)
Operating & Maintenance Costs:
Demand contract with the grid (17.6 MVA) 754.00
Fuel gas (15.148 tons/hour) 10,355.00
Other utilities 1,862.00
Maintenance & Chemicals 1,720.00
Manpower 504.00
Total Costs (cogeneration case) 33,462.00
Steam cost (US$/ton) 12.30
Power cost (US$/MWh) 51.64
Estimated Savings with the Cogeneration Case

Annual cost with the existing case 52,271.00
Annual cost with the cogeneration case 33,462.00
Net annual saving 18,809.00
Percentage annual saving 36 per cent
Based on the preliminary analysis, further optimization studies were conducted by

considering nine different cases involving different capacities and numbers of major
equipment. The most optimum scheme retained for actual implementation is shown in Figure
2.1. It consists of 3 gas turbines (including one spare), each with an ISO rating of 25 MW; a
double-extraction condensing steam turbine for producing medium and low pressure steam;
and 3 heat recovery steam generators (including one spare), each with a capacity to generate
136 ton of steam per hour at 105 Bar and 510°C.
Atmosphere
FD Fan
Air G
GT-1
HRSG -1
HSD/Gas Atmosphere Atmosphere
FD Fan
Air
Gas/LSHS/HSD/PG
Air G
GT-2
HRSG-2
Atmosphere
HSD/Gas
FD Fan
Air
Gas/LSHS/HSD/PG
Air G
GT-3
HRSG-3
HSD/Gas
SVH
Gas/LSHS/HSD/PG
G STG PRDS SH
PRDS
C SVH: 108 bar

SH: 42 bar
To deaerator
SM: 19 bar
SM SL: 3.5 bar
SL SVH
PRDS to process
plant
Figure 2.1 Cogeneration scheme implemented at the petrochemical complex

2.2.2 Details of the cogeneration system

The gas turbines with an ISO rating of 25 MW are capable of producing 20.7 MW at the site.
Since the gas supplier could not guarantee lean gas supply, dual fuel configuration (lean gas
as well as high-speed diesel) was specified for the gas turbines. This was further altered to
allow simultaneous firing of liquid and gas in such a manner that the gas gets a preference
and the liquid fuel meets the balance requirement.
A 25 MW capacity steam turbine generator was selected with the option for extracting
medium pressure steam at 19 bar and low pressure steam at 3.5 bar. The condenser was
designed for generating up to 20 MW of power without any steam extraction. The heat
recovery steam generators (HRSG) have the option for auxiliary firing with multi-fuel option.
High-speed diesel is used as a start-up fuel and the lean gas is supplied as the main fuel with
low sulphur heavy stock as the alternate liquid fuel. By-products available from the gas
cracking unit such as pyrolysis gasoline and off gas can also be fired. In order to allow the
HRSG to operate as a conventional boiler when the associated gas turbine was not operating,
a forced draft fan for supplying combustion air is installed with suitable dampers and safety
protections so that the boiler can run without exhaust from the gas turbine. This change over
scheme was well designed and tested and works satisfactorily at present.
In order to maximize the heat extraction from the exhaust gases after economizer and to
increase the overall efficiency of the HRSG, a separate low-pressure water coil was installed
in exhaust gas path. Such an arrangement allowed to generate hot water which, when
flashed, gives low-pressure steam that is used for deaeration of boiler feed water. This
feature helps to reduce the steam demand for the deaerator by 4 ton/hour.
2.3 Cogeneration in a Textile Mill
Encouraged by the Thai Government policy on industrial cogeneration and sale of excess
electricity to the utility grid, a synthetic fibre manufacturing industry decided to explore the
opportunity for cogeneration. The factory was particularly susceptible to any unintended
shutdown due to power interruption while led to high restarting costs. In addition, the factory
had a generating capacity to meet only 15 per cent of its demand and the existing diesel
generators were over 20 years old and were expensive to maintain. A techno-economic
feasibility study was first undertaken to identify the best cogeneration scheme in line with the
Government’s newly announced power buy-back option.2
2.3.1 Existing energy situation of the factory

The production processes in the factory required steam at two different pressures, 56 bar and
12 bar, respectively. The total demand of steam was 101,120 tons of steam per annum,
giving an average of about 11.5 ton/hour, though the maximum and minimum demands were
of the order of 17 and 9 tons/hour, respectively. To meet these demands, 4 boilers were
employed with the following capacities:
- two boilers producing steam at 60 bar, each with a generating capacity of 7 tons/hour,
- two others operating at 12 bar and generating 15 tons of steam per hour each.
Heavy fuel oil used as fuel in the boiler was purchased at a price of US$ 0.12/litre.
2
P. Srisovanna, “Case study of cogeneration in textile sector”, ESCAP South-East Asia Sub-regional
Seminar on Promotion of Energy Efficiency and Pollution Control through Cogeneration, Hanoi, 10-11
November 1998.
The total electricity demand of the factory was 59,000 MWh/year, with an average demand of
around 6.7 MW. The actual demand varied between a minimum of 5.9 MW and a maximum of
8.9 MW. About 1 MW of electricity representing 15 per cent of the total demand was self-
generated, using more than 20 years old diesel generators.
Four alternatives were considered during the feasibility study and compared with the existing
situation: (1) Back pressure steam turbine, (2) Gas turbine, (3) Combined cycle, (4) Diesel
engine. In all cases, the criteria set was to meet the peak steam demand of the factory, i.e.,
17 tons/hour.
2.3.2 Option 1: back pressure steam turbine

The proposed option is schematically shown in Figure 2.2. This option was found to be not
attractive due to the need for extracting steam at two different pressures. The varying demand
of steam at these pressures will lead to quite unfavourable steam turbine operation. In steam
matching option, the net output would be only 0.8 MW, which is less than the current standby
needs.
Moreover, the unavailability of a suitable standard turbine will lead to high installation cost and
will be more difficult to operate in practice. Considering 40 per cent of custom duty and tax,
the investment was calculated as US$ 7,500/kW. The annual maintenance cost was
estimated as 3 per cent of the investment, i.e., US$ 180,000/year.
Steam: 100 bar/450 oC

12.73 t/h (11.47 MW)
Electricity
Fuel 800 kW
10.6 MW Boiler
ST G
η= 90%
130 c C, 12.73 t/h, (1.93 MW)
Steam: 12 bar/237 o C
Water: 70 oC Steam to Process
1.23 t/h (0.99 MW)
11.5 t/h, 12 bar/237 oC
(0.94 MW) 6 t/h (4.84 MW)
56 bar/380 oC
5.5 t/h (4.79 MW)
Figure 2.2 Steam turbine cogeneration option for the textile mill
2.3.3 Option 2: gas turbine

The schematic diagram of this option is shown in Figure 2.3. The system included a diesel
fired gas turbine with heat recovery steam boiler and an option for auxiliary firing to meet the
varying steam demands. A boiler bypass would allow the gas turbine to run at full load, and
the auxiliary firing option with heavy fuel oil will let the boiler run at full load even when the gas
turbine is shut down. The net output of the alternator would be 4.7 MW, and assuming a 90
per cent availability factor, the cogeneration plant was capable of providing 58 per cent of the
power needs of the factory, the rest being purchased from the utility grid.
160 oC 56 bar/271 º C
5.5 t/h,
(4.26 kW)
H
Fuel RS
16.7 MW G
Air
Exhaust
18.8 kg/s 12 bar/188 º C
545 o C 6 t/h,
4700 kW Supplementary (4.64 kW)
Firing
Fuel: 200 kW
G C T Steam
56 bar/271 º C
1.05 t/h,
(0.81 kW)
Water: 70 oC
11.5 t/hr
(0.94 MW)
Water
120 º C
12.55 t/h (1.76 kW)
Figure 2.3 Gas turbine cogeneration option for the textile mill
The investment, including the custom duty and tax, amounted to US$ 1,617/kW. The annual
maintenance cost was taken as 2.5 per cent of the total investment, i.e., US$ 190,000.
The main drawback of this option was the high price of diesel oil required in the gas turbine
that led to a long payback period. The cost of diesel oil is US$ 0.19/litre as compared with
US$ 0.12 /litre for heavy fuel oil. Moreover, the former has a lower heating value as compared
with the latter (36 MJ/litre versus 39.1 MJ/litre).
2.3.4 Option 3: combined cycle

As can be seen in the schematic diagram of this option in Figure 2.4, this is a combination of
the first two options. As a result, the combined power generation from the gas turbine and
steam turbine reaches 6.8 MW. This allows the plant to be self-sufficient during 93 per cent of
the year. The investment cost, including taxes, was computed as US$ 2,000/kW and the
annual maintenance cost was taken as 2.5 per cent of the investment.
As in the previous case, the main disadvantage of this system is the need for diesel as fuel,
which has a much higher cost when compared with heavy fuel oil.
2.3.5 Option 4: diesel engine

This configuration consists of a diesel engine with heat recovery steam boiler with auxiliary
fuel firing option, as shown in Figure 2.5. The investment cost, including taxes, was estimated
to be US$ 1,500/kW. This option provided the best economic result for the factory. Though the
possibility of using 2 diesel engines for generating more power and selling to the utility grid
was explored and led to higher economic returns, the factory management was interested in
this alternative.
100 bar/450 º C
12.5 t/h (11.26 kW)
HRSG
Fuel
800 kW
21.6 MW
Air
Exhaust ST G
G
36.2 kg/s
456 o C
6000 kW Steam to
Process
1.0 t/h (0.81 MW)

G
G C GT Water
C
o
12 bar/237 º C
12 bar/237
120 º C 6 t/h (4.84 kW)
12.5 t/h
(1.75 kW)
Water: 70 oC 56 bar/380 º C
11.5 t/hr 5.5 t/h (4.79 kW)
(0.94 MW)
Figure 2.4 Combined cycle option for the textile mill
Fuel 170 oC 56 bar/271 º C

31.0 MW 5.5 t/h,
(4.26 kW)
To Process
HRSG
2 × 6350 Exhaust
450 o C
kW
DIESEL
Air Cooler
G ENGINE
12 bar/188 º C
6 t/h,
(4.64 kW)
Water
70 oC
11.5 t/hr
Steam
Cooling Water (0.94 MW)
Water: 110 Co 56 bar/271º C
5.5 MW 0.43 t/h,
11.5 t/hr
(1.47 MW) (0.34 kW)
Water
130 º C
11.93 t/h (1.81 kW)
Figure 2.5 Diesel engine cogeneration option for the textile mill
2.3.6 Comparison of the different options

Table 2.2 summarizes the results of the analysis of the 4 options considered. As it can be
seen from the payback periods calculated, the diesel engine option has a clear edge over the
others. The results could however have been quite different had natural gas been available at
the site at a reasonable price.
Table 2.2 Comparison of the cogeneration options retained for the textile mill
Alt. Technical Power Percentage Investment + 40 Main Payback

Option Output Demand Met Per Cent Taxes Fuel Period
(MW) ( per cent) (106 US$) (Year)
1 Steam turbine 0.8 10 6.0 HFO 20
2 Gas turbine 4.7 60 7.6 Diesel 20
3 Combined cycle 6.8 80 13.6 Diesel 20
4A Diesel engine 12.7 160 12.6 HFO 6
4B Diesel engine 8.7 120 10.4 HFO 6
4C Diesel engine 6.4 80 9.6 HFO 6
On the basis of the analysis and in order to minimize the investment, the factory decided to
purchase a new diesel generator of 5 MW capacity and operate it along with the existing
generator to meet all the low-pressure steam demand of the factory. The existing high-
pressure boiler met the demand for high-pressure steam.
2.4 Cogeneration in a Paper Mill3
Cogeneration is widely used in paper mills around the world. Steam generated is used at
different pressures and temperatures for cooking of chips in digesters in the pulping process
and for drying of paper in paper machines. In addition, some amount of steam is used for
concentration of black liquor in multiple effect evaporators.
A small paper mill in India with an installed capacity to produce 60 tons of writing, printing and
duplex quality paper per day, uses agro-industrial residue based cogeneration to meet all the
process energy requirements. Waste paper is mainly used as the raw material and a small
quantity of pulp is produced from bagasse, the residue from the cane sugar mills.
2.4.1 Existing energy supply facility

Steam demand of about 7 tons/hour at 4 bar is met by two boilers, each with a capacity to
produce 6-7 tons of steam per hour, using coffee and rice husk as fuel. The utility grid met
electricity demand of about 2,500 kVA. During power interruptions, a stand-by diesel generator
set with an installed capacity of 1,525 kVA was used to take care of the essential power
needs.
Frequent power cuts, lasting for as much as 25-30 per cent of the year, forced the factory
management to look for an alternative economic source of power than the stand-by diesel
generator. Coinciding with the plan to increase the production capacity to 100 tons of paper
per day, a study was conducted to assess the viability of cogeneration. With the expansion
plan of the factory, the process steam demand was estimated as 13 tons/hour and the power
demand was expected to increase to 2,700 kW.
3
M.M. Patel and P. R. Raheja, “Case study presentation on cogen project and benefits at South India
Paper Mills”, paper presented at the CII Energy Summit ’96, Chennai, 11-14 September 1996.
2.4.2 Economic evaluation of cogeneration options

Four different options were considered for comparing with the present case, as follows:
1. Use of low pressure boilers for process steam only , and no power generation on site;
2. Use of a high pressure boiler and a back pressure turbine to meet 30-40 per cent of the
power demand;
3. Use of a high pressure boiler of a higher capacity, a back pressure turbine and an
additional condensing turbine, or a single extraction-condensing turbine to meet 60-70 per
cent of the power demand;
4. The same as (2), but all the power needs of the factory are met in this option.
2.4.3 No power generation

To meet the increased steam demand of digesters and for availing stand-by capacity, it was
proposed in this case to replace an old boiler by a new fluidized bed combustion boiler having
a capacity to produce 10 tons of dry saturated steam per hour at 10.5 bar. Entire power
requirement was to be met by the purchase of power from the utility grid, the diesel generator
continuing to provide the back up in case of power outages.
2.4.4 30-40 per cent power generation

The erratic power supply of the utility makes it absolutely necessary to have at least a
capacity to self-generate 30-40 per cent of the power need (600-700 kW) to avoid production
losses. Though a diesel generator is available, the power generated from this unit is quite
expensive and the maintenance cost of this unit is expected to mount with time.
As there was a need to acquire a new boiler, this option considered the option of generating
steam at 42 bar and 440°C. The steam could be supplied to a back pressure turbine to
generate around 30-40 per cent of the power demand of the factory, and the steam leaving
the turbine at a pressure of 4 Bar can be sent to fulfil process heating needs.
The initial investment as well as the operating cost of this system was found to be lower than
a diesel engine. The fuel used in the boiler is cheap and available in abundance. Moreover,
only the incremental cost of fuel required generating the same quantity of steam at higher
pressure and temperature was considered, which is only 20 per cent higher. The cost of
power generation worked out to be 36 per cent lower than that with the diesel generator.
From the practical side, a smaller size would mean the use of inefficient single stage turbine
and low voltage generator. This may lead to large imbalance in the system due to variations in
the process steam and power demands. The system balance can be achieved only by
operating the system at low plant load factor, thereby compromising the overall efficiency and
productivity of the factory.
2.4.5 60-70 per cent of power generation

At this level of power generation, higher productivity can be guaranteed with practically no
production losses. Installation of a higher capacity (14 tons/hour) and higher pressure (42 bar
and 445°C) boiler was considered. As much as 6-7 tons/hour of steam could be used in the
back pressure turbine and match the process steam demand. The remaining high-pressure
steam can be sent to a condensing turbine for additional power generation. The latter will also
assure to absorb the fluctuations in the process steam demand, without affecting the power
output adversely. Further, the use of a single multistage backpressure cum condensing
turbine will assure increased power output and higher system efficiency.
Though the initial investment becomes higher due to the higher boiler capacity and larger
turbine and generator, condenser, etc., it can be justified by the higher efficiency and plant
load factor. Moreover, the cost of additional fuel will be marginal. The power generated would
be adequate to handle all the critical loads whereas the non-critical loads can draw power
from the grid. Thus the plant productivity will no longer be affected by the utility power outages.
2.4.6 Full power generation

As there was a need to include installation and management of the fuel and ash handling
system, cooling water circuit for the condenser, and power interfacing and distribution, one
more alternative was included to further increase the boiler and turbine capacities to meet all
the heat and power needs of the factory. Though the investment required was higher, power
generation cost became much lower compared with that of the utility or the diesel generator,
mainly due to the low fuel cost. In addition, the option to avail full depreciation of the
investment in the first year made the economic viability of the project particularly attractive.
Hence the factory management retained this last option. The details of the economic
calculations for this alternative are summarized in Table 2.3.
Table 2.3 Technical and economic parameters of the cogeneration facility
Description Units Values

Power plant capacity kW 2,000.00
Cogeneration plant power consumption kW 350.00
Net power output for the factory kW 1,650.00
Working hours Hours/year 8,760.00
Plant load factor per cent per annum 0.80
Annual electricity generation 106 kWh 11.56
Annual fuel (rice husk) consumption tons/year 30,000.00
Annual fuel use for process steam tons/year 12,000.00
Annual net fuel supply for cogeneration alone tons/year 18,000.00
Investment on the cogeneration facility 103 US$ 2,000.00
Cost of electrical modernization 103 US$ 286.00
Price of electricity purchased US¢/kWh 9.43
Avoided cost of electricity generated 103 US$/year 1,090.00
Cost of fuel US$/ton 22.86
3
Cost of fuel for cogeneration 10 US$/year 411.00
Operation and maintenance costs 103 US$/year 114.00
Annual cost saving 103 US$/year 565.00
Gross payback period Year 4.00
It is expected that when the mill capacity is increased to 100 tons/day of paper, the same
cogeneration plant will operate with 20 tons/hour of inlet steam to provide 12-13 tons of
process steam per hour at 4 bar and generate around 2,700 kW of power.
A desuperheater was added near the paper machine to reduce about 100°C of superheat of
the process steam extracted from the turbine. Compared with the earlier process line
pressure of 7-8 bar, the present system operates at 5 bar pressure, thus the steam
consumption is reduced and the power output from the turbo-generator is increased per ton of
steam. In order to extract the maximum benefit from the cogeneration system and to make
the system more flexible and cost effective, the turbo-generator is run in parallel with the utility
grid.
2.5 Cogeneration in a Palm Oil Mill
The palm oil industry is one of the major energy consumers of energy. This industry also
generates vast amount of biomass such as mesocarp fibre, shell, empty bunches, fronds,
trunks and palm oil mill effluent, which can be used as the main source of fuel for
cogeneration with a capability to meet all the electricity needs of the factory. A crude oil and
palm kernel producing plant in Malaysia decided to install a cogeneration plant to meet all its
energy requirements, thus improving the efficiency, competitiveness, reliability, flexibility and
ease of operation.4
2.5.1 Production process of the factory

The ripe palm fruit bunches are subjected to steam-heat treatment for a period between 75 to
90 minutes in a horizontal sterilizer where saturated steam at 3 bar and 140°C is used as the
heat medium. These are then fed to a rotary drum stripper to separate the fruits from the
bunches and the fruits are sent to a digester. Digestion involves mashing of fruits under
steam heated conditions using direct live steam injection. Twin screw presses are used to
press out the crude oil from the digested mash under high pressure.
The crude palm oil consisting of a mixture of palm oil (35-45 per cent), water (45-55 per cent)
and fibrous materials is sent to clarification tank which is maintained at about 90°C to
enhance oil separation. The skimmed clarified oil is then passed through a high-speed
centrifuge and vacuum dryer. With the introduction of a cogeneration plant, excess thermal
energy and electricity are used in a kernel crushing plant. Both palm oil and palm kernel oil are
sold to palm oil refineries and oleochemical factories for further processing.
During steady plant operation, almost 5 tons/hour of palm shell was available with two
different moisture contents, 8.3 per cent and 16 per cent respectively. Likewise, 11.55
tons/hour of palm fibre was discarded with two different moisture contents, 19.25 per cent
and 30 per cent respectively. These residues were previously burned off in oversized and
inefficient boilers in order to overcome the waste disposal problem.
2.5.2 Technology adopted for cogeneration

The cogeneration system adopted to reduce the overall energy bill by simultaneous
generation of heat and power. A backpressure steam turbine system was adopted as the
simplest configuration for achieving the highest efficiency and maximum economy.
A water tube boiler is installed with a capacity to generate 35 tons of steam at 23 bar. The fuel
supply and combustion rate is controlled as a function of the airflow rate, by manual or
automatic adjustment of the fuel conveyor. Steam from the boiler is passed through a back
pressure turbine to generate 1,200 kW of electricity, meeting all the electricity needs of the
factory as well as the worker’s residential quarters. The steam leaving at 3 Bar is used as the
process heat for sterilizer, digester, crude oil tank, clarification, oil storage tank, kernel dryers
and other applications (see Figure 2.6).
4
L. Low, “Investing in cogeneration for efficiency, competitiveness, reliability and ease of operation at
Kilang Sawit United Bell”, Paper presented at the Cogeneration Asia ’97 Conference, AIC Conferences,
Singapore, 25-26 November 1997.
350 psig Exhaust: 45 psig (3 bar)
P. Shell
1,200 kW
BOILER Turbine #1 Power Supply to Mill
P. Fiber
Supply to other
Turbine #2
integrated activities to
(Future) harness excess energy
Back to Pressure
Receiver Distributor
Hot Water
for Boiler
Crude Oil Clarification Oil Storage Kernel

Sterilizer Digester
Tank (Oil Room) Tank Dryer
Figure 2.6 Steam turbine cogeneration in the palm oil mill
The total investment cost of the cogeneration plant amounted to US$ 523,000 and the annual
cost savings expected from the self-generated electricity is estimated as US$ 243,700. The
factory expects to recover the investment within 3 years after the commissioning of the
cogeneration plant.
Encouraged by the results, the company plans to achieve a ‘zero waste’ level in the factory.
There is a plan to fully exploit the excess energy by generating up to 2.5 MW of electricity and
integrating the operation of downstream activities such as the kernel crushing plant and
medium density fibreboard project.
2.6 Cogeneration in an Industrial Estate
The Thai Government policy of initiating and decentralizing economic development has led to
the successful creation of several industrial complexes away from the capital. These
industrial complexes require considerable amount of reliable power and process steam. Many
industries inside these complexes are excellent customers of large-sized cogeneration
plants. One such 300 MW gas-fired cogeneration power plant was launched in Map Ta Phut
Industrial Estate as early as in 1994.5
5
Y. Le Scraigne, “The first IPP project developed in Thailand – The Map Ta Phut cogeneration plant”,
Paper presented at the 1994 Cogeneration Conference, AIC Conferences, Bangkok, 20-21 June 1994.
2.6.1 Description of the cogeneration project

The cogeneration project was developed in two identical phases. Taking the environmental
concerns into consideration, natural gas-fired combined cycle cogeneration option was
retained which minimizes the level of exhaust emissions and reduces the cooling water
requirement by half in comparison with a conventional power plant. Each phase included 3
gas turbines (35 MW each), a heat recovery steam generator (HRSG) to recover heat from
the flue gases of the gas turbines, a steam turbine of 50 MW capacity, and the auxiliary
equipment necessary to produce and distribute the generated electricity and steam to
industrial customers and the utility grid (see Figure 2.7 for details). In each phase, 150 MW of
electricity and 145 tons/hour of process steam were generated at two different pressures
required by the industries: 60 tons/hour at 52 bar and 425°C, and 85 tons/hour at 19 bar 250°
C. The high pressure steam is taken directly from the boiler. The medium pressure steam is
bled off the steam turbine, with a back up provided by the high pressure steam supply through
a turbine by-pass fully equipped with a pressure reducing and desuperheating station.
Stack
8.8%, 34.3 MW
Fuel: 100%
11.7%: 3×15.1 MW H Water
R
88.3%: 3×114.6 MW S
Air 61
.3 238.7 64.2%
Comb. % MW 3 ×83.5 MW
HP Steam:
6.8%: 26.3 MW
C T G MP Steam:
13.9%: 53.8 MW
Electricity Cooling Water

27%: 3× 35 MW 12.3%: 47.8 MW 31.2%%: 121.4 MW
Figure 2.7 Combined cycle cogeneration (Phase 1) at the Industrial Estate
The cogeneration plant assures electricity, steam and demineralized water supply to several
petrochemical and downstream industries. Customers have signed long-term contracts to
take or pay for a minimum off-take quantity of steam. The steam price has three components:
capacity, energy and transportation. Steam is supplied to the customers with an availability
guarantee. A part of the electricity generated is sold to the customers whose price has
capacity and energy components, the remaining amount is sold to the utility grid according to
the tariff set for small power producers.
Natural gas is used as the main fuel for which a long-term agreement has been signed with
the Petroleum Authority of Thailand. Distillate oil can be used as a back-up fuel.
In line with the incentive policies of the Board of Investment, certain privileges were granted to
this project, such as:
- import duty exemption or reduction on imported machinery;
- corporate income tax exemption for 8 years, and further reduction of 50 per cent for 5
more years;
- double deduction from taxable income of electricity, water and transport costs for 10 years
from the date of first sales;
- deduction from net profit of the costs of installation or construction of the project’s
infrastructure facilities;
- exemption of personal income tax on dividends to shareholders.
2.6.2 Choice of the cogeneration plant

The choice of technology is primarily based on the consideration that both steam and
electricity can be supplied with high efficiency and reliability. During the plant operation, there
is practically no SOx emission and the NO x level is reduced to 50 ppm (with 15 per cent O2)
with steam injection.
The major advantages of this configuration are:
- low capital cost: approximately three-fourth that of a conventional power plant of the same
output;
- short gestation period: two-third of the power available with gas turbines within 12 to 15
months, and remaining one-third is available with steam turbine within 18 to 20 months;
- low operating and maintenance costs; competitive operating costs and higher availability,
particularly in comparison with coal fired thermal steam power plants;
- higher efficiency: electrical efficiency of 45.14 per cent in combined cycle mode, and
global efficiency of almost 70 per cent in cogeneration mode;
- flexibility of operation: ensured by the modularity of the plant, gas turbine exhaust by-pass,
steam turbine by-pass system, and the option of auxiliary firing on HRSG which allows
some decoupling between power and steam generation.
The gas turbines are installed outdoor. The unit is capable of being operated at full load within
16 minutes. Each unit consists of the following components:
- air inlet module with filter, silencer and ducts;

- gas turbine and auxiliary equipment package;
- generator package with load gear, exciter and coolers;
- exhaust module with ducts, bypass stacks, silencer and expansion joints;
- control components with option for local operation;
- medium voltage compartment with circuit breakers and auxiliary transformers.
The gas turbine consists of a 17-stage compressor, combustion system with 10 individual
combustors, a 3-stage turbine, air systems, lube oil system common to gas turbine and
generator, cooling water, and fuel systems. It is equipped with a steam injection skid for NO x
emission, acoustical enclosure for noise reduction, silencing equipment on inlet and exhaust
ducts, and a CO2 fire protection system.
The HRSG is of simple and proven design. It has a low thermal inertia to allow fast start-up
and rapid load swings, high resistance to thermal shocks, low exhaust gas pressure drop,
high heat recovery, and high reliability and maintainability.
2.6.3 Financing of the project

Most of the difficulties encountered in financing large-scale power projects are avoided as the
project is of a reasonable size. The financeability of the project is enhanced by the
commitment and references of the project sponsors as well as the quality of the customers.
The project sponsors have large experience in energy projects. The industrial clients are
mostly very much capital intensive and are able to take long term off-take commitments.
The electric utility plays an important role by purchasing surplus electricity, thus providing
stable and additional revenue to the project. Also, back-up electricity is provided from the grid,
ensuring that availability targets of the industrial users can be achieved.
The Government has demonstrated a clear policy for privatization of power generation along
with accompanying regulations and incentives.
The equipment suppliers provided necessary confidence and guarantees to the lenders and
guarantors on the following:
- project investment cost control, by accepting the construction of the plant for a fixed and
firm price;
- completion on time, by accepting liquidated damages, for failures to meet targeted
completion date;
- plant performance in terms of availability and reliability, by accepting liquidated damages
for failure to meet targeted figures.
In addition, there was the advantage of reduced interest during construction due to
progressive investment and short gestation time, and the ability to generate income after only
a year of signing the contract when the plant started operating in open cycle.
The debt-equity ratio of the project was 3:1. During the financing arrangement, maximum
flexibility in the choice of currency and the type of interest rates were offered to the
developers. The subsidized loan included a 10-year loan term from the commissioning date of
the project. Local financing could be made available to cover other investment costs.
Cogeneration experiences around the world 83
CHAPTER 3: C OGENERATION EXPERIENCES AROUND THE WORLD
3.1 Introduction
There is no standard procedure or method to gather reliable and up-to-date data on

cogeneration-based power generation and installed capacity in each country on a basis
comparable with the others. There is yet to be a commonly agreed definition and an
assessment of the quality of cogeneration in terms of its energy efficiency and environmental
benefits.
Based on data available in literature, north European countries are presently the leaders in the
field of cogeneration, having between 30 to 40 per cent of their power generating capacities as
cogeneration. In the case of the European Union of 15 countries, cogeneration represented 13
per cent of the total gross installed power generating capacity and 9 per cent of the total gross
electricity generation in 1994. However, countries like Denmark, Finland and the Netherlands
far exceed the others.
Next in line are the central European countries and China, which have an average of 10 to 15
per cent. The United States has less than 10 per cent of electricity coming from cogeneration
whereas the figure for Australia is just over five per cent. Worldwide trends indicate that a
significant increase in cogeneration is likely to occur over the next 20 years.
There is a general consensus that the importance of cogeneration technology is linked with its
potential for rendering higher energy efficiency, more stable energy supply, and reduced
environmental impact. Even in countries where the power sector is mature and the demand
for electricity has stabilized, options are being explored to deal with the seasonal variations in
electricity demands with an expansion of decentralized electricity generation, where small and
medium scale cogeneration will find a niche market.
In many industrialized countries, cogeneration is playing an increasingly important role in

industry and in the residential and service sector. It is being perceived not as a competitor to
the conventional power generation system, but as an advanced technology that can be
applied to hospitals, hotels, shops and offices. Another area where cogeneration has become
popular is the district heating network, and more recently district cooling in tropical climates.
This section briefly describes cogeneration experiences of selected countries around the
world, focussing mainly on the United State of America and Europe where cogeneration is
better organized and data for most countries are more easily accessible.1
3.2 United States of America
The United States of America has been widely recognized as the first country for having set
up policy for promoting cogeneration. The Public Utility Regulatory Policies Act of 1978
("PURPA") was signed into law in November 1978. Enacted as part of a package of legislation
to combat the "energy crisis," and the perceived shortage of natural gas, PURPA's primary
purposes were to promote conservation (through cogeneration of both steam and electricity)
and to encourage greater use of alternative sources of power generation. In order to
accomplish these objectives, PURPA established a class of non-utility generators comprised
of small power producers and cogenerators.
1
Much of the information in this section was gathered from a number of websites.
PURPA requires electric utilities to offer to sell electric energy to qualifying cogeneration
facilities and qualifying small power production facilities, and purchase electricity from such
facilities. Importantly, PURPA was intended to accomplish its objectives while protecting
consumers from having to pay more for power from cogenerators than they would pay for
power produced or purchased by the utility. The benefits enjoyed by a cogeneration facility
under PURPA are significant. These are:
1. Advantageous buy-back rate treatment for sales of cogenerated electricity: Utilities may
negotiate to pay up to their avoided costs to purchase cogenerated power;
2. Ease of interconnection and backup service: Expensive equipment redundancy for
reliability is no longer required. However, cogeneration systems are still required to meet
the utility’s safety and protection conditions while interconnected to the grids;
3. Supplemental Utility backup power at reasonable rates: Utilities cannot discriminate
against cogenerators by charging unreasonably high rates for supplemental power;
4. Exemption from federal and state utility regulations: Qualifying cogeneration facilities are
exempt from public utility regulations. The expense of reporting and the compliance
burden associated with the Federal Energy Regulatory Commission (FERC) and state
utility commissions can be avoided.
Besides the benefits mentioned above, other favourable regulations intended to ease
administrative burdens for cogenerators to seek exemptions and to eliminate fuel use
restrictions for industrial cogenerators are mentioned below.
Exemption from Fuel Use Act for Using Oil and Natural Gas: Fuel Use Act (FUA) of 1978
prohibits the use of oil and natural gas in existing power plants and major fuel burning
installations if the facilities have or could have the capability of burning coal or another
alternative fuel. New power plants and major fuel burning installations with boilers cannot be
built without the capability of using coal or another alternative fuel. A new or existing
cogenerator has to obtain an exemption from the Economic Regulatory Administration for
using oil and natural gas.
Exemption from Natural Gas Incremental Pricing: The Natural Gas Policy Act of 1978
(NGPA) requires all incremental cost increases incurred as a result of the phased
deregulation of natural gas well-head prices to be passed to customers who burn natural gas
in non-exempt industrial boilers and other non-exempt industrial facilities defined by the
FERC. NGPA authorizes the FERC to exempt cogenerators from incremental pricing.
Energy Tax Credits: Energy tax credits were established for various qualified cogeneration
components by two energy laws, the Energy Tax Act (ETA) of 1978 and the Crude Oil
Windfall Profits Tax Act (COWPTA) of 1980.
Cogeneration equipment investments are not specifically addressed in the ETA. However,
certain components used in the cogeneration system such as waste heat boilers, preheaters,
economizers, etc., can qualify for a 10 per cent energy tax credit in addition to the regular 10
per cent investment tax credit.
Between January 1, 1980 and December 31, 1982, the COWPTA provided a 10 per cent,
non-refundable energy credit for qualified investments in cogeneration equipment that have a
five-year or longer operating life and a 6 per cent credit for qualifying cogeneration facilities
that have a three to five-year life.
Tax-Exempt Financing: State and local power authorities and other government-owned
electric utilities may issue tax-exempt bonds (exempt from federal income tax) and use the
proceeds of the bond to finance the construction of cogeneration systems. However, if an
industrial company of an investor-owned utility plans to construct a cogeneration facility or if a

government-owned utility plans to construct such a facility and sell more than 25 per cent of
its output under a long-term contract to a private user, the facility will generally not be eligible
for tax-exempt financing.
According to the most recent data available, at the end of 1996, wind turbines, solar and
geothermal units together accounted for 4.9 per cent of all installed non-utility generation
capacity. Biomass comprised another 15.1 per cent. On the other hand, natural gas, coal and
oil make up for over two-thirds, or 68.8 per cent, of the installed non-utility generating capacity.
3.2.1 Renewed interest in cogeneration

Cogeneration is now used extensively by several energy-intensive industries, including pulp
and paper, chemicals, and petroleum refining. Following are the developments that have
renewed interests of both government and industry in expanding cogeneration applications to
other industries as well as other sectors of the economy:
- Recent advances in technologies such as combustion engines, steam turbines,

reciprocating engines, fuel cells, and heat-recovery equipment have decreased the cost
and improved the performance of cogeneration systems;
- A significant fraction of the country’s boilers will be replaced in the next decade, which will
provide opportunity to upgrade them with clean and efficient cogeneration systems;
- Environmental policies related to abatement of greenhouse gas emissions have created
pressures to find cleaner and more efficient means of energy use;
- The restructuring of the electric power market provides new opportunities for innovations
in power generation and smaller-scale distributed systems such as cogeneration.
Although the technical performance and costs of cogeneration systems have improved, there
are significant barriers to their widespread use, which include the following:
- Environmental Policies: Environmental permission for cogeneration systems remains

complex, costly, time-consuming, and confusing. Air pollution permits are required from
state environmental authorities before the plant can be constructed. Current environmental
regulations do not recognize the overall energy efficiency of cogeneration, or credit the
emissions avoided from displaced electricity generation;
- Utility Policies: Many utilities currently charge backup rates and require complex
interconnection arrangements for cogeneration systems;
- Tax Policies: Depreciation schedules for cogeneration investments vary depending on
system ownership. The depreciation period can be as long as 39 years for some types of
owners, much longer than the depreciation period for utility-owned power plants. This
limits the use of alternative financing or ownership arrangements.
The Department of Energy (DOE) is attempting to raise awareness of the energy,

environmental, and economic benefits of cogeneration, and to promote innovative thinking
about ways to accelerate its propagation. Key participants in this challenge will be the state
and regional officials. One target is to expand the use of this technology in government
facilities by working with the Federal Energy Management Programme (FEMP) and facilities
management agencies.
DOE is undertaking its efforts in co-ordination with the United States of Environmental
Protection Agency, which is focusing on environmental permit issues such as application of
output based emissions standards to CHP systems, and the inclusion of cogeneration as a
strategy in State Implementation Plans for the Clean Air Act.
3.3 Denmark – One of the European Leaders in Cogeneration
Being more than 90 per cent dependent on imported oil, Denmark was vulnerable to oil price
escalations as a consequence of the first oil shock. Danish Energy Policy 1976 focused on oil
substitution and security of energy supply. Power plants switched from oil to coal and targets
were set to increase the growth in cogeneration to meet the heat demands from 8 per cent in
1976 to 25 per cent by 1995. This was achieved mainly due to the supply of natural gas from
the North Sea.
The Electricity Supply Act 1976 gave sufficient authority to the government to intervene in the
planning and operation of the power sector, such as selection of technology, including
cogeneration, and placing the power plant near heat loads. The power utilities were obliged to
accept the deliveries of cogenerated electricity at high buy-back rates, 10 to 15 per cent lower
than the utility tariff charged to large consumers. The Heat Supply Act 1979 was aimed at
adopting the most appropriate space heating and hot water supply systems, and municipal
authorities gained the right to make the connection to district heating systems mandatory.
By the mid 80s, cogeneration was widely used in large towns and fresh initiatives were taken
in 1986 to develop around 450 MW of small scale cogeneration programmes in about 300
small towns with the power utilities playing a major role. In 1988, guidelines were issued by
the Ministry of Energy, which required all municipalities to ban the use of electric heating in
new buildings in areas having collective heat supply facilities. The Heat Supply Act was
revised in 1990, which obliged all municipalities to ensure that cogeneration schemes are
approved and that local heat markets are created.
In 1990, ‘Energy 2000 - a plan of action for sustainable development’ was initiated with an
ambitious emissions target and in which cogeneration development was emphasized. All new
power generating capacities planned up to 1995 were to be in the form of conversion of
existing districting heating systems to small-scale cogeneration systems fuelled by gas,
waste or biofuels. This plan also initiated the substitution of coal with gas in large-scale
cogeneration facilities for which 15-25 per cent grants were available.
Energy taxes were introduced in the late 70s to keep power prices at a consistently high level
and taxes were adjusted to maintain the prices charged to consumers constant. But the
accompanying legislation ensured the competitiveness of cogeneration projects in relation to
individual oil firing. Following the introduction of legislation in December 1991 to limit CO2
emissions, a subsidy was introduced for small-scale cogeneration plants that deliver
electricity to the grid (0.1 DKr/kWh for cogeneration based on gas and 0.17 DKr/kWh for
cogeneration based on biomass).
The Danish industries have done little in the past to meet their own energy needs. Thus only
about 150 MWe of industrial cogeneration is in operation today. With the introduction of energy
tax for industry and the availability of grants and subsidies, about 450 MWe of economic
cogeneration potential have been identified.
In 1993, utility generation accounted for 29,782 GWh of electricity and 19,546 GWh of heat.
The energy efficiency of conversion was 58 per cent that would have been 40.3 per cent
without cogeneration. Non utility cogeneration accounted for only 607 GWh of production. On
the whole, over 10 per cent of fuel are saved through cogeneration in Denmark. This figure is
a little low because of the low load factor, i.e. cogeneration plants often operate in non-
cogeneration mode due to the low heat demands. Heat from cogeneration plants accounted
for 64 per cent of the total heat supply to district heating network, and almost half of this was
for space heating alone.
By 2005, district heating is expected to account for 60 per cent of the total heat demand (47
per cent in 1990) and 90 per cent of this demand (55 per cent in 1990) would be met by
cogeneration. This achievement is only possible with a very conducive policy framework set
by the national authorities, active involvement of the utilities and a combination of legislation,
grants and subsidies, tariffs and tax incentives. This could not have become a reality if left
purely to the market initiatives because of the major capital investments necessary for the
development of large cogeneration and district heating networks.
3.4 Cogeneration Development in France2
The long-term energy policy adopted by France following the first oil shock has resulted in a
successful nuclear power generation programme to the extent that the generation capacity
exceeds the demand in France and the electricity prices are among the lowest in Europe. The
role of cogeneration has thus been marginal up to the 80s. In 1995, cogeneration represented
only around 1.4 per cent of the total power production in France. According to the study done
by Ceren in 1996 for the Ministry of Industry, the total installed cogeneration capacity at the
end of 1995 was 3,200 MW. The production for 1995 was around 9 TWh of electricity and 34
TWh of thermal energy. Steam turbines dominated with a share of 75 per cent, followed by
gas turbines (19 per cent) and internal combustion engines (6 per cent).
The Ministry of Industry had forecasted this figure to rise to 5 GW by the year 2005. However,
recent policy and tariff changes have favoured much rapid development of cogeneration,
proven by the fact that in 1997 alone, the installed capacity had doubled the figure of 1996,
attaining 500 MW. If a few of the planned big projects are actually implemented, the figure
could easily surpass 1,000 MW in 1998.
3.4.1 Cogeneration in the past and at present

By the French law of 1946 which nationalized the electricity sector, only small individual
producers were allowed to generate up to 8 MVA of power which the public power utility,
Electricité de France (EdF), was obliged to purchase. The key factor was the purchase price
of electricity, which was perceived by potential developers as too low to encourage
cogeneration projects, as the payback periods were too long. There were limited periods in
the year (during winter season) when the price of electricity was 10 to 20 times higher than
the off-peak periods. It was during this period that the industrial users found it attractive to set
up cogeneration facilities. However, cogeneration plants are economical if they are allowed to
operate for at least 4,000 hours per year, even in the industrial sector. Moreover, small-scale
plants were prone to periodic scheduled maintenance and unscheduled failures, during these
periods the user had to depend on EdF that applied high stand-by charges.
In 1993, in order to better control and encourage electricity production from cogeneration, EdF
established a buy-back rate linking a fixed bonus to the selling price of electricity. Electricity
generation then became lucrative and some enterprises installed power plants using
reciprocating engines. Their objective was to produce electricity up to the level of 8 MVA
during winter months when the purchase price of electricity is the highest. The low efficiency
of these power plants (35 per cent) resulted in the generation of electricity, which was
economically attractive but with poor performance and high pollution.
To deal with such a situation, the decree of December 1994 lifted the obligation imposed on
EdF to purchase all electricity produced in France (the decree of May 1955), except in cases
where electricity is obtained from renewables (solar, wind), incineration of industrial or urban
wastes, and from cogeneration systems having an efficiency above 65 per cent.
2
B. Mohanty, “French experience in cogeneration development”, Presented at Korea-French Seminar
on Advanced Technologies for Electricity Production, Seoul, 27-28 October 1998.
The attitudes of the government and the power utility have changed slowly over the years.
New ‘decrees’ were announced in favour of cogeneration by the national authorities in the
beginning of 1995. The national gas company, Gaz de France (GdF) is also promoting
development of cogeneration using natural gas through information dissemination, technical
and economic appraisal, financing arrangements, maintenance and advisory services. There
has been a very rapid evolution of natural gas use in new cogeneration installations in the
recent years, as can be seen in Figure 3.1.
600
Installed Capacity (MW)
500
Building
400
Heating Network
300 Industry
200
100
0
91 92 93 94 95 96 97
Figure 3.1 Statistics of cogeneration with natural gas as fuel
The sudden hike in installed capacity between 1996 and 1997 is the result of the new policy,
removing barrier on the limit of electricity sale to the grid. In 1995 and 1996, most units had a
size ranging between 1 and 8 MW whereas much bigger installations were commissioned in
1997, mostly in industries. There were altogether 84 installations ordered in 1997, 22 using
turbines and 62 using combustion engines. The total installed capacity for gas turbines was
450 MW whereas for engines, it amounted to 132 MW only.
Recent policies regarding financial assistance for cogeneration include tax holiday on natural
gas for 5 years, reduced tax on investment costs, 50 per cent reduction in professional tax,
etc. For facilitating further development, the “Cogeneration Mission” of Gaz de France started
offering a package of services including:
- technical advice during the preliminary study (75 per cent of the projects done since
1991);
- assistance in engineering during project implementation or during the signing of
maintenance contract (25 per cent of the projects since 1991);
- assistance for arranging finances (35 per cent of the projects since 1991);
- financial guarantee on possible changes in energy prices (35 per cent of the projects
since 1991).
3.4.2 Other actors promoting cogeneration

The French Environment and Energy Management Agency (ADEME) has been an ardent
supporter of cogeneration for several years. Before 1990, this technique was supported by
ADEME because it allowed reducing around 30 per cent of fuel thanks to its efficiency ranging
from 75 to 80 per cent. In the early 90s, another important justification to support cogeneration
was the reduction in environmental pollution associated with energy saving of cogeneration
installations. Moreover, cogeneration favours the concept of decentralized energy production,
in the range of 1 to 100 MW, which will find its relevance particularly when there will be a need
to replace the existing nuclear power plants in 2005 and 2010. Today, around 65 power plants
produce about 80 per cent of the electricity for the country, Such a centralized production
leads to environmental problems related to transportation lines and the constraint of supplying
to some regions.
Today ADEME provides advisory service before the client approaches a consulting firm. It
also assists public organizations during the bidding process. Public authorities solicit ADEME
when new norms and standards are being formulated on cogeneration.
The Club Cogénération, created in 1991, groups many important French entities concerned
with cogeneration. These are local communities, district heating networks, heat operators,
energy suppliers, equipment suppliers (turbines, engines, etc.), engineers, consulting firms,
financing and insurance agencies. The Club proposes to public authorities regulatory
measures that can favour the growth of cogeneration. It participates in working groups and
gives opinion on the texts prepared in France as well as in Europe. It plays the role of a
catalyst for exchanging experiences and information among professionals. The Club
organizes training workshops and seminars periodically. The club also assures the follow-up
on technological developments in cogeneration: new models and systems, efficiency
improvements, impact of the installations on the economy and environment.
3.4.3 Innovative cogeneration development

Many industries and some communities are concerned about their main areas of activities
and have limited budget for investing large sums in cogeneration plants. They often associate
themselves with a company that includes an operator, a manufacturer, and a fuel supplier.
Some of the operators sign a contract with their client that includes operation and
maintenance guarantee for 6 to 12 years.
The Général de Chauffe - Esys Montenay is a European leader in operating cogeneration

installations. It proposes to take care of the production of all thermal energy needs of its client.
It has 1,600 industrial clients in Europe (of which 90 per cent are in France and the United
Kingdom), and has a share of 35 per cent of the French market. The company manages large
district heating networks and steam generation facility to cater to industries with high steam
demand.
An industry that decides to install a cogeneration plant need not approach an operator, in
which case, it has to make high investment and accept a long payback period. On the other
hand, when an industry decides to go through an operator, it can achieve 10 per cent energy
saving due to cogeneration without spending any money on the installation or getting involved
in the operation and maintenance. Once it signs a contract to purchase energy from the
operator, it is guaranteed a price and the quantity of steam to be supplied. Some industries to
which the Général de Chauffe - Esys Montenay group supplies cogenerated energy are
Michelin in Clermont-Ferrand (gas turbine of 30 MW capacity) and Troyes (gas turbine of 20
MW capacity), and Swatch-automobile in Forbach (gas engine).
In the framework of its development activities in the energy field, Sofregaz created a
company specialized in cogeneration, known as Cogeplus. The objective of this entity was to
develop competence and know-how in the domain of cogeneration in France, which could
later be exported to other countries. Today, Cogeplus has attained its first objective. It has a
variety of references in industries and municipalities, such as the factory of Rhone-Poulenc in
Salindre (5 MW), factory of Pechiney in Gardane (80 MW), and an installation for the city of
Limoges. Cogeplus undertakes turnkey projects and advises its clients. It assures the overall
responsibility for each of its projects by committing to implement the project in time and
guaranteeing performance. It can offer to co-ordinate project financing for the client by getting
in touch with financial institutions.
3.5 Spain’s Energy Policy Favouring Cogeneration Development
In spite of the fact that Spain has a milder climate and an industrial base which is less
developed as compared with the Netherlands or Germany, the country has emerged as one
of Europe’s leader in the development of cogeneration. This is a direct consequence of the
energy policies favouring cogeneration.
The country has demonstrated that clear policy actions can lead to the development of
effective tools, ensuring rapid cogeneration growth and reaping the energy, economic and
environmental benefits associated with it. It has also set an example of how such a
promotional policy can lead to some adverse effects if it is not undertaken in a broader
perspective of long-term sustainable energy planning in a country.
The policies developed by the national authorities in the late 80s sent a very positive signal to
the market and favoured cogeneration to an extent beyond what was projected in 1990. The
scale of incentive tariffs announced led to payback periods as low as 3 years. Cogeneration
appeared to have become such a lucrative activity that some cogenerators sold all the
electricity generated in their plant to the grid and met their own power needs by buying it from
the grid at a cheaper rate than their selling price. The rationale behind this incentive tariff is
that the cogenerator takes the bulk of the project risk in the form of raising up-front capital and
having a short term purchase contract. However, the Association of Electricity Self-producers
(AAEE) counters this by pointing out that the number of cogenerators actually enjoying such
high profitability is very marginal. On the other hand, cogeneration projects have helped to
save over 15 billion Ptas annually in oil imports.
The evolution of cogeneration has been entirely in the industrial sector, often with the
participation of the power sector. An energy conservation law established in 1980 provided
attractive legal framework for electricity self-generation and cogeneration through tariff
incentives. The tariff at which electricity was purchased by the utilities even exceeded avoided
costs but these were passed on to the consumer by the utility. Guaranteed electricity supply
to the utilities fetched the highest rates. However cogeneration did not develop fast till 1986
and most utilities were opposed to cogeneration development. The Institute for Diversification
and Promotion of Energy (IDAE) started promoting it in 1986 through information
dissemination programmes, advisory services, third party financing, etc.
As a part of the national energy plan, major initiatives were undertaken by the Plan for Energy
Conservation (PAEE) in the areas of energy conservation and substitution, cogeneration and
renewable energies. The cogeneration programme set a target for increasing cogeneration
capacity from 959 MW in 1990 to 2,222 MW by the year 2000 (see Figure 3.2). The annual
contribution from cogeneration was expected to increase from 4,708 GWh in 1990 to 14,227
GWh in 2000, resulting in 42,000 toe of annual fuel saving.
2000
1994
1993
1992
1991
1989-90
1986-88 PAEE target

Over target
1980-85
1980
0 500 1,000 1,500 2,000 2,500

MWe installed capacity
Figure 3.2 Forecast of cogeneration growth in Spain
Spain has about 20 utilities, mostly private, which account for 98 per cent of the generation
and supply of electricity. As cogeneration schemes were found to provide lucrative returns
with payback periods of 5 years or less compared to 25 years for the conventional plants,
many utilities took active interest in promoting cogeneration in the form of investment and joint
ventures, mostly in industrial schemes. Data for 1994 shows that the installed capacity was
higher than the PAEE target at 1,847 MWe, producing 10,650 GWh and accounting for 6.5 per
cent of the total power generation. Three industrial sectors - paper, refining and chemical -
had about 110 new schemes, accounting for 75 per cent of the new capacity. Small
cogeneration units installed since 1980 contributed to 17 MWe, of which 36 installations were
below 1 MWe capacity, mostly using natural gas.
Though some utilities became active in promoting cogeneration because of the attractive
returns on investment, the response of the power sector as a whole was mixed. On some
occasions cogeneration was opposed, on others the power industry was either neutral or
supportive to the concept. This confused attitude often sent a negative signal to the
prospective investor. Particularly, a year prior to the issuance of the new Electricity System
Law in 1995, it was widely known that some changes unfavourable to cogeneration would be
introduced. This effectively put a block on the development of new schemes.
The new law of 1995 is expected to have some regressive impact on the extent of new
cogeneration development in Spain. This legislation intends to harmonize self-generation with
the central system and develop a uniform tariff. A major blow on the cogenerator has been the
reduction of the tariff of exported electricity in steps by 30 per cent after 5 years of
commissioning. Accordingly, the payback periods are expected to be much longer, as much
as 15 years. The minimum purchase contract period has been specified for five years. The
cogenerator is allowed to sell only the electricity produced in excess. Penalties for non-supply
of guaranteed electricity have become so high that the cogenerator is likely to choose a
programmed tariff that has a lower rate. The law appears more favourable to the power sector
which will become a major player in cogeneration investment in the future as it is highly
unlikely that lower returns and higher risks involved in cogeneration projects can attract private
sector investment any longer.
3.6 Cogeneration Promoting Strategy in the United Kingdom3
The United Kingdom has a target to attain 5,000 MW of cogeneration by 2000. This would
require an installation rate of 270 MW of new cogeneration capacity per year for the period
1991-2000. According to the data monitored by the Department of Environment in
collaboration with other organizations and the cogeneration industry, good progress was
made during the first half of 1990s. At the end of 1995, there were approximately 3,500 MW of
cogeneration installed in around 1,300 sites, meeting about 5 per cent of the country’s
electricity requirements. Table 3.1 shows the evolution in the total capacity and electricity
generated from 1991 to 1996. This steady increase in capacity is the outcome of the
concerted efforts from industry, cogeneration promotion association (CHPA) and government
to promote the technology. Cogeneration technology is considered as a crucial area of the
government’s Energy Efficiency Best Practice programme which provides credible and
independent information through various media, and much of direct support for technology
development and innovative applications.
Table 3.1 Steady growth of cogeneration in the UK from 1991 to 1996
Year 1991 1993 1994 1995 1996

Total cogeneration capacity (MWe) 2,312 2,893 3,141 3,487 3,562
Electricity generated (GWh) 11,017 14,171 12,152 17,611 19,081
Most recent cogeneration figures available show that there are a total of 1,336 cogeneration
schemes in operation throughout the United Kingdom with a total capacity of 3,562 MWe. The
details of the different sizes are given in Figure 3.3; as it can be seen, the vast majority of
these in operation have a capacity less than 100 kW while larger than 10 MWe units make up
for almost 80 per cent of the total capacity. Almost three-quarter of the total number of
installations was for commercial, residential and public sector buildings. On the other hand,
the industrial sector dominates the cogeneration market, accounting for 89 per cent of the
total installed capacity. From this information, one can conclude that industrial cogeneration
schemes had much bigger power generating capacities than those in the other sectors did.
The largest growth in the number of schemes has been in the small sector, typically below 1
MWe. As many as 273 schemes were installed during 1994-1996, with an aggregated power
generating capacity of 60.2 MW, with an average of only 220 kW per scheme. As for the
larger installations, 16 units were contracted in 1995, amounting to a total of 292 MWe.
3
ETSU, “Statistics for combined heat and power in the United Kingdom”, Prepared for the Digest of
United Kingdom of Energy Statistics (DUKES), 1997.
800 3,000
700 Installations
2,500
Number of installations
Total capacity
Total capacity, MWe

600
2,000
500
400 1,500
300
1,000
200
500
100
0 0
< 0.01 0.1 - .99 1 - 9.9 > 10
Electrical capacity range, MWe
Figure 3.3 Capacity range of cogeneration units installed in the UK (1996)
3.6.1 Policies and initiatives for promoting cogeneration

Privatization of the public utilities and the on-going liberalization of the energy market have
given a boost to the cogeneration business. The majority of the small cogenerators does not
require getting a license and have been exempted from the fossil fuel levy. Even export of
power up to 500 kW is allowed with the need to have a supply license.
Government policies encourage the development of local generation, and there is a growth in
the provision of integrated energy services, as opposed to simple energy supply, an approach
which is very much compatible with cogeneration. Some of the policy changes that have
benefited cogeneration include:
- The level of supply at which a generation license is required has been increased from 10
to 50 MWe; in certain circumstances, temporary supply of power above 50 MWe is
allowed; the rule of 51 per cent “own use” has been relaxed;
- The rules regarding supply of electricity have been changed, giving more flexibility for
cogeneration scheme operation and the opportunity for more on-site customers to benefit
from it;
- With the introduction of net trading, the burden on the cogenerator is removed as the
electricity that is used on-site does not have to be sold through the pool;
- Cogeneration involving community heating, when it displaces electrical heating system,

can be supported under the Public Electricity Suppliers’ obligations;
- The Electricity Act has been amended to favour municipal waste based cogeneration; long
term contracts are signed for electricity from renewable sources;
- Local authority capital finance rules have been relaxed to facilitate cogeneration and
community heating through private sector partnership; such schemes are also eligible for
revenue support.
There are several constraints to cogeneration development in the United Kingdom, the most
notable among them is the need for high investment even though one can except to get
attractive returns and cheap energy. Added to this is the overall volatility in the energy market
and a perception of falling electricity prices that lead to uncertainty in decision making.
Even though cogeneration and district heating are well established and found to be generally
reliable, there is still a lack of awareness and distrust of the technology and its benefits. Some
potential cogenerators are concerned about the commercial impact of protracted negotiations
with regional electric companies, or do not comprehend well the regulatory and market
complexities.
The next few years offer a number of key opportunities for cogeneration to grow. Complete
liberalization of the energy market will allow all energy users to choose their energy suppliers.
As a result of privatization and market liberalization, energy companies are expanding their
range of products and services. There is an increasing trend to shift from simple fuel and
power supply to integrated energy service packages. Expertise of energy service companies
and their ability to finance projects will provide excellent opportunity for cogeneration to grow.
Greater development of community heating with the participation of local authorities and
private sector developers will provide new opportunity for cogeneration. Energy recovery and
cogeneration from waste will represent the best practicable environmental option and provide
a major opportunity for sustainable waste management.
Government has set an objective to establish an undistorted market for cogeneration and to
eliminate any unnecessary barrier so that the target of 5,000 MWe by the year 2000 is met. To
start with, government seeks cost effective options for applying cogeneration to its own estate
and to persuade the public sector to follow suit. Currently over a half of all cogeneration
installations are in the public sector.
Government is also working with the cogeneration industry and other partners in order to
develop new cogeneration market where there is unrealized potential. Efforts are being made
to replicate the experience already gained in industries and buildings where cogeneration is
well accepted.
Lastly, government intends to continue the promotion of this technology by keeping the
decision-makers informed through the “Energy Efficiency Best Practice” programme and
other environmental and energy management initiatives.
PART 3:
SUMMARY OF COUNTRY STUDIES - BANGLADESH AND VIET NAM
Framework for the country studies 97
CHAPTER 1: F RAMEWORK FOR THE COUNTRY STUDIES
1.1 Background
The first task of the ESCAP cogeneration project was to identify two countries, one in South
Asia and the other in South-East Asia, which offer considerable potential for cogeneration
development but have not so far undertaken any methodical study to assess the opportunity
for cogeneration.
Bangladesh was chosen in South Asia because the country is presently facing with electricity
shortage and the government is in the process of developing and implementing policies for
encouraging private sector participation in the power sector. The country is endowed with
natural gas and this gas is already available through distribution networks to many industrial
and commercial customers to mostly meet their thermal energy requirements. The
economic development of the country will see growth of new industries and commercial
buildings as well as expansion of the existing facilities. Some of these enterprises are good
clients for cogeneration. However, the awareness of the benefits of cogeneration appears to
be low among the potential cogenerators as well as the policy makers. No initiatives have
been taken so far by the public authorities to promote cogeneration in a systematic manner.
In the case of South-East Asia, Viet Nam was selected because of its uniqueness among the
South-East Asian countries. The shift from a centrally-planned to a market-based economy
and the more recent integration of the country within the Association of South-east Asian
Nations (ASEAN) have brought in new opportunities and challenges to the much desired
economic development of the country. Sudden spurt of industrial and commercial
developments along with the need for revamping the existing outdated production facilities
has put tremendous pressure on the government. Already facing with the huge task of
assuring the smooth transition of socio-economic development, the public authorities are
short on finances to cope with the incessant need for infrastructure development, particularly
related to the energy sector that is in the process of being restructured. Efforts are being
made at the higher authorities level to look for both supply and demand options to deal with
the present situation and to better prepare for future energy challenges. Though Viet Nam
lags behind most other member countries of the ASEAN which are already at a fairly
advanced stage of propagating policies and measures to facilitate the development of the
market for cogeneration, the country is very much willing to learn from their experiences and
find appropriate solutions in line with the prevailing socio-economic conditions.
The main purpose of the project was to launch national studies primarily to enhance the
national capacity for identifying and assessing the potential for cogeneration. To fulfil this,
study teams were formed in both countries, mainly consisting of researchers and
academicians who are very much interested in the subject and who hold the promise of
sustaining the initial efforts by continued activities in the future to popularize the concept of
cogeneration in their countries.
Expected outcomes of the country studies included widespread dissemination of the findings
and results among various interest groups as follows:
1. national authorities, policy makers, utilities, industry representatives and others for
creating awareness regarding the numerous benefits of cogeneration;
2. potential cogenerators, manufacturers and/or suppliers of cogeneration equipment
(engines, turbines, pressure boilers, absorption chillers, etc.), project developers,
98 Part3: Summary of country studies – Bangladesh and Viet
financiers, and consultants who better interact to assure the success of cogeneration
development;
3. potential donor countries and motivate them in launching more substantial cogeneration-
related bilateral projects.
1.2 Guidelines for the Country Studies
Based on the assumption that these cogeneration studies were first of their kinds in the
respective countries and the time available for completing the study was limited to three
months, simple guidelines were prepared to cover the following:
1. overview of present energy situation, policies and strategies in the country;

2. preliminary assessment of the potential for cogeneration;
3. pre-feasibility studies of some identified sites with promising cogeneration potential to
evaluate the economic (financial) and environmental benefits;
4. conclusion and recommendations for follow-up actions.
1.2.1 Overview of energy situation, policies and strategies in the country

The basic requirement before going deeper into cogeneration study is to first have a clear
perspective of the overall energy situation in the country. This includes understanding of the
historical evolution of the energy sector, and the status as well as future prospects for
electricity demand and supply. Other notable aspects are the share of energy use in the
industrial and commercial sectors, the status of industrial growth, and forecasts of energy
use in line with the target overall economic development.
A major factor determining the financial viability of cogeneration projects is the prevailing
costs of fuel and electricity. Therefore a good understanding of the energy pricing
mechanism and any price distortions such as taxation and cross-subsidization is important
for making realistic assumptions of the input parameters of the pre-feasibility studies.
Equally important is the need to grasp the various government policies and strategies being
formulated for encouraging private sector involvement in power generation in various forms.
Based on the ground reality, a critical analysis of strengths and weaknesses of these
initiatives is desirable.
1.2.2 Preliminary assessment of the potential for cogeneration

An evaluation of the existing cogeneration facilities helps in quantifying the share of
cogeneration in the total power supply, and identifying the sectors where cogeneration has
already been well accepted. Also, information gathered from the sites and discussion with
cogenerators help to assess aspects such as the technological status, operation and
management practices, economic and financial benefits, constraints and drawbacks in
operating such facilities, etc.
Preliminary assessment includes identification of industrial and commercial sectors which

offer cogeneration potential, based on the various technical criteria such as heat-to-power
ratio, quality of thermal energy requirements, typical demand patterns of the different forms of
energy at the site, availability of fuels, level of system reliability needed, etc.
Once the industrial and commercial sectors offering good potential for cogeneration are
identified, the technical potential for cogeneration can be established on selected sample
sites using a standard questionnaire of the type given in Appendix 1.A.
The response from the questionnaires sent and preliminary discussions with interested
parties help to identify suitable sites where a limited number of pre-feasibility studies can be
undertaken.
1.2.3 Pre-feasibility study of sites with good cogeneration potential

Pre-feasibility study involves gathering of additional technical data from the site, including the
actual demand pattern as a function of time, minimum, maximum and average energy
demands, annual operating hours, type of fuel in use, space constraint, etc.
The above data allow to complete a technical evaluation of cogeneration and identification of
cogeneration alternatives in order to proceed with the phase, economic and financial
evaluation. Several country-specific economic and financial parameters need to be first
gathered before the pre-feasibility study. If some data are unknown or not available, it is
important to make realistic assumption based on discussion with the personnel of the site
and competent authorities in the country.
Once, preliminary financial results are obtained, it is important to conduct a sensitivity

analysis to identify the most important parameters that are decisive to the financial viability of
the project.
1.2.4 Conclusion and recommendations for follow-up actions

The results of sensitivity analysis help to first define the context and conditions where
cogeneration should be recommended from the energy and environmental perspectives. One
can also assess the impacts of any distortion of energy pricing and other forces that can
adversely affect the penetration of cogeneration into the market. These can serve as
justifications for outlining appropriate policies and strategies that may be required to assure
the large-scale adoption of cogeneration projects in the country.
In order to illustrate the procedure for assessing the pre-feasibility of identified sites and to
assure consistency and uniformity of all the cases considered, a sample case study was
developed by the lead consultant and presented to the study teams in both the countries.
This case study was accompanied by spreadsheet-based software that can help to cut down
the analysis time drastically.
The sample case study consisting of pre-feasibility of cogeneration in a pulp and paper mill in
the Philippines is elaborated in Chapter 2.
100 Part3: Summary of country studies – Bangladesh and Viet
APPENDIX 1.A
TYPICAL QUESTIONNAIRE FOR INITIAL APPRAISAL OF

COGENERATION POTENTIAL AT A GIVEN SITE
G ENERAL INFORMATION
Name of the Company:
Address:
Telephone:
Fax:
Contact Name:
Position:
SITE INFORMATION
Main Activity:
Hours of Operation:
Working days:
Total Annual Operating Hours:
Period and Duration of Annual Shutdown:
ELECTRICITY DATA ( AT LEAST FOR LAST 12 MONTHS )

Year Month Consumption Peak hours Off-peak hours
(MWh) (MWh) (MWh)
Transformer Capacity (kVA):

Annual Peak Demand (kW/kVA):
Any changes in the future demand patterns expected?
THERMAL REQUIREMENTS ( FOR LAST 12 MONTHS )

Steam:
Boiler Outlet Pressure (Bar) and Temperature (°C):
Process heat requirement Pressure (Bar) and Temperature (°C):
Hot water:
Supply Temperature (°C):
Return Temperature (°C):
Cold/chilled water:
Supply Temperature (°C):
Return Temperature (°C):
Year Month Steam Hot Water Chilled Water

(ton) (GJ) (GJ)
Any changes in the future demand patterns expected?
If available, please provide typical hourly thermal energy demand profiles for a week and a
weekend day, during summer and winter.
BOILER FUEL CONSUMPTION ( FOR LAST 12 MONTHS )

Year Month Nat. Gas Diesel HFO Coal Others
(m3) (litre) (litre) (ton) (unit)
EXISTING BOILER FACILITY

Manufacturer:
Age:
Capacity:
Fuel:
Does the boiler require retrofitting or replacement?
FUEL SUPPLIES
Is natural gas available at site?
If yes, at what pressure is the gas available?
EXISTING POWER G ENERATING FACILITY

Is there any on-site power generating facility?
If yes,
Type of plant (Steam turbine/gas turbine/engine):
On-site generation capacity:
Sample case study in a pulp and paper mill 103
CHAPTER 2: S AMPLE CASE STUDY IN A PULP AND PAPER M ILL
2.1 Project Description
The Container Corporation of the Philippines (CCP) which uses electricity and thermal
energy simultaneously, plans to set up a cogeneration plant. Located at Balintawak, Quezon
City, it is a paperboard mill and converting plant. It produces various paperboards by
recycling waste papers. CCP operates its mill 365 days a year with 24 hours a day in three
shifts. The mill operation is stopped only due to breakdown of machines, scheduled
maintenance of equipment, power interruption and calamities such as typhoons, fires, etc.
This mill offers a good opportunity for cogeneration as it has steady thermal and electrical
loads, and it requires a steady supply of energy in order to avoid production losses. Before
deciding on making a substantial investment in this project, it is necessary to carry out a
thorough financial analysis of the possible cogeneration alternatives.
The method of conducting pre-feasibility of cogeneration in CCP involves a three-step

procedure, i.e., search and identification of alternatives, estimation of costs and savings, and
economic evaluation of all options.
2.2 Identification of Possible Cogeneration System Alternatives
This stage involves (1) analysis of the current energy consumption pattern of the CCP plant,
and (2) identification of possible cogeneration candidates, and evaluation of technical
parameters for each candidate.
2.2.1 Current Energy Consumption

a) Power consumption
Electricity in the paper factory is used for board making (47 per cent), papermaking (51 per
cent) and lighting & air-conditioning (2 per cent). Analysis of the monthly electricity
consumption of the factory in 1996 shows the following:
• Maximum Monthly Electricity Consumption (May): 1,377 MWh
• Minimum Monthly Electricity Consumption (March): 740 MWh
• Peak Power Demand: 2,430 kW
• Base Power Demand: 2,040 KW
• Total Electricity Consumption in 1991: 12,715 MWh
b) Steam consumption
CCP uses 98 per cent of the total steam production for paper drying while 2 per cent is used
for cleaning the process equipment. Paper drying at CCP requires saturated steam at a
pressure of 7 bar. The steam requirement is met by two boilers with capacities of 9 tons/hr
and 13 tons/hr respectively. Bunker oil is used as fuel for boilers.
Detailed steam and fuel consumption data were analyzed to derive monthly consumption in
1996, daily consumption pattern during the month with high demand, hourly steam demand
profile of the factory for sample peak days. The analysis led to the following:
104 Part3: Summary of country studies – Bangladesh and Viet Nam
• Peak steam demand (occurred in June): 12,950 kg/hr

• Base steam demand (occurred in November): 5,000 kg/hr
• Total steam consumption in 1991: 5.7×104 tons
• Total bunker oil consumption in 1991: 4.6×106 litres
c) Power to heat ratio

Monthly power to heat ratio in 1996 of the CCP plant varies from 64.4 MWh/TJ to 105.9
MWh/TJ, the average value being 82.8 MWh/TJ or 0.3 kW e/kW th (see Figure 2.1).
110
100
Power to Heat Ratio (MWh/TJ)
90
80
70
60
50
40
Nov.
Dec.
Jul.
Feb.
May
Jan.
Jun.
Sep.
Oct.
Mar.
Apr.
Aug.
Month
Figure 2.1 Monthly power to heat ratio of the CCP plant
2.2.2 Identification of Alternative Cogeneration Options

For the average power to steam ratio of 82.8 MWh/TJ of the factory, typical cogeneration
system used is the steam turbine. However, reciprocating engine and gas turbine
cogeneration systems were also included as potential alternatives because these are:
• applicable in small-scale cogeneration systems.

• commonly used configurations in the Philippines.
• simple and easy-to-grasp technologies.
a) Sizing of cogeneration system

Based on the results of the energy demand analysis, each of the above candidate
cogeneration systems was sized to meet either the manufacturing plant's process steam
(thermal match) or electricity requirements (power match). From the analysis of the plant's
electricity and steam usage pattern, base and peak process heat requirements of 5,000
kg/hr, 13,000 kg/hr are used for thermal matching. Likewise, base and peak power
requirements of 1,500 and 2,430 kW are investigated for power matching.
Table 2.1 Process steam rates and power demand used in the sizing options
(A) Thermal Match
Process steam (kg/hr) Annual steam generation (TJ) Heat deficit (TJ) Excess heat (TJ)
5,000 103 55 0
13,000 269 0 111
(B) Power Match
Power demand (kW) Annual power generation (MWh) Power deficit (MWh) Excess power (MWh)
1,500 11,235 1,480 0

2,430 18,200 0 5,485
Notes: 1. Enthalpy of required process steam is 2,761 kJ/kg.

2. Annual actual working period is 7,884 hours/year.
3. Total annual thermal energy requirement of CCP is 158 TJ.
4. Total power requirement of CCP is 12,715 MWh.
b) Technical potential evaluation
þ Steam Turbine
Steam
Fuel
Turbine G
Electricity
Boiler
Process
Figure 2.2 Backpressure steam turbine cogeneration system
Figure 2.2 shows a backpressure steam turbine cogeneration system. Superheated steam
was considered for typical inlet pressures of 20, 30, 40, 50, 60 70 bars respectively. The
power to steam ratio, the power generated by the steam turbine for a given process steam
requirement as well as the steam generated for a given power requirement can be estimated
by using the following formulas:
• Power to Heat Ratio
( H in − H o u t) × ηtb × ηgen
PHR = (kW e/kW th)
Hout
( H in − H o u t) × ηtb × ηgen
= (kW e/(ton/hr of steam)
3 .6
Where, PHR = power to heat ratio

Hin = enthalpy of the turbine inlet steam, kJ/kg
Hout = enthalpy of the turbine outlet steam, kJ/kg
ηtb = turbine efficiency
ηgen = generator efficiency
• Power Generation (for thermal matching)
PHR x So x H R × CF
P = 6
10
Where, P = electricity generation, MWh/year

PHR = power to steam ratio, kW/(ton/hr of steam)
So = process steam to be met, kg/hr
CF = factor for continuous operation, 0.9-0.95
HR = actual working hours per year
• Heat Generation (for power matching)
P o x Ho u t x H R x C F
S = 6
PHR x 1 0
Where, S = heat generation, TJ/year

Po = power to be met, kW
Hout = enthalpy of the turbine outlet steam, kJ/kg
PHR = power to steam ratio, in kW/(ton/hr of steam)
• Fuel Consumption
( H in - H f ) x S ′ x HR x CF
F =
ηb × 10
9
Where, F = fuel consumed by the cogeneration system, TJ/year

Hin = enthalpy of steam at turbine inlet, kJ/kg
Hf = enthalpy of feedwater, kJ/kg
S' = steam flowrate, kg/hr
nb = boiler efficiency
Table 2.2 Results of thermal matching for the steam turbine option
Turbine Inlet Steam Pressure = 7 bar

Turbine Outlet Pressure (bar)
20 30 40 50 60 70 80
5,000 kg/hr
Power Generating Capacity (kW) 282 353 408 451 482 504 522
Electricity Generation (MWh/year) 2,111 2,462 3,059 3,375 3,608 3,777 3,906
Excess(+)/Deficit(-) Power (MWh) -10,604 -10,073 -9,656 -9,340 -9,107 -8,938 -8,809
Fuel Consumption (TJ/year) 122 126 129 131 133 134 135
Excess(+)/Deficit(-) Heat (TJ/year) -55 -55 -55 -55 -55 -55 -55
13,000 kg/hr
Power Generating Capacity (kW) 733 917 1,062 1,172 1,252 1,311 1,356
Electricity Generation (MWh) 5,489 6,869 7,955 8,776 9,380 9,820 10,157
Excess(+)/Deficit(-) Power (MWh) -7,226 -5,846 -4,760 -3,939 -3,335 -2,895 -2,558
Fuel Consumption (TJ) 318 328 336 342 346 349 352
Excess(+)/Deficit(-) Heat (TJ/year) 111 111 111 111 111 111 111
Table 2.3 Results of power matching for the steam turbine option
Turbine Inlet Steam Pressure = 7 bar

Turbine Outlet Pressure (bar)
20 30 40 50 60 70 80
1,500 kW
Heat Generating Capacity, kg/hr 26,607 21,262 18,360 16,642 15,571 14,873 14,380
Heat Generation, TJ/yr 495 396 342 310 290 277 268
Excess(+)/Deficit(-) Heat (TJ/yr) 337 238 184 152 132 119 110
Fuel Consumption, TJ/yr 650 536 474 437 414 399 389
Excess(+)/Deficit Power, MWh/yr -1,480 -1,480 -1,480 -1,480 -1,480 -1,480 -1,480
2,430 kW
Heat Generating Capacity, kg/hr 43,103 34,444 29,744 26,960 25,225 24,094 23,295
Heat Generation, TJ/yr 802 641 554 502 470 449 434
Excess(+)/Deficit(-) Heat (TJ/yr) 644 483 396 344 312 291 276
Fuel Consumption, TJ/yr 1,053 868 768 708 671 647 630
Excess(+)/Deficit Power, MWh/yr 5,485 5,485 5,485 5,485 5,485 5,485 5,485
þ Reciprocating Engine
Figure 2.3 shows a reciprocating engine cogeneration system. It uses a diesel engine as its
prime mover together with heat recovery from the engine exhaust and engine jacket cooling
water. It can be operated efficiently at partial load and in small sizes. Compared with steam
turbine and gas turbine units, Diesel engine with waste heat boiler has higher power to heat
ratio, which ranges from 2.0 to 2.6. Table 2.4 shows its typical energy distribution.
O
~ 200 C
Exhaust
Heat Heat Recovery Steam Generator
O
~ 450 C
Diesel Engine
Steam
G
Coolers
Process
Oil Air Water
Figure 2.3 Typical reciprocating engine cogeneration system
The power to heat ratio for the reciprocating engine cogeneration system can be calculated
by:
ηe n g i n e
PHR = [kW e/kW th]
ηe x h a u s t × ηh r s g
ηe n g i n e × ( H o − H f w )
= [kW e/(ton/hr of Steam)]
ηe x h a u s t × ηh r s g × 3 .6
where, ηengine = percentage of engine electric output

ηexhaust = percentage of exhaust heat
ηhrsg = efficiency of heat recovery steam generator
Ho = enthalpy of process steam, kJ/kg
Hfw = enthalpy of feedwater, kJ/kg
Table 2.4 Typical energy distribution (per cent) for reciprocating engines
Size 60 kW 230-840 kW 1,200-2,400 kW

Electric Output 26 33 35
Cooling 23 30 29
Exhaust 47 30 29
Losses 4 7 7
Total (Fuel Input) 100 per cent 100 per cent 100 per cent
The power generation, steam generation and fuel consumption are calculated as follows:
• Power Generation (for thermal matching)
PHR x So x H R × CF
P = 6
10
Where, P = electricity generation, MWh/year

PHR = power to steam ratio, kW/(ton/hr of steam)
So = process steam to be met, kg/hr
CF = factor for continuous operation, 0.9-0.95
HR = actual working hours per year
• Heat Generation (for power matching):
P o x Ho x H R x C F
S = 6
PHR x 1 0
Where, S = heat generation, TJ/year

Po = power to be met, kW
Ho = enthalpy of process steam, kJ/kg
PHR = power to heat ratio, kW e/(ton/hr of steam)
• Fuel Consumption:
3 .6 ×P
F =
ηengine ×103
Where, F = fuel consumption, TJ/year
P = power generation, MWh/year
ηengine = percentage of engine electric output
Table 2.5 Summary of the results for the diesel engine
Thermal Matching
5,000 kg/hr 13,000 kg/hr
Power Generating Capacity, kW 6,259 16,272
Power Generation, MWh/year 46,876 121,877
Excess(+)/Deficit(-) Power, MWh/year 34,161 109,162
Excess(+)/Deficit(-) Heat, TJ/year -55 111
Fuel Consumption, TJ/year 482 1,254
Power Matching
1,500 kW 2,430 kW
Heat Generating Capacity, kJ/kg 1,198 1,941
Heat Generation, TJ/year 25 40
Excess(+)/Deficit(-) Heat, TJ/year -133 -118
Excess(+)/Deficit(-) Power, MWh/year -1,480 5,485

Fuel Consumption, TJ/year 116 187
þ Gas Turbine
Figure 2.4 shows a typical gas turbine cogeneration unit. Gas turbine cogeneration unit has
the following advantages over other internal combustion engine drives: small size and high
power to heat ratio, ability to burn a variety of fuels, clean dry exhaust and hence ability to
meet stringent pollution standards, high reliability and easy maintenance. Table 2.6 presents
the typical heat disposition of gas turbines.
Exhaust Gas
Flue
Gas Water
Fuel
Steam
HRSG
Generator
G
Electricity
Gas Turbine
Air
Figure 2.4 Gas turbine with heat recovery steam generator
Table 2.6 Gas turbine heat balance
Small Units Medium Size Units

Electricity 21 per cent 29 per cent
Exhaust Heat (Theoretically Recoverable) 53 per cent 46 per cent
Exhaust Heat (Not Recoverable) 21 per cent 20 per cent
Generator, Oil Cooler and Radiation Losses 5 per cent 5 per cent
Total (Fuel Input) 100 per cent 100 per cent
Following the same way as that for reciprocating engine cogeneration unit, the power to heat
ratio, power generation and heat generation, fuel consumption, etc., can be calculated. The
results are shown in Table 2.7.
2.3 Calculation of Costs and Benefits
After evaluating the technical potential of the alternative cogeneration systems, the different
sources of revenues and expenses of the systems are determined so that the evaluation of
the economic potential of each system could be followed.
Table 2.7 Summary of the results for the gas turbine
Thermal Matching
5,000 kg/hr 13,000 kg/hr
Power Generating Capacity, kW 2,493 6,482
Power Generation, MWh/year 18,673 48,550
Excess(+)/Deficit(-) Power, MWh/year 5,958 35,835
Excess(+)/Deficit(-) Heat, TJ/year -55 111
Power Matching
1,500 kW 2,430 kW
Heat Generating Capacity, kJ/kg 3,008 4,873
Heat Generation, TJ/year 62 101
Excess(+)/Deficit(-) Heat, TJ/year -96 -57
Excess(+)/Deficit(-) Power, MWh/year -1,480 5,485
2.3.1 Costs
(a) Total installation cost
The installation cost of each cogeneration system can be roughly estimated by the formula
taken from the report on “Industrial and Commercial Cogeneration”, Office of Technology
Assessment, Washington D.C., U.S.A.:
• Steam Turbine (Oil-Fired):
C = [962.761- (9.119 x10-3 x M) - (1.314 x 10-7 x M2) + (2.782 x 10-11 x M3)] x M x E
• Diesel Engine:
C = [915.14 - (6.531 x 10-2 x M) + (4.56 x 10-6 x M2) - (1.424 x 10 -10 x M3)] x M x E
Where, C = installation cost, Peso

M = installed capacity, kW
E = peso - dollar exchange rate, assumed 26 Peso/$ in 1996
(b) Operating costs

The operating costs in this case study include:
• Fuel Costs: cost of fuel consumed by the cogeneration unit.

• Operating and Maintenance Costs: These are taken as 2.5 per cent of the total installation
cost of the cogeneration unit.
(c) Insurance cost

Insurance cost reduces as the book value of equipment decreases. Here, it is taken as 5 per
cent of the book value of the equipment.
(d) Depreciation
Straight-line depreciation method is adopted. The depreciation cost is calculated as:
CD = (C - S)/N
Where, S = salvage value of equipment, Peso

N = equipment life, years
(e) Standby charges

If the electricity demand of the facility cannot be met by the cogeneration system, certain
amount of electricity must be imported from the grid. In this case, tariff structure requires the
electricity consumers to pay a standby charge depending upon the demand. The standby
charge is computed as follows:
CSC = SR x SC
Where, SR = standby rate, Peso/kW

SC = standby capacity, kW
2.3.2 Revenues
In this case study, revenue from a cogeneration system comes from four possible sources,
namely, savings from displaced electricity, sale of excess electricity, boiler fuel cost savings,
and boiler operating and maintenance cost savings.
(a) Savings from displaced electricity

RDE = P’ x CE
Where, P’ = power generated by the cogeneration system, kWh

CE = electricity purchase price, Peso/kWh
(b) Revenue from sale of excess electricity
RX = PX’ x (BR/100) x CE
Where, PX’ = excess electricity, kWh
BR = buy-back rate, per cent
(c) Boiler fuel cost savings

KF
RF = x S x106
LHV
Where, KF = fuel purchase price, Peso/kg

LHV = fuel lower heating value, MJ/kg
S = amount of process steam utilized, TJ
(d) Boiler O & M cost savings

This is the cost that would have been incurred in operating and maintaining the boiler if
process steam was produced by a conventional boiler and not by the cogeneration system.
2.4 Financial Analysis of the Cogeneration Alternatives
Evaluation of the feasibility of each alternative is made by the IRR and NPV methods. Before
calculating IRR and NPV, the costs, revenue, pre-tax profit, net profit as well as net cash flow
are computed. Table 2.8 lists the results for selected cogeneration alternatives at the end of
the first year of project life. Then, IRR and NPV for each candidate are calculated with the
following assumptions:
The service lifetime of the installed cogeneration system: 15 years

The estimated cost escalation rate per year for fuel, electricity and O&M: 5 per cent
Buy-back Rate: 70 per cent
Insurance (as per cent of equipment cost): 5 per cent
Tax Rate: 35 per cent
Discount rate: 15 per cent
Table 2.8 Summary of cash flows of selected alternatives for the 1st Year
(All Values in Pesos)
Total Cost of Total Costs Total Pre-Tax Net Profit Net Cash
Installation Fuel Revenue Profit Flow
Cost
STEAM TURBINE (Thermal Match)
5,000 kg/hr
40 Bar 12,222,440 7,281,116 8,136,722 11,282,569 2,331,018 1,515,162 2,329,991
60 Bar 14,401,909 7,504,958 8,513,127 12,214,331 2,714,077 1,781,700 2,741,827
80 Bar 15,589,108 7,627,024 8,718,296 12,722,438 2,964,868 1,927,164 2,966,438
13,000 kg/hr
40 Bar 31,577,708 18,930,902 21,141,377 22,813,046 -433,511 -433,511 1,671,670
60 Bar 37,165,524 19,512,892 22,114,513 25,235,627 643,412 418,218 2,895,920
80 Bar 40,203,762 19,830,261 22,644,559 26,556,705 1,231,895 800,732 3,480,932
STEAM TURBINE (Power Match)
1,500 kW
80 Bar 44,407,619 21,934,763 25,043,310 28,389,132 385,314 250,454 3,210,962
2,430 kW
80 Bar 71,284,107 35,534,316 40,524,218 30,905,642 -14,370,849 -14,370,849 -9,618,575
DIESEL ENGINE
Thermal-Match
5,000 kg/hr 158,679,722 32,761,595 44,662,609 69,541,795 14,300,538 9,295,349 19,873,998
13,000 kg/hr 283,210,583 85,180,147 106,420,976 162,631,802 37,330,121 24,264,579 43,145,284
Power-Match
1,500 kW 48,376,832 7,851,944 11,480,242 20,842,550 6,137,187 3,989,171 7,214,293
2,430 kW 74,045,674 12,720,150 18,273,610 30,967,472 7,757,484 5,042,365 9,978,743
GAS TURBINE
Thermal-Match
5,000 kg/hr 90,828,571 18,270,890 21,449,925 35,980,477 8,475,314 5,508,954 11,564,192

13,000 kg/hr 195,551,493 47,504,313 54,348,650 75,372,376 7,986,959 5,191,524 18,228,290
Power-Match
1,500 kW 58,052,199 10,992,722 13,024,584 23,475,928 6,581,197 4,277,778 8,147,925
2,430 kW 88,854,808 17,808,209 20,918,163 35,233,544 8,391,727 5,454,623 11,378,277
Table 2.9 Summary of NPV and IRR
Cogeneration Alternatives
Steam/Power Turbine Inlet Steam NPV IRR
Demand Pressure (bar) (%)
Steam Turbine (Thermal Match)
5,000 kg/hr 40 7,340,891 24.31
60 8,623,889 24.28
80 9,324,957 24.27
13,000 kg/hr 40 -12,394,563 7.90
60 -8,832,665 10.90
80 -6,956,922 12.00
Steam Turbine (Power Match)
1,500 kW 80 -12,397,728 10.10
2,430 kW 80 -122,352,173 --
Diesel Engine (Thermal Match)
5,000 kg/hr --- 16,713,528 16.70
13,000 kg/hr --- 97,294,178 20.40
Diesel Engine (Power Match)
1,500 kW --- 13,726,021 19.60
2,430 kW --- 12,812,597 17.80
Gas Turbine (Thermal Match)
5,000 kg/hr --- 1,218,335 15.20
13,000 kg/hr --- -46,400,865 10.60
Gas Turbine (Power Match)
1,500 kW --- 6,605,407 16.90
2,430 kW --- 1,694,257 15.30
2.5 Sensitivity Analysis
The price escalation rates for electricity and fuel estimated in this evaluation process might
not be exact. Similarly, the installation cost represents a large investment and changes in this
cost can affect the results significantly. Sensitivity analysis of IRR of the feasible
cogeneration systems is done assuming changes in each of these factors.
The following two acceptable alternatives are taken as examples for the sensitivity analysis:
(1) Steam Turbine, Thermal Match [STTM]: 5,000 kg/hr, Turbine steam inlet pressure:
40 bar;
(2) Diesel Engine, Power Match [REPM]: 1,500 kW Power Demand.

ð Changes in the Escalation Rate of Fuel Price
IRR vs. Escalation Rate of Fuel

Price
30%
25%
20%
IRR
15%
10%
IRR(STTM)
IRR(REPM)
5%
5% 7% 9% 11% 13%
Escalation Rate of Fuel Price
Figure 2.5 Sensitivity analysis of IRR for different fuel price escalation rates
Sensitivity of IRR for the two alternatives to changes in the escalation rate of fuel prices from
5 per cent to 13 per cent is presented in Figure 2.5. From this analysis, it may be observed
that the diesel engine (1,500 kW) appears to be more sensitive to changes in fuel prices. For
an escalation rate of 13 per cent, the steam turbine (thermal matching option) using 40 bar
inlet steam is still found to be economically feasible, whereas diesel engine is no longer
financially attractive because the IRR becomes less than discount rate which is 15 per cent.
ð Changes in the Investment Cost
IRR vs.
25%
23%
20%
IR
R 18%
15%
13% IRR(STTM)
IRR(REPM)
10%
0% 5% 10% 15%
% of Investment Increase
Figure 2.6 Sensitivity analysis of IRR to increases in the investment cost
Zero to 15 per cent increases in the investment cost are made to analyze the sensitivity of
IRR of the two alternatives (see Figure 2.6). When the increases are less than 15 per cent,
the IRRs of steam turbine cogeneration system using 40 bar superheated steam and diesel
engine cogeneration system remain higher than the 15 per cent hurdle rate.
ð Changes in Escalation Rate of Electricity Price
IRR vs. Escalation Rate of
35%
Electricity Price
30%
IRR
25%
20%
IRR(STTM)
IRR(REPM)
15%
6% 8% 10% 12%
Escalation Rate of Electricity Price
Figure 2.7 Sensitivity of IRR to changes in electricity price escalation rate
From the sensitivity analysis results shown in Figure 2.7, it can be concluded that with higher
escalation rate of electricity purchase price, higher internal rate of return of the cogeneration
system can be achieved. This is mainly due to the increasing revenues generated from the
displaced electricity and from the sale of excess electricity.
2.6 Conclusion
From the techno-economic evaluation and sensitivity analysis of the potential cogeneration
alternatives of the paper factory, the steam turbine option meeting steam demand of 5,000
kg/hr with superheated steam of 40 bar is found to be the most suitable cogeneration
system. It represents an initial investment of 12.2 million Pesos, and leads to an internal rate
of return of 24.3 per cent.
[Reference: Techno-economic evaluation of cogeneration potential in two manufacturing

plants in the Philippines. AIT RSPR No. ET-89-6]
APPENDIX 2.A
SAMPLE PAGES FROM THE SPREADSHEET PROGRAMME ON

FINANCIAL ANALYSIS OF COGENERATION PROJECTS
Some of the sample pages of the software are given as example. These include:
1. Flow chart of the sample case study (1 page)

2. General data and energy data of the site (1 page)
3. Result of steam turbine cogeneration with thermal match option (2 pages)
4. Result of steam turbine cogeneration with power match option (2 pages)
5. Result of reciprocating engine cogeneration with thermal match option (1 page)
6. Result of reciprocating engine cogeneration with power match option (1 page)
7. Result of gas turbine cogeneration with thermal match option (1 page)
8. Result of gas turbine cogeneration with power match option (1 page)
9. Sample results of sensitivity analyses (2 pages)
SAMPLE CASE STUDY OF COGENERATION PRE-FEASIBILITY ANALYSIS
FLOW CHART OF THE SAMPLE CASE STUDY
GENERAL DATA
(1) Project Data
(2) Energy Consumption
Data of the Site
Worksheet: Data
Identification of Options
Steam Turbine Reciprocating Engine Gas Turbine
Thermal Power Thermal Power Thermal Power

Match Match Match Match Match Match
Steam(TM) Steam(PM) REngine(TM) REngine(PM) GasT(TM) GasT(PM)
1: A s s u m p t i o n s
2 : Energy Analysis
3: Financial Analysis
4 : Summary
Steam Turbine (Thermal Match) &

Reciprocating Engine (Power Match)
Sensitivity Analysis
(1) What-if Investment Cost Increases?
(2) What-if Fuel Price Escalation Rate Increases?
(3) What-if Electricity Price Increases?
Worksheet: Sensitivity
GENERAL DATA AND ENERGY DATA OF THE
(1) General Data:
Date June
Country Philippines
National Currency Peso
Exchange Rate Peso/US$ 26
Electricity Purchase Price Peso/kWh 1.7
Electricity Buy-back % 70
Escalation Rate for Electricity % /yr 6
Stand-by Rate Peso/kW 0.07
Tax Rate % /yr 35
Discount Rate % /yr 15
Number of Actual Working Hours Per Hours/y r 7,884
(2) Energy Consumption Data of the Site
Power
Peak Power Demand kW 2,400
Base Power Demand kW 1,500
Annual Electricity MWh/ yr 12,71
Heat
Peak Steam Demand kg/hr 13,00
Base Steam Demand kg/hr 5,000
Annual Thermal Energy T J /y r 158.0
e th
Power to Heat Ratio kW /kW 0.3
kW/(ton/hr Steam) 84.8
Steam Turbine: Thermal Match
1. Economic and Technical Data

(1) Economic Data
Fuel Name Oil

Fuel Net Calorific Value MJ/kg 39
3
Unit of Fuel Purchased (e.g. kg, m , litre) kg
Fuel Purchase Price Peso/kg 2.20
Fuel Price Escalation Rate % 5.0
Conventional Boiler O & M Cost (% of Equipment Cost) % 5.0
CHP O&M Costs (% of Total Installation Cost) % 2.0
Escalation Rate for O & M Costs % 5.0
Standby Capacity kW 500
Insurance Cost (as % of book value of equipment) % 5.0
Service Life of Cogeneration Facilities Years 15
Salvage Value of Cogeneration Facilities Peso 0
(2) Technical Data

Heat Demand to Be Met by CHP Boiler kg/hr 5,000
CHP Boiler Working Pressure Bar 40
Process Steam Pressure Bar 7
Total Installation Cost Peso 12,222,440
2. Energy Analysis
e th
(1) CHP Power to Heat Ratio kW /kW 0.106
(2) Power
Site Electricity Requirement MWh/yr 12,715
Power Generating Capacity kW 408
Electricity Generation MWh/yr 3,059
Deficit(-)/Excess(+ ) Power MWh/yr -9,656
(3) Heat
Site Heat Requirement TJ/yr 158.0
Heat Generation TJ/yr 103.4
Heat Utilisation TJ/yr 103.4
Deficit(-)/Excess(+ ) Heat TJ/yr -54.6
(4) Fuel
CHP Fuel Consumption TJ/yr 129.1
Fuel Saving Compared with Conventional Production % 22.2
Steam Turbine: Thermal Match
3. Financial Analysis
Internal Rate of Return: % 24.3
Net Present Value Peso 7,340,891
Discounted Pay-back Period Year 7.41
4. Summary: Steam Turbine, Thermal Match
Technical Parameters
Power Generating Capacity kW 408
Steam Generating Capacity kg/hr 5,000
Power to Heat Ratio 0.11
Energy Analysis Results
Excess (+ )/Deficit (-) Power MWh/yr -9,656
Excess (+ )/ Deficit(-) Heat TJ/yr -55
Financial Analysis Results

Internal Rate of Return % 24.3
5. What-if for Various Turbine Inlet Steam Pressure

Turbine Inlet Excess(+ )/Deficit(-) Heat &Power Power Gener. Power/Heat Ratio
Steam Pre. (bar) Heat (TJ/yr) Power (MWh/yr) Capacity (kW) kW/(ton/hr Steam)
20 -55 -10,604 282 56.4

30 -55 -10,073 353 70.5
40 -55 -9,656 408 81.7
50 -55 -9,340 451 90.1
60 -55 -9,107 482 96.3
70 -55 -8,938 504 100.9
80 -55 -8,809 522 104.3
Heat Demand to Be Met kg/hr 5,000
Process Steam Pressure bar 7
Steam Turbine: Power Match

(1) Economic Data
Fuel Name OIL
3
Unit of Fuel Purchased (e.g. kg, m , litre) kg
Boiler O & M Cost (% of Boiler Cost) % 5.0
CHP O&M Cost (% of Total Installation Cost) % 2.0
Escalation Rate for O & M Costs) % 5.0
(2) Technical Data
Power Demand to Be Met by CHP Boiler kW 1500

2. Energy Analysis
e th
(1). CHP Power to Heat Ratio kW / k W 0.11

(2). Power
Deficit(-)/Excess(+ ) Power MWh/yr -1,480
(3). Heat
Heat Generating Capacity kg/hr 18,360
Deficit(-)/Excess(+ ) Heat TJ/yr 183.8
(4). Fuel
Steam Turbine: Power Match
Internal Rate of Reture: % -3.6
Net Present Value: Peso -40,797,044
Discounted Pay-back Period Year >Service Life
4. Summary: Steam Turbine, Power Match

Power Generating Capacity kW 1,500
Excess (+ )/ Deficit(-) Heat TJ/yr 184

Internal Rate of Return % -3.6
Net Present Value Peso -40,797,044
Discounted Pay-back Period Year >Service Life
5. What-if for Various Turbine Inlet Steam Pressure

Turbine Inlet Excess(+ )/Deficit(-) Heat &Power Heat Gener. Power/Heat R
Steam Pre. (bar) Heat (TJ/yr) Power (MWh/yr) Cap. (kg/hr) kW/(ton/hr Stm)
20 337 -1,480 26,607 56.4

30 238 -1,480 21,262 70.5
40 184 -1,480 18,360 81.7
50 152 -1,480 16,642 90.1
60 132 -1,480 15,571 96.3
70 119 -1,480 14,873 100.9
80 110 -1,480 14,380 104.3
Power Demand to Be Met kW 1500

Process Steam Pressure bar 7
RECIPROCATING ENGINE: THERMAL MATCH

(1). Economic Data
Fuel Name Diesel
U n i t o f F u e l P u r c h a s e d ( e . g . k g , m 3 , litre) kg
CHP O&M Cost (% of Installation Costs) % 2.5
Escalation Rate for O&M Costs % 5.0
(2) Technical Data

Heat Demand to Be Met by CHP Boiler kg/hr 5,000
S
Ptreoacm
e sP
s rS
e st esau m
re Pressure Bar 7
Heat Recovery Steam Generator Efficiency % 65
2. Energy Analysis
(1). CHP Power to Heat Ratio k W e / k W th 1.86
kW/(ton/hr Steam) 1,252
(2). P o w e r
Deficit(-)/Excess(+ ) Power MWh 34,161
(3). Heat

Deficit(-)/Excess(+ ) Heat TJ/yr -54.6
(4). F u e l
Net Present Value: Peso 16,712,528
4. Summary: Reciprocating Engine, Thermal Match
Excess (+ )/Deficit (-) Power MWh/yr 34,161

RECIPROCATING ENGINE: POWER MATCH

(1). E c o n o m i c D a t a
Fuel Name Diesel
U n i t o f F u e l P u r c h a s e d ( e . g . k g , m 3, l i t r e ) kg
(2) T e c h n i c a l D a t a
Power Demand to Be Met by CHP kW 1,500
S
Ptreoacm
e sP
s rS
e st es au m
re Pressure Bar 7
Heat Recovery Steam Generator Efficiency % 65
2. Energy Analysis
k W e/ k W th
(1). C H P P o w e r t o H e a t R a t i o 1.86
(2). P o w e r
Deficit(-)/Excess(+ ) P o w e r MWh -1,480
(3). H e a t

Deficit(-)/Excess(+ ) H e a t TJ/yr -133.2
(4). Fuel
4. Summary: Reciprocating Engine, Power Match

GAS TURBINE: THERMAL MATCH

Fuel Name Diesel
(2) Technical Data

Heat Demand to be Met by CHP Boiler kg/hr 5,000
S
Ptreoac m
esP
s rSetsesaumr eP r e s s u r e Bar 7
Waste Heat Boiler Efficiency % 65.0
2. Energy Analysis
(1) C H P P o w e r t o H e a t R a t i o k W e/ k W th 0.74
(2). P o w e r
Deficit(-)/Excess(+ ) Power MWh 5,958
(3). H e a t
Site Heat Requirement TJ/yr 158
Heat Generation TJ/yr 103
Heat Utilisation TJ/yr 103
D e f i c i t ( - ) / E x c e s s ( + ) Heat TJ/yr -55
(4). Fuel
4. Summary: Gas Turbine, Thermal Match
Excess (+)/Deficit (-) Power MWh/yr 5,958
Excess (+)/ Deficit(-) Heat TJ/yr -55

GAS TURBINE: POWER MATCH

Fuel Name Diesel
(2) Technical Data

Power Demand to be Met by CHP kW 1,500
S
Ptreoacm
e sP
s rS
e st es au m
re Pressure Bar 7
Waste Heat Boiler Efficiency % 65.0
2. Energy Analysis
(1) C H P P o w e r t o H e a t R a t i o k W e / k W th 0.74
(2). P o w e r
Deficit(-)/Excess(+ ) P o w e r MWh -1,480
(3). H e a t

Deficit(-)/Excess(+ ) H e a t TJ/yr -95.8
(4). Fuel
4. Summary: Gas Turbine, Power Match

SENSITIVITY ANALYSIS
STTM Steam Turbine, Thermal Match, Heat Being Met: 5000 kg/hr
REPM Reciprocating Engine, Power Match. Power Being Met: 1500 kW
Sensitivity Analysis 1: What-If the Investment Cost (IC) Increases?
Increment Step 2.50%

% Increase 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0%
STTM IC(Peso) 12222440 12528001 12833562 13139123 13444684 13750245 14055806
IRR(STTM) 24.3% 23.7% 23.1% 22.6% 22.1% 21.5% 21.1%
REPM IC(Peso) 48376832 49586253 50795674 52005095 53214516 54423936 55633357
IRR(REPM) 19.6% 19.0% 18.5% 18.0% 17.6% 17.1% 16.7%
IRR vs. Investment Cost
28%
25%
23%
20%
IRR
18%
IRR(STTM)
15%
IRR(REPM)
13%
10%
0% 5% 10% 15% 20%
% of Investment Increase
Sensitivity Analysis 2: What-If the Fuel Price Increases?

Escalation Rate 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0%
STTM
IRR(STTM) 24.3% 24.0% 23.6% 23.2% 22.7% 22.2% 21.7% 21.0% 20.3%
REPM
IRR(REPM) 19.6% 19.1% 18.6% 18.1% 17.4% 16.7% 15.9% 14.9% 13.8%
IRR vs. Escalation Rate of Fuel Price
30%
25%
20%
IRR
15%
10%
IRR(STTM)
IRR(REPM)
5%
5% 7% 9% 11% 13% 15%

SENSITIVITY ANALYSIS
STTM Steam Turbine, Thermal Match, Heat Being Met: 5000 kg/hr
REPM Reciprocating Engine, Power Match. Power Being Met: 1500 kW
Sensitivity Analysis 3: What-If the Electricity Price Increases?

Escalation Rate 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0%
STTM
IRR(STTM) 24.3% 25.6% 26.8% 28.0% 29.2% 30.4% 31.5%
REPM
IRR(REPM) 19.6% 21.0% 22.3% 23.6% 24.9% 26.2% 27.5%
IRR vs. Escalation Rate of Electricity Price
30%
25%
IRR
20%
15%
IRR(STTM)
IRR(REPM)
10%
6% 8% 10% 12% 14%

Summary of country study – Bangladesh 131
CHAPTER 3: S UMMARY OF COUNTRY STUDY - BANGLADESH
3.1 Overview of Energy Situations, Policies & Strategies
3.1.1 Overview of energy situation in Bangladesh

The known conventional energy sources of Bangladesh are natural gas, coal, peat, oil,
hydropower and biomass fuels.
Natural gas
Out of the non-renewable resources of energy, only natural gas is being extracted
commercially. According to Bangladesh natural gas statistics as of October 1998, the total
reserve of gas is 23.093 tcf (trillion cubic feet) of which 13.737 tcf is recoverable; 2.855 tcf
had been extracted up to January 1977. During the last thirty years the Government has
made consistent efforts in expanding the use of natural gas. Its share in total primary
commercial fuels increased from 30.7 to 61.4 per cent during the period 1973 to 1997
whereas the share of petroleum fuel consumption has decreased from 67.7 to 37.6 per cent
for the same period. During the preparatory stage of formulation of the National Energy
Policy, the constraints of natural gas supply beyond 2010 were highlighted to draw the
attention of policy makers. Subsequently the government accepted the findings and allowed
the participation of International Oil Companies (IOCs) in the exploration and development of
hydrocarbon sector.
Coal
Coal resource deposits of about 1,782 million tons have been discovered in three locations.
Total coal reserve at Jamalgonj is about 1,054 million tons whose extraction has not yet
been found to be economically viable. About 285 million tons of coal deposit has been
discovered in Dinajpur. Another coal reserve of 400 million tons has been discovered in
Rangpur. Though there is no power plant operating with coal as fuel at present, coal mining
from Barapukuria will probably take a significant part in electricity generation after 2000.
More than 80 per cent of coal from Barapukuria is expected to be used in a 250 MW coal-
based power plant. Total peat reserves of Bangladesh have been estimated as 600 million
tons. In some rural areas, locally extracted peat is used for domestic cooking and in small
industries.
Oil
A small oil deposit has been discovered in Haripur (Sylhet) with an estimated recoverable
reserve of 1.6 million tons of crude oil. Indigenous oil supply makes very little contribution in
meeting the total demand of petroleum fuels that is met from imported resources.
Bangladesh Petroleum Corporation (BPC) is responsible for overall management of
petroleum fuels in the country.
Electricity
Bangladesh Power Development Board (BPDB) is fully responsible for the electricity
generation and distribution network in Bangladesh, except Dhaka city area and some rural
areas which are managed by Dhaka Electric Supply Authority (DESA) and Rural
Electrification Board (REB). Though the installed capacity is 3,091 MW, maximum
generation on 28 July 1997 was only 1,600 MW against the maximum demand of 2,168 MW.
On average, there is a shortfall of between 300 and 450 MW. Only about 19 per cent of total
population are electrified at present. The demand for electricity is expected to rise at a rate
of 15 per cent annually. Gas-based generation (especially combined cycle power plants) has
the least cost compared to other sources mentioned above, whereas the long-term
perspective of alternative energy sources contributing to meet the power demand needs to
be further studied.
Hydropower
Hydropower potential is still quite low in Bangladesh, because rivers are mostly on flat
surfaces with low gradients. Presently, the only hydroelectric plant in the country (Karnafuli)
has a capacity to produce 230 MW of electricity. There is a potential to produce 250 MW of
power at Sangu and Matamuhuri river, though the cost of new storage is very high; such
projects are not encouraged by the government considering their adverse environmental and
social impacts. Fifteen prospective sites have been identified as having potential for on-site
small hydropower generation.
Solar
Solar power utilization is being accepted gradually, but its slow progress is due to high initial
cost, low daily operation time, and lower output level. Bangladesh is ideally located for
tapping solar energy effectively (3 - 6 kWh/m 2 per day). Solar energy has been used in
Bangladesh for drying crops and fishes since many decades. Bangladesh Atomic Energy
Commission (BAEC) has commissioned pilot project for beacon lighting, refrigeration for
vaccines storage, and water pumping. The Rural Electrification Board (REB) has introduced
solar photovoltaic electricity in Narsingdi District. Government has waved duty and taxes on
solar and other renewable energy applications to encourage both public and private sectors.
Bangladesh University of Engineering Technology, Bangladesh Centre for Scientific and
Industrial Research, Dhaka University and a few other organizations are continuing efforts to
improve solar utilities in Bangladesh.
Biomass and biogas

Most of the rural people are fully dependent on biomass energy for their daily energy needs.
It is estimated that as much as 70 per cent of total energy requirement in Bangladesh is met
by biomass. Different forms of biomass-use include rice husk (26 per cent), cow dung (19
per cent), rice straw (16 per cent), twigs and leaves (14 per cent), badges (7 per cent), fuel
wood (5 per cent), and jute sticks (4 per cent). Because of the high rate of biomass use at
present, there is serious concern about preservation of limited forests in the country and
striking a balance between ecological, social and environmental needs.
About 400 biogas plants have already been installed in different parts of the country. Limited
success has resulted from high capital cost, insufficient supply of raw material and lack of
maintenance support.
3.1.2 Status and future prospect of electricity demand and supply

BPDB with its meagre per capita generated capacity and limited coverage area had been
serving its consumers fairly satisfactorily until 1990, after which the reserve margin fell,
ultimately reaching a very low level in 1994. Though the 1985 Power System Master Plan
Study called for addition of new generation to keep in pace with load growth, due to the
unsatisfactory commercial operation, international donors virtually suspended all new
lending to BPDB from 1990. On the other hand many of the power stations have outlived
their economic life while some others are not functioning due to lack of timely maintenance.
The problem was further aggravated with the gas supply constraint. There was a shortfall of
about 300-450 MW during the summer of 1997, resulting in severe load shedding during
peak hours. Real improvement of gas situation is expected when Sangu gas field will go in
operation along with salna. Overall power supply situation is now gradually improving with
the implementation of rehabilitation programme of old power stations. A number of private
and public sponsored power plants are coming up to overcome the crisis.
3.1.3 Share of electricity use in industrial and commercial sectors

Industrial and domestic sectors are the major consumers of electricity, accounting for 46 and
38 per cent respectively in 1996-97, whereas the commercial sector has had a steady share
of around 11 per cent over the last decade. With the industrialization, the share of industries
has gone up from 39 to 46 per cent while that of domestic sector has gone down from 44 to
38 per cent over a 10-year period.
3.1.4 Status of industrial development and growth in energy Use

The industrial development and growth of energy use is shown in Figure 3.1. Industrial
development is expressed as industrialization ratio, which refers to share of value added of
manufacturing and mining sectors to GDP at current prices (1992). Industrialization ratio of
the country increased from 1975 to 1983, declined from 1983 to 1987 and has an increasing
trend from the year 1989. Per capita energy consumption has increased continuously over
the years.
70 15
60
50 10
kgOE
40
%
30
5
20
10
0 0
1973 75 77 79 81 83 85 87 89 91
Per Capita Energy, (kgOE) Industrialization Ratio (%)
Figure 3.1 Annual growth of energy use and industrialization ratio
3.1.5 Prevailing costs of energy

The different energy tariffs are summarized in Table 3.1. The industrial and commercial
electricity tariffs given here do not include minimum charge, demand charge, service and
other taxes.
3.1.6 Government policies and strategies for private power generation

In comparison to the 11,666 GWh electricity generated annually at present, the Power
System Master Plan (PSMP) projects a requirement of 16,500 GWh in 2000 and 24,160
GWh in 2005. This implies an increase in the peak demand from 2,200 MW presently to
3,150 MW by 2000 and 4,600 MW by 2005 for which capacity addition of about 3,350 MW
will be required by 2005. Hence, an average of 300 MW of generation capacity has to be
added every year from 1998. At present load shedding has risen to the level of 300 MW
causing more than 20 per cent of working hours to be wasted in the industries. This indicates
the necessity of power generation in private sector.
Table 3.1 Prevailing tariff for primary fuels and electricity
Primary Fuels Electricity

Type of fuel Market price (Taka)* Type of users Price (Taka/kWh)
Natural gas 1.68/m 3 Small industries:
flat rate 3.30
Furnace oil 4.51/litre off-peak hours 2.55
peak hours 4.75
LDO 11.89/litre Commercial:
flat rate 4.45
HSD 12.41/litre off-peak hours 3.10
peak hours 7.10
SKO 12.41/litre General use (11 kV):
flat rate 3.10
Fuel wood 2/kg (average) off-peak hours 2.50
peak hours 5.75
* Exchange rate (1998): 1 US$ = 48 Taka
The Government is restructuring the power sector and promoting private sector participation
in the generation of electricity for attaining higher economic efficiency. The Government is
strongly committed to attract private investment for installing new power generation capacity
on a Build-Own-Operate (BOO) basis. A Power Cell under the Ministry of Energy and
Mineral Resources (MEMR) was created in 1995 to facilitate promotion, development,
implementation, commissioning and operations of private power generation projects. The
modalities for implementing private power project are as follows.
Financing regulation
The funds for the private power projects will be raised without any direct sovereign
guarantee of repayment. The project sponsor(s) must look to the revenues earned by the
sale of electricity for their returns on equity and debt servicing. Minimum requirement for
equity investment will be 20 per cent. A Private Sector Infrastructure Development Fund
(PSIDF) will be established and money would be available at market-based interest rates
with extended maturity periods. As corporate debt securities market is essential for raising
local financing for power development projects, provisions for corporate bonds, shares and
tax facilities with the recognition by Securities and Exchange Commission (SEC) will be
allowed.
Security package
Model Implementation Agreement (IA), Power Purchase Agreement (PPA) and Fuel Supply
Agreement (FSA) will be prepared for private power projects to eliminate the need for
protracted negotiations. The government will guarantee power purchase agreement for
performance obligations of the concerned utilities and the performance of the fuel supplier,
which is a public sector organization. For private power projects, protection will be provided
against specific force major risk and changes in certain taxes and duties.
Allocation of project/plant site and provision of fuel

The government will select project/plant site in consultation with the investor/project sponsor,
and determine the fuel, keeping in view the preference for indigenous resources but the use
of imported fuels may also be allowed. Investors may be asked to bid for projects based on
renewable and/or non-conventional sources of energy.
Tariff for bulk purchase of power at busbar

The tariff structure would consist of two parts. In the solicited bids, the bidders shall offer
bulk power tariff based on the capacity payment and energy payment and also provide the
equivalent levelized tariff. The capacity payment will be made in Bangladeshi currency
(Taka), but denominated in both Dollars and local currency. This will cover debt service,
return on equity, fixed operation and maintenance cost, insurance and other fixed cost. The
energy payment will be denominated in local currency to the extent to which the variable
costs are in local currency. This will cover the variable costs of operation and maintenance,
including fuel.
Interconnection of IPP to transmission system: The power will be purchased from the IPP at
a specified voltage and frequency at the outgoing terminal of the substation of the power
plant. The cost of interconnecting facilities up to outgoing terminals of the private power
project will be borne by the private power producers.
Fiscal incentives
The private power companies shall be exempted from corporate income tax for 15 years.
Repatriation of equity along with dividends will be allowed freely. Income tax will be
exempted for foreign companies. The foreign investors will be free to enter into joint ventures
but this is optional and not mandatory. The companies will be allowed to import plant and
equipment without payment of customs duties, VAT and any other surcharges. Private
power companies will be exempted from the requirements of obtaining
insurance/reinsurance only from the national Insurance Company and exempted from duty
payments. Power generation companies are eligible for all concessions that are available to
industrial projects. Private parties may raise local and foreign finance in accordance with
regulations applicable to industrial projects as defined by the Board of Investment (BOI).
Local engineering and manufacturing companies shall be encouraged to provide
indigenously manufactured equipment of international standard to private power plants.
Other facilities and incentives for foreign investors: Several other incentives extended by the
government include tax exemption on royalties, technical assistance fees, and facilities for
their repatriation; tax exemption on interest on foreign loans; tax exemption on capital gains
from transfer of shares by the investing company; avoidance of double taxation in case of
foreign investors on the basis of bilateral agreements; exemption of income tax for up to 3
years for the expatriate personnel employed by the industry, etc.
Starting from 1997, the government is considering to install a capacity of 1,500 MW through
IPPs. Four agreements have so far been made, two of which are being implemented while
several other projects are in the pipeline. An Independent Power Producer (IPP) is generally
required to sign four contract agreements. These are the Power Purchase Agreement with
BPDB; Implementation Agreement with the Government; Fuel Supply Agreement with the
buyer and the supplier of fuel; Land Lease Agreement with the buyer.
Many special features included in the IPP contract are very much in favour of the IPP, and
are not extended to BPDB which is working presently with an installed generating capacity of
2,900 MW. The tariff charges in some cases are above the international price.
3.2 Technical Potential for Cogeneration
3.2.1 Identification of sub-sectors with cogeneration potential

Industrial cogeneration is a vital part of any strategy designed to reduce emissions of carbon
dioxide. The advantage of cogeneration is that it is available now, a true “no-regrets”
technology justified in many applications on economic grounds alone. Cogeneration is a
well-tried technology in Bangladesh, already meeting around 10 per cent of the total
electricity requirements of Bangladesh. These include mainly industrial plants like fertilizer
factories, sugar mills, paper mills, textile spinning mills, etc.
Cogeneration of process steam and electricity is widely recognized to be one of the most
important single measures for achieving energy savings in the industrial/commercial sector.
After extensive site visits and surveys the following industrial and commercial sectors of the
country were identified with cogeneration potential.
Industrial Sectors: pharmaceutical industry, edible oil refinery, paper recycling mill, textile
processing mill, textile spinning mill, jute mill, tobacco curing, food processing, tea estate,
tannery plant, knitting and hosiery plant, soap and chemical industry, cement plant, food
industry, ceramic industry, distillery plant, and industrial estate.
Commercial Sectors: hotel, hospital, cinema hall, housing complex, shopping complex, and
office complex.
3.2.2 Existing cogeneration facilities in the country

Cogeneration in textile spinning mill
The company analyzed here is one of the largest spinning mills in Bangladesh, with a
capacity to produce 70,230 spindles. It went into production in July 1992. At present the
turnover is nearly 1,480 million Taka. The mill operates 24 hours a day, for 360 days a year.
The mill requires both electrical energy and thermal energy for production. There are seven
Waukesha Gas Generators in the mill, with a total generation capacity of 6.4 MW. Each
generator has an electricity generation capacity of 920 kW. Electrical energy is mainly used
to run different 3-phase motors. Besides, there are a few single-phase motors, fans, lights,
heaters, etc.
There is only one fire-tube boiler operating with natural gas as fuel, with a rated capacity to
produce 1.5 ton/hour of steam at around 5 bar for the process.
The mill opted for cogeneration due to the following reason. The ambient temperature in the
processing section was very high, at around 40-45°C, making it difficult for people to work
continuously at high temperatures. Moreover the quality of the product was affected as the
machines were not running properly at high temperatures. On the other hand, the
temperature of the exhaust gases from gas engine generator was around 500°C. The
management of the mill incorporated two waste heat boiler so that about 5 ton/hour of steam
generated at 6 bar is used to drive vapour absorption chillers. The chilled water produced
with no energy cost decreases the air temperature in the production section from 42°C to
20°C. As a result, total energy cost is reduced while ensuring reliability of power supply,
reducing environment pollution and increasing overall efficiency.
The power output from the generators and the cooling capacity of the two chillers as
functions of time are presented in Figure 3.2 and 3.3.
5000
4500
4000
3500
3000
kW
2500
2000
1500
1000
500
0
10
12
14
16
18
20
22
24
6
4
Time of the Day
Figure 3.2 Power generation at the textile mill as a function of time
590
570
Ton of Refrigeration
550
530 Chiller-1
Chiller-2
510
490
470
450
10
12
14
16
18
20
22
24
6
Time of the Day
Figure 3.3 Cooling provided by chillers as a function of time
The management of the mills cites several advantages of the cogeneration plant, such as
primary fuel savings, reduced energy costs, enhanced reliability of power supply, and
reduced environment pollution. Following are the benefits from the process side: reduced
lapping, reduced end breakage, improved product quality due to cleaner environment,
reduced burnout of the motors. Moreover, turnover of technical staff has reduced
considerably, workers feel less fatigued and there is reduced absenteeism. As a result, there
is 30 per cent increase in overall productivity.
The gas engine generator with vapour absorption chillers is found to be an effective
performance enhancement option. The result of this specific study should encourage other
process industries to look seriously into the prospects of opting for cogeneration in their
respective plants. This will not only be rewarding to them, but also to the country as a whole
since the indigenous energy sources will be exploited more rationally and the national power
utility would have a lower burden of coping with the ever-increasing power demand.
Cogeneration in sugar mill

There are 15 sugar mills in Bangladesh. These mills are owned by the government but
controlled and managed by 'Bangladesh Sugar and Food Industries Corporation (BSFIC)'.
Sugarcane required by each mill is collected from its surrounding areas. The industry meets
the major requirement of country's sugar. Sugar mills also produce molasses and bagasse,
two very important by-products that are used as raw materials in distilleries and paper
industry respectively. Bagasse is also the main fuel for sugar mill boilers, producing steam
that is required in the manufacturing process of the mill. In 1993-94, these mills crushed 2.7
million tons of cane, producing close to a million tons of bagasse.
Data on installed capacity, cane crushed, turbine capacity, on-site power generation, power
purchased, are shown in Table 3.2.
Table 3.2 Data of sugar mills in Bangladesh for the milling season 1993-94
No Sugar mills Installed Cane Turbine Annual Power Power

capacity crushed generating operation generated purchased
capacity
(TCD) (ton) kW Days MWh MWh
1 Panchagar 1,016 143,952 2,000 150 2,967 678
2 Thakurgan 1,524 200,213 3,000 148 3,878 538
3 Setabganj 1,250 135,872 4,000 114 3,838 631
4 Shyampur 1,016 125,111 2,000 138 2,897 510
5 Rangpur 1,321 154,421 2,600 131 3,879 462
6 Jaypurhat 2,032 220,294 2,500 136 3,586 1,121
7 Rajshahi 2,000 234,072 3,500 162 5,519 1,462
8 Natore 1,500 263,941 4,000 167 5,972 786
9 North Bengal 1,500 270,979 2,000 166 4,159 1,487
10 Kushtia 1,524 162,325 3,000 130 3,104 855
11 Carew 1,150 185,752 3,000 175 3,446 2,778
12 Mobarakganj 1,500 218,985 2,000 156 1,888 736
13 Faridpur 1,016 171,431 2,000 160 299 648
14 Zeal Bangla 1,016 143,091 2,000 155 3138 739
15 Deshbandu 300 16,674 500 67 564 178
Total 19,665 2,647,113 38,100 49,134 13,610
As most sugar mills have similar configurations, one of them is described here with more
details. This mill has three water tube boilers, each with a steam generating capacity of 16
ton/hr. The pressure and temperature of the steam are 15 kg/cm2 and 246°C respectively.
Bagasse is the primary source of which is burnt in boiler furnace to generate steam which in
turn is used to drive steam turbine generators for electricity generation required for motor
drives, driving mill drive turbines and for meeting process steam needs. One steam turbine
generator is normally operated during milling season to meet the entire electric demand.
One standby diesel generator is also available and run during emergency. Electricity is
purchased from Bangladesh Power Development Board (BPDB) as required during cleaning
days and during off-season. There are also two crusher drive steam turbines, each of 580
HP capacity and two steam turbine generators, each of 1 MW capacity.
About 30 tons/hour of steam is produced in the boiler that has an average efficiency of 56
per cent. High-pressure steam is mainly used for steam turbine generator and crusher drive
turbines. An automatic pressure reduction valve reduces steam from 15kg/cm 2 pressure to 3
kg/cm2 that is mainly used in centrifugals for purging molasses and washing/cleaning
heaters, evaporators and pans, etc. Turbine exhaust steam is used in processing juice, i.e.
mainly heating purposes. Another automatic steam reduction valve reduces 3 kg/cm2 steam
to 1 kg/cm2 to supply make up steam. Totally 80 per cent of the condensate is recovered
and about 20 per cent make up water is needed for the boiler. During plant visit, it was
observed that steam used in heating air of 6 forced air supply units of sugar dryer was being
operated with an open bypass valve of traps causing live steam discharge to drains.
Though all sugar mills have cogeneration facilities, they operate only during the season, i.e.
150 days per year. If they can be operated during off-season by applying Balancing,
Modernization, Rehabilitation & Expansion (BMRE) Programme, more power generated can
alleviate the power shortage in the country.
Most sugar factories have low-pressure (15 bar) boilers. By installing high-pressure boilers,
these can produce more power efficiently. The choice of boiler pressure of 64 kg/cm2 and
above appears inevitable for mills intending to sell power to the national grid. Typically, a
well-designed 2,500 tons crushed/day plant can sell 10 MW of power to national grid.
There are several technical financial and institutional impediments to the use of energy
efficient sugar mills, the most important ones being the policy initiatives and shortage of
financial resources. In most sugar factories, there is a lack of sound technical management
to maintain high-pressure boilers. The existing low-pressure boiler is itself not being
maintained satisfactorily in most cases with the result that there are interruptions in crushing
sugar cane. In any event, sugar being still a highly regulated industry, the management is
occupied with sugar cane farmers, and the financial and administrative problems of
producing and selling, and very few have the time to take up the additional responsibility of
electricity cogeneration.
Cogeneration with improved technology should be seriously considered in sugar factories of

Bangladesh as it offers the following advantages:
• It causes no pollution as the bagasse does not produce flash, or sulphur compared to coal
used in a thermal plant;
• It needs no foreign exchange as the machinery needed for cogeneration boilers, turbines,
etc., is indigenously available;
• It has a low gestation period of two years compared with four to six years of construction
period for a coal-based thermal plant;
• It has a much lower installation and recurring cost compared with a conventional fossil fired
power plant;
• It is small in size and is invariably in the rural area, so the transmission and distribution
losses are minimal compared with any centralized plant requiring long lines of distribution;
• It places no financial and administrative burden on the utility as it is executed and managed
by the sugar factory;
It improves the financial position of the sugar factory.
Cogeneration in paper mill

A newsprint paper mill having a steam turbine cogeneration facility is covered here. The mill
presently generates 13.1 MW and purchases 2.5 MW from the utility grid to meet all the
electrical energy needs of the site, including the residential zones. Furnace oil is used in
boilers for steam generation.
Steam generated at 42 bar and 400°C in three boilers with a total installed capacity of 161
ton/hour, is mainly used in three backpressure turbines to generate electricity. After partial
expansion of the steam in turbine a significant amount of steam at 6 bar is used by paper
machine and autoclaves. Presently, 13.1 MW is self-generated and a 2.5 MW is bought from
the national grid to run the factory and provide residential lighting. The electrical and thermal
energy data of the factory for the year 1994 are shown in Figures 3.4 and 3.5.
12
Self Power Generation Purchased power
10
MWh (Thousand)
0
May
Mar
Aug
Nov
Apr
Dec
Oct
Feb
Jul
Sep
Jan
Jun
Month
Figure 3.4 Electricity consumption data of the paper mill in 1994
3500
3000
Thermal Energy (GJ)
2500
2000
1500
1000
500
0
May
Aug
Nov
Apr
Mar
Dec
Oct
Jul
Feb
Sep
Jan
Jun
Month
Figure 3.5 Thermal energy consumption data of the paper mill in 1994
Cogeneration in fertilizer plant

This fertilizer factory is one of the largest in the country, with a capacity to produce over 1.8
million tons of urea per year. Main energy source used in this fertilizer factory is natural gas
that is used in boilers as fuel. Most of the electrical energy used in the fertilizer factory is
self-generated and there is provision for buying electricity from the national grid.
The fertilizer factory has two boilers with capacities to produce 180 tons/hr and 171 ton/hr of
steam, respectively. The steam generated at 60 bar and 510°C is mainly used in two
backpressure steam turbines to generate up to 11 MW of electricity. After partial expansion
in the turbine, steam at 10 bar is used for processing. Self-power generation and thermal
energy consumption data of the factory are given in Figures 3.6 and 3.7, respectively.
8000
7000
Self Power Gen. (MWh)
6000
5000
4000
3000
2000
1000
0
Mar
May
Apr
Aug
Nov
Oct
Dec
Feb
Jul
Jan
Sep
Jun
Month
Figure 3.6 Self-power generation data of the fertilizer factory in 1997
700000
600000
Thermal Energy (GJ)
500000
400000
300000
200000
100000
0
Mar
May
Apr
Aug
Nov
Oct
Dec
Feb
Jul
Jun
Jan
Sep
Month
Figure 3.7 Thermal energy consumption data of the fertilizer factory in 1997
3.2.3 Assessment of the technical potential on the basis of questionnaire

A survey of the different manufacturing and commercial facilities in the country using
technical criteria as defined by ESCAP’s preliminary assessment questionnaire allowed to
make a very rough estimation of the technical cogeneration potential in the different sub-
sectors (see Table 3.3), which amounted to almost 1,000 MW. More precise determination
would require more time and resources, which was beyond the scope of this study.
3.2.4 Identification of suitable sites for pre-feasibility study

For the purposes of this pre-feasibility study, major energy consuming enterprises were
identified in the following areas: industries (pharmaceutical, chemical, tobacco, edible oil,
pulp and paper, textile processing and spinning, jute) and commercial buildings (hotel,
hospital, cinema hall, housing and shopping complex, office).
Information on their thermal and electrical energy consumption was collected through site
visits and survey using a questionnaire. The selection process was based on screening and
analysis of the energy usage pattern. The energy usage was analyzed in detail before
assessing the pre-feasibility of cogeneration. Results of selected enterprises are presented
in the following section.
Table 3.3 Industrial and commercial cogeneration potential in Bangladesh
No. Type of Activity No. of Assumed Average Installation Total

Mills Potential of the Plant (MW) (MW)
1 Textile Spinning Mills 50 2 100
2 Textile Processing Mills 50 1 50
3 Knitting & Hosiery Plant 50 0.6 30
4 Jute Mills 70 1.5 105
5 Paper Recycling Mills 14 3 42
6 Soup & Chemical Industry 20 0.8 16
7 Tannery 50 0.6 30
8 Cement Mills 10 0.8 8
9 Ceramic Industry 20 1.5 30
10 Tea Gardens 180 0.9 162
11 Food Industry 15 1 15
12 Distillery 10 0.6 6
13 Sugar Mills 15 10 150
(surplus generation)
14 Industrial Estate 5 5 25
15 Hotel 50 0.5 25
16 Hospital 150 0.5 75
17 Housing Complex 10 1 10
18 Office Complex 150 0.5 75
19 Export Processing Zone 5 5 25
3.3 Pre-feasibility Studies at Selected Industrial and Commercial Sites
For the purpose of economic analysis, the total installed costs of the cogeneration plants
were assumed as follows: steam turbines: US$ 1,200/kWe; gas turbines: US$ 1,000/kWe;
and reciprocating engines: US$ 900/kWe. Some common financial data gathered or
assumed before conducting the pre-feasibility studies are summarized in Table 3.4.
Table 3.4 Financial data used for the pre-feasibility study
Parameters Unit Value

Exchange rate Taka/US$ 48.00
Tax rate Per cent/year 35.00
Discount rate Per cent/year 15.00
Cogeneration plant service life Year 15.00
Electricity purchase price Taka/kWh 3.60
Electricity buy-back rate Per cent of purchase price 80 per cent
Fuel price escalation rate Per cent/year 5.00
Electricity price escalation rate Per cent/year 6.00
Electricity stand-by rate Taka/kW.month 80.00
Fuel purchase price (natural gas) Taka/m 3 1.68
3.3.1 Recycled paper mill

This factory operates 24 hours a day and 350 days a year. Natural gas is used in boiler
furnace for steam generation. The electrical energy is required to drive the motors. The rate
of production is maintained up to the target level.
Analysis of the monthly electricity and steam consumption in 1997 led to the following:

• Maximum Electricity Demand: 3,100 kW
• Minimum Electricity Demand: 2,750 kW
• Total Steam Consumption in 1997: 69,386 tons
• Maximum Steam Demand: 9.65 ton/hr
• Minimum Steam Demand: 7.15 ton/hr
The average power-to-heat ratios were found to be 0.52 in 1997. Typical cogeneration
system for this site would be based on steam turbine. However, reciprocating engine, gas
turbine cogeneration systems were also considered as potential alternatives. Results of the
feasibility study are summarized in Table 3.5.
Obviously, the steam turbine option does not seem feasible: (i) with steam turbine thermal
match (STTM), less than 25 per cent of the power requirement is generated; (ii) with steam
turbine power match (STPM), too much excess heat is generated.
With the reciprocating engine thermal match (RETM) option, 200 per cent excess power is
generated. The project profitability will depend on the buy-back rate. This may not be a good
option as the purpose is not to earn from electricity sale. Reciprocating engine power match
(REPM) option seems feasible as almost all the power needed can be met though an
auxiliary boiler will be necessary to make up for the 30 per cent shortfall in the heat supply.
Table 3.5 Summary of pre-feasibility study of the recycled paper mill
Major Parameters Steam Turbine Gas Engine Gas Turbine

Thermal Power Therm Power Therm Power
Match Match al Match al Match
Match Match
Installed power (kW) 582.00 2,750.00 9,047.00 2,750.00 3,872.00 2,750.00
Fuel consumption (TJ/year) 197.00 930.20 856.90 260.50 444.90 316.00
Electricity generated (MWh) 4,647.00 21,945.00 72,197.00 21,945.00 30,889.00 21,945.00
Heat generated (TJ/year) 157.90 745.90 157.90 48.00 157.90 112.20
Excess/deficit(-) power (MWh/year) -18,765.00 -1,467.00 48,785.00 -1,469.00 7,487.00 1,467.00
Excess/deficit(-) heat (TJ/year) -4.10 509.30 -4.10 -114.00 -4.10 -49.80
Equipment power-to-heat ratio 0.106 0.11 1.87 1.87 0.80 0.80
Total investment (million Taka) 33.54 158.40 390.84 118.80 185.86 132.00
Net present value (million Taka) 43.28 68.05 56.20 225.05 273.09 213.44
IRR (per cent) 34.00 21.70 35.90 41.90 36.30 38.30
With gas turbine thermal match (GTTM) option, about 30 per cent excess electricity is
generated which may be acceptable. Gas turbine power match (GTPM) option is also good
as the 30 per cent deficit in the heat supplied can be met by auxiliary natural gas firing in the
recovery boiler.
Accordingly, sensitivity analysis done to see the impacts of the increase in the investment,
fuel and electricity price escalation, was limited to REPM, GTTM and GTPM options.
What if the investment cost increases?
Int
er 42%
na
40%
l
Ra(IR 38%
te R) 36%
of 34%
Re REPM
32%
tur GTPM
n 30%
1% 3% 5% 8% 10% 13% 15%
% of Increase Investment Cost
What if the fuel price escalates faster?

Internal Rate of Return
40.0%
(IRR)
35.0%
REPM
30.0% GTPM
GTTM
25.0%
5. 6. 7. 8. 9. 10 11 12 13
0 0 0 0 0 .0 .0 .0 .0
% % % % % % % % %
Fuel Price Escalation Rate
What if the electricity price escalates faster?
50%

45%
40%
REPM
35% GTPM
GTTM
30%
6% 7% 8% 9% 10% 11% 12% 13%
Electricity Price Escalation Rate
From the sensitivity analysis of the potential cogeneration alternatives for the recycled paper
mill, the reciprocating engine power match option meeting power requirement of 2750 kW is
found to be the most suitable cogeneration system. It represents an initial investment of 118
Million Taka and leads to an internal rate of return of 41.9 per cent.
3.3.2 Vegetable oil refinery

This factory operates 24 hours a day and 340 days a year. Natural gas is used in boiler to
generate steam that is required for the process. Energy alone accounts for 35 per cent of the
production cost.
Analysis of the monthly electricity and steam consumption in 1997 led to the following:

• Maximum Electricity Demand: 650 kW
• Minimum Electricity Demand: 510 kW
• Total Steam Consumption in 1997: 12,260 tons
• Maximum Steam Demand 1.68 ton/hr
Minimum Steam Demand: 1.43 ton/hr
The average power-to-heat ratio was 0.53 in 1997. Typical cogeneration system for this site
would be based on steam turbine, though its size will be quite small. However, reciprocating
engine, gas turbine cogeneration systems were also considered as potential alternatives.
Results of the feasibility study are summarized in Table 3.6.
Obviously, the steam turbine option does not seem feasible: (i) with steam turbine thermal
match (STTM), less than 20 per cent of the power requirement is met; (ii) with steam turbine
power match (STPM), 300 per cent excess heat is generated.
(REPM) option seems feasible as almost all the power needed can be met though an
auxiliary boiler will be necessary to make up for the 30 per cent shortfall in the heat supply.
Table 3.6 Summary of pre-feasibility study of the vegetable oil refinery

Thermal Power Thermal Power Thermal Power
Installed power (kW) 101.00 520.00 1,804.00 520.00 772.00 520.00
Electricity generated (MWh) 771.00 3,984.00 13,819.00 3,984.00 5,914.00 3,984.00
Excess/deficit(-) power (MWh/year) -3,458.00 -245.00 9,950.00 -245.00 1,685.00 -245.00
Excess/deficit(-) heat (TJ/year) 1.60 112.00 1.60 -19.90 1.60 -8.30
IRR (per cent) 31.90 18.30 34.30 40.30 34.40 36.80
generated which may be acceptable. Gas turbine power match (GTPM) option is also good
as the 30 per cent deficit in the heat supplied can be met by auxiliary natural gas firing in the
recovery boiler.
Accordingly, the sensitivity analysis carried out to see the impacts of the increase in the
investment, fuel and electricity price escalation, was limited to REPM, GTTM and GTPM
options.
45%
40%
35%
30% REPM
GTPM
25%
GTTM
20%
1% 2.50% 5% 7.50% 10% 12.50% 15%
% of Increase Invesrment Cost

Internal Rate of Return (IRR)
45%
40%
35%
REPM
30% GTPM
GTTM
25%
5% 6% 7% 8% 9% 10% 11% 12% 13%

Internal Rate of Return (IRR)

50%
45%
40%
REPM
35% GTPM
GTTM
30%
6% 7% 8% 9% 10% 11% 12% 13%
From the sensitivity analysis of the potential cogeneration alternatives for the vegetable oil
refinery, the reciprocating engine power match option meeting power requirement of 520 kW
is found to be the most suitable cogeneration system. It represents an initial investment of 22
3.3.3 Textile spinning mill

This factory operates 24 hours a day and 350 days a year. Natural gas is used in boiler to
generate steam that is required for the process. The production is greatly affected by any
fluctuations or micro-cuts in the power supply.
Analysis of the monthly electricity and steam consumption data of 1997 led to the following:

• Total Thermal Energy Consumption in 1997: 66 TJ
The power-to-heat ratio of the site was estimated as 1.1 for 1997. Typical cogeneration
system for this site would be based on reciprocating engine. However, steam turbine and
gas turbine cogeneration systems were also considered as potential alternatives. Results of
the feasibility study are summarized in Table 3.7.
As expected, the steam turbine option is not suitable: (i) with steam turbine thermal match
(STTM), less than 10 per cent of the power requirement is met; (ii) with steam turbine power
match (STPM), 770 per cent excess heat is generated.
(REPM) option seems feasible as almost all the power requirement can be met though the
heat generated is largely inadequate to meet the demand. An auxiliary boiler will be
necessary to make up for over 65 per cent shortfall in the heat supply.
Table 3.7 Summary of pre-feasibility study of the textile spinning mill

Therm Power Therm Power Therm Power
al Match al Match al Match
Match Match Match
Installed power (kW) 263.00 2,350.00 4,080.00 2,350.00 1,746.00 2,350.00
Heat generated (TJ/year) -17,974.00 -1,316.00 12,486.00 -1,316.00 -6,136.00 -1,316.00
Excess/deficit(-) power (MWh/year) 71.20 637.40 71.20 41.00 71.20 95.90
Excess/deficit(-) heat (TJ/year) 5.20 507.60 5.00 -25.00 5.20 29.90
IRR (per cent) 32.80 19.90 38.40 41.90 38.10 37.40
With gas turbine thermal match (GTTM) option, about 30 per cent less electricity are
generated. Gas turbine power match (GTPM) option takes care of all the power and heat
needs but around 46 per cent of excess heat are generated which has no commercial value.
investment, fuel and electricity price escalation, was limited to REPM and GTPM options.

42%
40%
38%
(IRR)
36%
34%
REPM
32%
GTPM
30%
1% 3% 5% 8% 10% 13% 15%

41%
40%
39% REPM
38% GTPM
37%
36%
35%
5% 6% 7% 8% 9% 10% 11% 12% 13%


49%
47%
45%
(IRR)
43%
41%
39% REPM
37% GTPM
35%
6% 7% 8% 9% 10% 11% 12% 13%
% of Increase Fuel Price Escalation Rate
From the sensitivity analysis of the potential cogeneration alternatives for the textile spinning
mill, the reciprocating engine power match option meeting power requirement of 2,350 kW is
found to be the most suitable cogeneration system. It represents an initial investment of 102
3.3.4 Textile processing mill

This factory operates 24 hours a day, for 340 days a year. Natural gas is used in boiler to
generate steam that is required for the process. The production process is sensitive to any
fluctuations in the power supply or power failures.

• Total Thermal Energy Consumption in 1997: 89.3 TJ
The power-to-heat ratio of the site was estimated as 0.3 for 1997. Typical cogeneration
system for this site would be based on steam turbine. However, reciprocating engine and
gas turbine cogeneration systems were also considered as potential alternatives. Results of
the feasibility study are summarized in Table 3.8.
The steam turbine option is found to be not suitable: (i) with steam turbine thermal match
(STTM), less than 20 per cent of the power requirement is met; (ii) with steam turbine power
match (STPM), 90 per cent excess power and 170 per cent excess heat are generated.
(REPM) option seems feasible as almost all the power needed can be met though the heat
generated meets up to 80 per cent of the demand. An auxiliary boiler will be necessary to
make up for the remaining 20 per cent shortfall in the heat supply.
Table 3.8 Summary of pre-feasibility study of the textile spinning mill

Ther Powe Therma Powe Therm Powe
mal r l Match r al r
Match Match Match Match Match
Installed power (kW) 238.00 875.00 4,157.00 875.00 1,843.00 875.00
Excess/deficit(-) heat (TJ/year) -16.30 151.80 -16.30 -73.90 -16.30 -54.60
IRR (per cent) 33.20 21.30 34.10 40.80 33.40 37.20
generated. Gas turbine power match (GTPM) option takes care of all the power needs
though heat deficit is as high as 60 per cent. This will require the adoption of auxiliary natural
gas firing in the recovery boiler. The total installation cost of GTPM is 50 per cent less than
that for GTTM.

42%
40%
38%
(IRR)
36%
34%
REPM
32% GTPM
30%
1% 3% 5% 8% 10% 13% 15%

41%
40%
39% REPM
38% GTPM
37%
36%
35%
5% 6% 7% 8% 9% 10% 11% 12% 13%


49%
47%
45%
(IRR)
43%
41%
39% REPM
37% GTPM
35%
6% 7% 8% 9% 10% 11% 12% 13%
From the sensitivity analysis of the potential cogeneration alternatives for the textile
processing mill, the reciprocating engine power match option meeting power requirement of
875 kW is found to be the most suitable cogeneration system. It represents an initial
investment of 37 Million Taka and leads to an internal rate of return of 40.8 per cent.
3.3.5 Hospital
This hospital operates throughout the year without any stop. Electricity is required for
lighting, air conditioning and motors whereas as a lot of thermal energy is needed in the form
of steam for various applications.

• Total Thermal Energy Consumption in 1997: 91.5 TJ
The power-to-heat ratio of the site was calculated to be 0.68 for 1997. Typical cogeneration
system suitable for this site would be based on gas turbine. However, reciprocating engine
and steam turbine cogeneration systems were also considered as potential alternatives.
(STTM), less than 30 per cent of the power requirement is generated and the hospital will
have to depend heavily on the utility grid; (ii) with steam turbine power match (STPM), 119
per cent excess heat are generated which has no commercial value.
(REPM) option seems feasible as almost all the power needed can be met though there will
be small (16 per cent) shortage in the heat supply. There is no need for an auxiliary boiler as
this shortfall can be easily made up by auxiliary natural gas firing in the recovery boiler.
Table 3.9 Summary of pre-feasibility study of the hospital

Ther Power Thermal Power Therm Powe
mal Match Match Match al r
Match Match Match
Heat generated (TJ/year) 89.50 22,308.00 89.50 14.60 89.60 34.00
Excess/deficit(-) heat (TJ/year) -2.00 109.60 -2.00 -76.90 2.00 -57.60
Equipment power-to-heat ratio 0.107 0.11 1.870 1.87 .80 0.80
IRR (per cent) 35.20 26.00 35.90 43.50 34.80 39.80
generated, which has to be sold as in the RETM option. Gas turbine power match (GTPM)
option takes care of all the power needs though heat deficit is as high as 60 per cent. This
will require the adoption of auxiliary natural gas firing in the recovery boiler.

42%
40%
38%
(IRR)
36%
34% REPM
32%
GTPM
30%
1% 3% 5% 8% 10% 13% 15%

41%
40%
39% REPM
38% GTPM
37%
36%
35%
5% 6% 7% 8% 9% 10% 11% 12% 13%


49%
47%
45%
(IRR)
43%
41%
39% REPM
37% GTPM
35%
6% 7% 8% 9% 10% 11% 12% 13%
From the sensitivity analysis of the potential cogeneration alternatives for the hospital, the
reciprocating engine power match option meeting power requirement of 800 kW is found to
be the most suitable cogeneration system. It represents an initial investment of 35.6 Million
Taka and leads to an internal rate of return of 43.5 per cent.
3.3.5 Hotel
This hotel operates throughout the year. Electricity is required for lighting, air conditioning
and motors, and a lot of steam is required for various applications.

• Total Thermal Energy Consumption in 1997: 137 TJ
The power-to-heat ratio of the site was calculated to be 0.23 for 1997. Typical cogeneration
system suitable for this site would be based on steam turbine. However, reciprocating
engine and gas turbine cogeneration systems were also considered as potential alternatives.
(STTM), less than 65 per cent of the power requirement is generated and the hotel will have
to depend on the utility grid; (ii) with steam turbine power match (STPM), only a small
amount of excess heat is generated.
(REPM) option seems good as almost all the power needed can be met though there will be
small (15 per cent) shortage in the heat supply. There is no need for an auxiliary boiler as
this shortfall can be easily made up by auxiliary natural gas firing in the recovery boiler.
Table 3.10 Summary of pre-feasibility study of the hotel

Ther Powe Therm Powe Therm Powe
mal r al r al r
Fuel consumption (TJ/year) 230.00 317.50 1,001.50 88.90 520.00 107.90
Excess/deficit(-) power (MWh/year) -3,149.00 -1,090.00 75,796.00 -1,090.00 27,532.00 -1,090.00
Excess/deficit(-) heat (TJ/year) 47.00 92.10 47.60 -120.60 47.60 -98.70
IRR (per cent) 31.20 28.00 34.90 43.50 32.60 39.80
generated, which has to be sold as in the RETM option. Gas turbine power match (GTPM)
option takes care of all the power needs though heat deficit is as high as 60 per cent. This
will require the adoption of auxiliary natural gas firing in the recovery boiler.
investment, fuel and electricity price escalation, was limited to STPM, REPM and GTPM
options.

42%
40%
38%
(IRR)
36%
34% REPM
32%
GTPM
30%
1% 3% 5% 8% 10% 13% 15%

41%
40%
39% REPM
38% GTPM
37%
36%
35%
5% 6% 7% 8% 9% 10% 11% 12% 13%


49%
47%
45%
(IRR)
43%
41%
39% REPM
37% GTPM
35%
6% 7% 8% 9% 10% 11% 12% 13%
From the sensitivity analysis of the potential cogeneration alternatives for the hospital, the
reciprocating engine power match option meeting power requirement of 800 kW is found to
be the most suitable cogeneration system. It represents an initial investment of 35.6 Million
Taka and leads to an internal rate of return of 43.5 per cent.
3.4 Conclusions and Recommendations for Follow-up Actions1
Conclusion
From the pre-feasibility study of the selected sites, one can conclude that thanks to the
availability of natural gas distribution network in some economic areas, gas-based
cogeneration is found to be the most cost-effective option for Bangladesh. In view of the
present national power situation, cogeneration in sites having a steady need for heat and
power, and access to natural gas, can improve the production reliability and efficiency while
reducing the burden on the already stressed national grid. Moreover, natural gas-based
cogeneration will reduce the dependency on imported fuel and will have less adverse impact
on the environment.
Power demand in many sites is not very high, ranging from 0.5 to 2 MW. These sites are
ideal for gas-based reciprocating engines that already have a good presence in the local
market. The internal rates of return in all the cases were found to be quite high (above 40
per cent) for the best feasible options, mainly due to the low price of gas prevailing in the
country.
In spite of the significant techno-economic potential for cogeneration applications in

Bangladesh, cogeneration has not been widely adopted in the country due to several
reasons. The foremost among them is the low level of awareness at all levels about the
technological alternatives, economic merits, environmental benefits and business
opportunities related to the application of cogeneration as an efficient energy use option. No
systematic study has been undertaken so far to assess cogeneration potential by taking into
account factors such as energy demand patterns, plant size, power-to-heat ratio, access to
gas pipeline, etc. There is practically no interaction between the energy utilities and the
energy users to explore the cogeneration option though the government is serious about
encouraging private investment in the power sector.
Recommendation for follow-up actions

Since cogeneration development seems to be very promising, the hurdles (institutional
structure, policy and planning, energy pricing and tariff, investment and financing etc.) in this
sector may be removed for its further propagation.
Regulatory measures are needed for the sale of excess electricity to the grid or third party,
and back-up power supply from the grid as and when necessary.
The establishment of a national interagency co-ordinating committee may be seriously

considered. Government may also initiate demonstration projects using advanced
technologies in selected public sector enterprise in the industrial estates/export processing
zones/satellite city centres.
State energy suppliers (electricity and gas companies) may play a greater role in the
propagation of cogeneration by establishing partnership with potential cogenerators, public
or private, in making investment, guaranteeing operation and maintenance, and sharing
costs and benefits in the process.
1
These conclusions and recommendations are based on the deliberations of participants in the
South Asia Sub-Regional Seminar organized at Dhaka on 14 and 15 November 1998. The
programme details of the Seminars are included in Appendix 3A.
Alternative financing may include third-party participation, leasing, soft loan, bilateral and
international funds targeted towards global environmental protection (e.g. clean development
mechanism, joint implementation, special environmental Yen loan, global environmental
fund).
More incentives such as quick depreciation, soft loan, tax benefits, etc., should be extended
to those cogeneration projects that satisfy well-specified technical, economic and
environmental criteria.
An energy conservation act may be established with a view to emphasizing on use of

cogeneration and development of energy efficient technologies. To promote cogeneration
technology, there should be a separate cell under the Ministry of Energy and Mineral
Resources who will look after and will publish information regarding cogeneration regularly.
There is a need for introducing courses on renewable energy and cogeneration in the
curriculum of technical education in Bangladesh for development of long-term human
resources. Large-scale training programme may be contemplated for involvement of national
institutions on different aspects of cogeneration. Workshops, seminars and information
exchanges are necessary on specialized topics, such as feasibility study, site selection,
equipment design, financing and resource management.
A comprehensive survey and pre feasibility study should be undertaken for developing an
implementation plan. Feasibility studies for cogeneration should be made immediately for all
the identified schemes and priorities should be set for their implementation. A cogeneration
programme should be incorporated with all suitable existing future projects in Bangladesh.
International cooperation through bilateral agreements for technical and financial assistance
would be helpful and should be sought.
APPENDIX 3.A
Programme of the South Asia Sub-Regional Seminar on

ROLE OF COGENERATION IN THE NATIONAL ENERGY SCENARIO :
PERSPECTIVES FOR ENERGY POLICY
Date: Saturday, 14 November 1998

Place: Bangladesh University of Engineering Technology (BUET), Dhaka,
Bangladesh
Organiser: Centre for Energy Studies and Mechanical Engineering Department (BUET),
in Collaboration with Economic and Social Commission for Asia and the
Pacific (ESCAP)
Sponsor: Government of Japan
08h00-08h45 Registration
08h45-09h30 Official opening
“Message from ESCAP”
Mr. Pranesh C. Saha (Chief of Energy Resources Section, ESCAP)
09h30-10h00 “Economic and Environmental Benefits of Cogeneration Applications”
Dr. B. Mohanty (Cogeneration expert)
10h00-10h30 “Use of Cogeneration in Japanese Industries”
Mr. Akira Ishiyama (JICA/ESCAP Expert on Energy Conservation)
10h30-10h50 Tea Break
10h50-12h00 “Potential for Use of Cogeneration in the Industrial Sector in Bangladesh”
National Study Team of Bangladesh
12h00-12h45 “Regulatory Framework for Promoting Cogeneration”
Panel discussion with policy makers and industry representatives
12h45-14h30 Prayer and Lunch
14h30-16h00 “Experiences with Promotion of Cogeneration in South Asia”
Mr. A. S. Bakshi (Ministry of Power, India)
Mr. R. Ghimire (Water and Energy Commission, Nepal)
16h00-16h30 Summary and Conclusion
17h00-18h00 Tour of the exhibition on Energy Technology
Programme of the South Asia Sub-Regional Seminar on

BUSINESS OPPORTUNITIES IN COGENERATION
Date: Sunday, 15 November 1998

Place: Bangladesh University of Engineering Technology (BUET), Dhaka,
Bangladesh
Organiser: Centre for Energy Studies and Mechanical Engineering Department (BUET),
in Collaboration with Economic and Social Commission for Asia and the
Pacific (ESCAP)
Introductory Statement by ESCAP
09h30-10h00 “Business Potentials and Trends in Use of Cogeneration in Industry”
10h00-11h00 “Results of Pre-feasibility Studies in Selected Industries in Bangladesh”
National Study Team from Bangladesh
11h30-13h00 “Cogeneration Case Studies from South Asian Countries”
Mr. A. S. Bakshi (Ministry of Power, India)
Mr. R. Ghimire (Water and Energy Commission, Nepal)
13h00-13h30 “Prospects for Cogeneration Development in Bangladesh”
Discussions and Conclusion
13h30-15h00 Prayer and Lunch
15h00-16h30 Optional: “Individual Consultations”
Potential cogenerators from industries, manufacturers, suppliers,
developers, financiers, consultants, etc.
Summary of country study – Viet Nam 161
CHAPTER 4: S UMMARY OF COUNTRY STUDY – V IET NAM
4.1 Overview of Energy Situations, Policies & Strategies
4.1.1 Overview of energy situation in Viet Nam

Viet Nam is endowed with considerable primary energy resources. However, the government
now faces with the severe problem of the lack of investment capital for exploitation and
production of energy from the available resources.
Energy is an infrastructure sector that requires certain priority for investment. Presently, this
sector is mostly under the management of the government.
Oil and gas sector

Since there is no refining facility in the country, all the crude oil is now exported and the
domestic demand for oil products is satisfied by import.
Natural gas is considered the strategic fuel for power generation in the future. Most of
exploited natural gas is now used for power generation. It is planned to develop the LPG and
petrochemical industry with gas as input fuel.
Coal
Only in recent years, the output of coal has been increased to reach the designed capacity of
10 million tons per annum. The main consumers of coal are the process industries, followed
by the power sector. The future development of the sector will depend heavily on alternative
sources of energy (notably, natural gas) for power generation, as well as on Viet Nam’s ability
to obtain a greater share in world market through a cost reduction in coal transportation.
Power sector
The current situation of the power sector in Viet Nam can be summarized as follows:
• The actual demand for electricity has been growing at a much more rapid rate than that
forecasted;
• The unbalance between power sources development and power network development
contributes partially to the low power supply reliability;
• The big share of hydroelectricity in total electricity generation leads to poor power supply
security in the dry season;
• The thermal power plants have low efficiencies, of the order of 25-26 per cent;
• Transmission and distribution losses are high, representing approximately 20 per cent of
the total power output.
Because of power shortage in dry season, gas turbine combined cycle (GTCC) power plants
were urgently introduced in 1992 and in early 1994. Power generation in period 1991-1997
experienced high growth rate of 13 per cent per annum on an average. The generation from
gas turbine (GT) grew fastest due to the policy to reduce the share of hydropower.
4.1.2 Status and future prospect of electricity demand and supply

Electricity shortage is now a big problem in the power sector. Many industrial consumers
have prepared themselves for power interruptions with stand-by self-generating units; in
some cases, even independent power plants have been commissioned for big industrial
consumers such as centralized industrial zones (CIZ) or export processing zones (EPZ).
In the period up to 2010, new power plants will be of different types in each region: coal (and
hydro) in the North, gas (combined cycle) in the South, and hydro in the Central region. To
alleviate the burden of investment capital on the government, the two considered ways are
purchasing electricity from independent power producers (IPP) or using electricity from Build-
Operate-Transfer (BOT) schemes.
Despite efforts by the Government, according to a prediction made by the Electricity of Viet
Nam (EVN), a serious electricity shortage, estimated to range from 400 GWh to 1 TWh, will
take place in 1999 in Viet Nam. The EVN planned to buy approximately 100 GWh of electricity
from industrial factories as well as centralized industrial parks (CIP) or industrial processing
zones (IPZ). Thus, the capacity deficit could be estimated as between 200 and 500 MW.
4.1.3 Prevailing Costs of Energy

In Viet Nam, the prices of coal and electricity have been lower than their costs of production,
mainly due to the subsidy extended by the government.
The government has followed a strategy of fixing maximum bulk and retail prices of oil and oil
products on the basis of CIF cost of imported products, plus a distribution margin and taxes.
Oil and oil products prices depend strongly on the exchange rate variation.
The retail price of electricity in industry has been adjusted recently with the introduction of the
Value Added Tax (VAT) from January 1999 (see Table 4.1). However, the electricity tariff
applied to foreign companies is higher, US$0.11/kWh. The capacity charge is so far not
applied in Viet Nam although there is a registered capacity charge for big industrial
consumers. The factory should not have a greater demand than the registered capacity
during the peak period to avoid any power cut-off.
The time-of-day tariff has just been introduced in the industry and commercial sector in Viet
Nam but is not widely practised. Before January 1999, the price of electricity during the utility
peak period was double that of the normal period whereas the price during off-peak period
was 25 per cent lower than that of the normal period. However, with the introduction of VAT,
the new time-of-day tariff is being adjusted and the power company EVN has yet to make a
clear announcement.
Table 4.1 Electricity tariff before and after introduction of VAT
Price before VAT Price after VAT Price of 1998

VND/kWh* VND/kWh VND/kWh
1. Normal period (110 kV) 636 699.6 700
2. Normal period (20 kV to <110 kV) 664 730.4 730
3. Normal period (6 kV to <20 kV) 700 770.0 770
4. Normal period (< 6 kV) 736 809.6 810
* Exchange rate (1998): 1 US$ = 13,000 VND
The actual payment of electricity varies from one province to another, as there may be
additional local fees. However, it is planned to abrogate the local electricity fees in near future.
4.1.4 Government policies and strategies for private power generation

According to the Ministry of Planning and Investment, the private power generation that is
considered as an infrastructure development activity, is given a favoured status and is
promoted by the government. The power generation sector can get the priority of foreign
currency exchange for the purpose of transfer of profits made by foreign investors.
In Viet Nam, big power plants can be developed through various forms of investment: Build-
Operate-Transfer, credit from supplier, self-development by Vietnamese companies (e.g.
EVN and VINACOAL) in collaboration with foreign companies.
However, the development of big private power plant is quite complicated and there is a lot of
competition. Small and medium scale private power generating units, including cogeneration
plant, inside industrial parks, export-processing zones or combined with industrial factories
seem to be more suitable for Viet Nam.
Security Package
For the big power plants, the international conditions and practices are respected. Model
Implementation Agreement, Fuel Supply Agreement are prepared. The Government
guarantees power purchase agreement obligations of the concerned utilities. For small and
medium-scale private power plants, there is no such fixed model now. So far, EVN has
bought electricity from some sugar mills and is negotiating to buy excess electricity from
paper mills on the basis of energy charge alone (without any payment for capacity charge).
Tariff for bulk purchase of power at busbar

The selling price of electricity from small and medium private power plants varies from one
case to another.
EVN can now accept to buy off excess electricity from small power producers with a daily
spot tariff as follows: US$ 0.05/kWh during peak load, US$ 0.04/kWh during normal hours
and US$ 0.03/kWh during off-peak hours. However, the capacity charge is not mentioned.
For big power plants, EVN and the National Committee of Price must approve the purchase
tariff of electricity. Small and medium scale plants can sell electricity directly to factories or
industrial park but the Provincial Authority must approve the tariff. The electricity produced in
excess can be sold to EVN at a negotiated price, without capacity charge, which is often
around 70 per cent of EVN’s electricity selling price. In some existing cases, EVN accepts a
price of around US$ 0.043/kWh. In an interview done in Mekong Delta, the Provincial
Electricity Company consented to buy electricity at around 600 VND/kWh.
So far, there is no effective legal system in Viet Nam to oblige electricity utilities to purchase
power from small/decentralized power producers.
4.2 Technical Potential for Cogeneration
4.2.1 Identification of sub-sectors with cogeneration potential

Since the textile industry has quite a steady need for various types of energy for its process,
including thermal, refrigeration, and electricity, it is suitable for cogeneration applications.
Unfortunately, no textile factory has so far adopted cogeneration although some of them have
diesel power generation units of large capacities.
The chemical industry, particularly rubber, consumes a lot of electric and thermal energy. In
Viet Nam, most of rubber factories are very old with outdated energy equipment. As it is time
for their process equipment to be replaced, this provides a good opportunity for adopting
cogeneration.
Hotels and office buildings in the commercial sector are big energy consumers. There has
been considerable investment received from foreign companies for their development. These
buildings use electricity to operate cooling systems. They are often poorly designed from
energy aspects since investors have the habit of copying the designs from abroad without
giving due consideration to the local climatic conditions.
Some foreign direct investment companies in the food-processing sector such as Foremost
milk processing factory, Walls ice cream factory, meet their power demand by self-
generation. They can easily upgrade their existing energy generation system to operate in
cogeneration mode.
4.2.2 Existing cogeneration facilities in the country

There are several industrial factories in Viet Nam which already have cogeneration facilities
such as the Bai Bang paper factory in northern region, and sugar mills. The Cogido paper
mill, in Southern region, used to have a cogeneration capacity of 9,000 kVA. Installed since
the first commissioning of the mill in 1959, this unit can no longer be used now. Therefore,
the cogeneration technology seems to be familiar to the paper & pulp and sugar sub-sectors
in Viet Nam.
A study sponsored by EC-ASEAN Programme has estimated the total potential of power
generation from sugar mills in Viet Nam to be 250 MW. However, in reality only a few mills
can sell their excess electricity to the utility grid and several others are going through the
negotiation phase. Most of the factories have big difficulty in handling the excess bagasse.
Industries where cogeneration has been in use are pulp and paper, sugar and nitrogen
fertilizer. A paper mill in the north is equipped with fluidized circulating bed boiler of a capacity
to generate 145 tons of steam per hour at 73 bar and 450°C. The plant also has a recovery
boiler fired by the waste from the process, producing 36 tons of steam per hour at the same
temperature and pressure. The steam from the boilers is passed through 2 turbines: one is a
back-pressure turbine producing 12 MW of electricity and the steam leaves at 3 bar for
processes, and the other is a condensing turbine designed to generate 16 MW of electricity.
Though the mill is quite large in size and is equipped with relatively modern technology, the
performance of the cogeneration plant has deteriorated substantially after 20 years of
operation and poor maintenance.
Another paper mill in the Southern region, Dong Nai province, has an oil-fired boiler with a
capacity to produce 40 tons of steam per hour. The cogeneration facility includes an
extraction-condensing turbine of 5 MW capacity. However, the unit is not used since the mill
can get electricity from grid easily. With some modification, the existing unit can be easily
modified to operate as a cogeneration facility in this mill.
There is one big nitrogen fertilizer plant in Viet Nam, located in Habac province. The plant was
put into operation 30 years ago. The cogeneration plant consists of five coal-fired boilers: two
large boilers with capacity to produce 75 tons/hour each, and three smaller ones, each with a
capacity to produce 35 tons/hour. Steam produced at 40 bar and 450°C is partly supplied
directly to the processes, and partly through a 6 MW backpressure turbine. In addition, there
are two condensing turbines to meet the plant’s electricity demand, each with a capacity to
produce 6 MW of electricity. Like in the case of most other plants, the performance of the
cogeneration plant has degraded after long periods of operation and lack of proper
maintenance. Presently, the boilers have efficiencies ranging from 70 to 75 per cent whereas
the turbine efficiency varies from 24 to 26 per cent only. Though there is plan to rehabilitate
and upgrade the existing facilities, implementation is delayed mainly due to financial
constraints.
The first unique cogeneration system in commercial sector in Viet Nam was brought into
operation on 18th August 1998 in CORA super-market, a member of Bourbon group, in Dong
Nai province. It consists of two diesel generators, each capable of producing 1200 kW. In
addition, there are two absorption chillers, each of 600 kW cooling capacity, and two electric
chillers, each of 400 kW cooling capacity. The main reason for setting up this cogeneration
system is the necessity for reliable power supply. The company is keen to synchronize its
cogeneration plant to the national power grid for system stabilization.
4.2.3 Identification of suitable sites for pre-feasibility study

The main criteria followed for the selection of sites for pre-feasibility study are the following:
• important consumers of electricity and heat;

• acceptable heat-to-power ratios;
• willingness of the management to apply cogeneration technology;
• user has plans for renovation or expansion of the existing facilities;
• management is aware of the benefits of energy conservation and efficiency.
Up to now, no study has been done on the sectoral power demand in Viet Nam as well as
their load shapes as a function of time. In this report, the identification of potential study sites
is based on the list of consumers (provided by the power utility) which have a demand
exceeding 1000 kW, combined with the list of boiler owners (provided by the Regional
Departments of Industrial Safety, Ministry of Industry).
Rough estimation of the steam and electricity demand patterns had to be done in most cases
as majority of factories lack instrumentation and do not have regular energy monitoring and
recording facilities.
After the identification and direct contact, eight sites including factories and commercial
buildings were chosen for the pre-feasibility study.
During on-site visits of those establishments, questionnaires were filled out and direct
discussions were held with the factory management.
4.3 Pre-feasibility Studies at Selected Industrial and Commercial Sites
For the purpose of economic analysis, the total installed costs of the cogeneration plants
were assumed as follows: steam turbines - US$ 1,200/kW e; gas turbines - US$ 1,000/kW e;
and reciprocating engines - US$ 900/kW e. Some common financial data gathered or
assumed before conducting the pre-feasibility studies are summarized in Table 4.2.
Table 4.2 Financial data used for the pre-feasibility study
Parameters Unit Value

Exchange rate VND/US$ 14,000
Tax rate Per cent/year 5
Discount rate Per cent/year 15
Hurdle rate per cent/year 17
Cogeneration plant service life Year 15
Electricity purchase price VND/kWh EVN tariff
Electricity buy-back rate per cent of purchase price Up to 70
Fuel price escalation rate per cent/year 5
Electricity price escalation rate per cent/year 5
Fuel purchase price
- natural gas VND/m 3 1,430
- heavy fuel oil VND/kg 1,800
- diesel VND/litre 3,580
- coal VND/ton 280,000
The fuel prices used are those based on the prices prevailing in the domestic market at
present. Coal and natural gas prices are taken from EVN’s bidding documents. The purchase
price of electricity is the tariff applied to Vietnamese industries. Based on information from
Power Company 2, the buy-back rate is generally taken as 450 VND/kWh. The purchase
price has to be negotiated between the cogenerators and Power Companies; in any case,
buy-back rate will not be higher than 70 per cent of the selling price.
The actual working period for the pre-feasibility study is considered as 306 days/year. Except
for the case of the paper mill “E”, the boiler pressure of 40 Bar is chosen for steam turbine
alternatives. In paper mill “E”, the existing boiler pressure is 74 Bar, which is used to assess
the viability of the steam turbine alternative.
4.3.1 Textile mill “A”

This is one of the largest textile mills in Viet Nam. It was put into operation in 1959. The
company has an average production of 12 million meters of fabric per annum. With 3,350
employees, the company is contributing effectively to the unemployed reduction of the city.
Electricity is used for machines, lighting and air conditioning. The company has a centrifugal
chiller of 200 kW, which has been out of order. In the analysis, it is assumed that the
company has a process cooling demand equivalent of 200 kW e. So far, the factory does not
have any record of steam consumption due to lack of measuring equipment. The steam
consumption is estimated from the fuel oil consumption in the boiler.
Figures derived from the analysis of the electricity and fuel bills are summarized below:
• Total Electricity Consumption (8/97 to 7/98): 33,157.00 MWh

• Maximum Electricity Demand: 6.50 MW
• Minimum Electricity Demand: 4.30 MW
• Total Fuel Consumption (8/97 to 7/98): 4.22 million litres
Assuming the cooling was provided by a vapour absorption chiller, the average power-to-heat
ratios would be 0.65. Typical cogeneration system for this site would be based on gas
turbine. However, reciprocating engine, steam turbine cogeneration systems were also
considered as potential alternatives. Altogether five alternatives are analyzed and the results
of the feasibility study are summarized in Table 4.3.
Table 4.3 Summary of pre-feasibility study of the textile mill “A”
Cogeneration Alternatives ALT.1 ALT.2 ALT.3 ALT.4 ALT.5

Configuration S.T. R.E. G.T.
Chiller (200 kW Comp. Absorption
Fuel type H.F.O. N.G.
Fuel price (VND) 1,800/kg 37,100/GJ
Electricity purchase price 800
(VND/kWh)
Buy-back rate (as % of purchase price) 56
Electricity price escalation rate 5
(%/year)
Number of actual working hours per 7.344
year
Heat generating capacity (kg/h) 9,058 10,820 3,370 10,820 8,459
Power generating capacity (kW) 776 895 4,247 5,381 4,247
Electricity consumption (MWh/year 33,158 29,348
Thermal energy requirement (TJ/year) 173 208
Excess (+)/Deficit(-) heat (TJ/year) 0 -143 0 -45
Excess(+)/Deficit(-) power(MWh/year) -27,745 -23,101 0 8,192 0
IRR (%) 19.9 19.9 26.4 24.2 27.6
Total installation cost (million VND) 12,377 14,359 50,210 60,887 50,211
Net present value (million VND) 3,677 4,223 35,673 33,985 39,373
Pay back period (year) 10 10 7 8 6
Note: S.T.: Steam Turbine; R.E.: Reciprocating Engine; G.T.: Gas Turbine
The first two alternatives could satisfy the steam demand of the factory. Their IRR is higher
than the hurdle rate and their total investment are the lowest among considered alternatives.
However, the company would have to purchase most of its electricity needs from the utility
grid.
The alternatives 3, with reciprocating engine configuration, can be considered as the best
option as it gives a favourable IRR. However, the investment cost is very high in comparison
with the first two alternatives.
Natural gas seems to be the most attractive fuel for cogeneration as the small deficit in
steam demand can be made up by auxiliary fuel firing in the recovery boiler. However, gas is
presently not available at the site.
As there are several other factories in the vicinity having demand for both heat and power,
one could envisage a bigger cogeneration plant for the industrial zone.
4.3.2 Textile company “B”

With an average annual production of 15 million meters of fabric, this is the biggest textile
company in southern Viet Nam. It is located in a planned centralized Industrial park in a
suburb district of Ho Chi Minh City where natural could be available in future.
With an average annual electricity and steam consumption of 42 GWh and 91,000 tons,
respectively, this company is a good candidate for cogeneration. Moreover, it has a process
cooling demand of 1,000 RT. The company has two chillers, one is centrifugal with 300 RT
cooling capacity, and the other a 750 RT absorption chiller. In alternative 2 of this analysis, it
is assumed that absorption chillers, running with steam from heat recovery boiler provide all
the cooling. About 4.5 kg/hour of steam would be necessary in a double-effect chiller to
supply a RT of cooling.
Data obtained from the electricity and fuel bills are summarized here:
• Total Electricity Consumption (12/97 to 11/98): 41,662 MWh

• Total Annual Fuel Oil Consumption: about 6 million litres
• Average Steam Demand: 12.4 ton/hr
The average power-to-heat ratio is 0.6, for which gas turbine cogeneration seems suitable.
Four alternatives are considered for the analysis, including steam turbine and reciprocating
engine. The results of the analysis for this company are shown in Table 4.4.
Table 4.4 Summary of pre-feasibility study of the textile mill “B”
Cogeneration Alternatives Alt. 1 Alt. 2 Alt. 3 Alt. 4

Configuration S.T. R.E. (TM) R.E. (PM) G.T.
Use of compression chiller (RT) 350 0
Absorption chiller (RT) 750 1,100
Fuel price (VND) 1,800/kg 1,430/m3
Electricity purchase price (VND/ kWh) 800
Buy-back Rate (as % of purchase price) 56
Electricity price escalation rate (%/ year) 5
Number of actual working hours per year 7,344
Heat generating capacity (kg/hr) 15,027 12,400 4,959 16,807
Power generating capacity (kW) 1,287 15,366 6,145 8,296
Electricity consumption (MWh/year) 41,662 40,000
Thermal energy requirement (TJ/year) 287 321
Excess(+)/Deficit(-) heat (TJ/year) 0 -50 -192 0
Excess(+)/Deficit(-) power (MWh/year) -32,682 65,541 1,210 17,882
IRR (%) 20.0 20.1 27.7 24.8
NPV (million VND) 6,267.1 36,858 53,871 50,525.8
Total installation cost (million VND) 20,561 121,748 67,409 84,443

Pay back period (year) 10 10 7 7
Note: TM: Thermal Match; PM: Power Match
The first alternative, with boiler and steam turbine configuration, has the lowest investment
cost among the four considered options and an acceptable IRR.
The alternative 2 would lead to generation of more than 150 per cent excess electricity. Its
IRR is almost the same as that of alternative 1 but it requires the highest investment among
the four considered options. The alternative 3 seems to be the most attractive with the
highest IRR but its investment cost is three times higher than that of alternative 1.
The alternative 4 could also be attractive but natural gas is presently not available at the site.
4.3.3 Textile mill “C”

Built in the 1960s, the Textile Company “C” is one of the biggest companies in the North of
Vietnam. In 1997, 4,400 tons of cotton yarns, 16 million metres of raw fabric and 18 million
metres of finished fabrics were produced in the mill.
Currently energy represents 16 per cent of production cost. Electricity is used for machines,
lighting and air conditioning. Steam for process is generated in coal fired boilers. The
application of the cogeneration technique for this company is suitable, since the company
wants to reduce the annual electricity and energy costs.
Results of the analysis of data gathered from the electricity and fuel bills are summarized
below:
• Total Annual Electricity Consumption: 31,000 MWh

• Maximum Electricity Demand: 5 MW
• Total Annual Coal Consumption: about 315,000 tons
• Maximum Steam Demand: 20 tons/hr
• Minimum Steam Demand: 12 ton/hr
Table 4.5 Summary of pre-feasibility study of the textile mill “C”
Cogeneration Alternatives Alt.1 Alt.2 Alt.3 Alt. 4

Chiller (110 kW x 6) Electric
Fuel type Coal H.F.O. N.G.
Fuel price (VND) 350/kg 1,800/kg 3,710/GJ
Electricity purchase price (VND/kWh) 800
Electricity price escalation rate (%/year) 5
Number of actual working hours per year 7344
Heat generating capacity (kg/h) 18,594 54,985 3,986 8,891
Electricity consumption (MWh/year) 31,000
Thermal energy requirement (TJ/year) 359
Excess(+)/Deficit(-) heat (TJ/year) 0 596 -282 -187
Excess(+)/Deficit(-) power (MWh/year) -20,517 0 3,884 0
IRR (%) 31.7 17.1 25.2 27.9

NPV (million VND) 26,224 8,897 36,288 42,189
The average power-to-heat ratio is 0.275, for which steam turbine cogeneration seems
suitable. Four alternatives are considered for the analysis, including steam turbine using coal,
reciprocating engine using fuel oil, and gas turbine using natural gas. The results of the
analysis for this company are shown in Table 4.5.
Alternative 1 seems to be the most attractive option since its IRR and investment cost are the
lowest among the four alternatives considered. The main advantage of this alternative is
derived from the use of coal, which is a cheap fuel. However, it can satisfy a little more than
30 per cent of the company’s electricity demand. Alternative 2 can take care of all the power
and heat demands of the factory but its IRR is the lowest and its investment cost is the
highest among the four alternatives.
Alternative 3 is also very attractive but its IRR is lower and investment cost is higher than
those for the first alternative.
The alternative 4 can also meet all the energy needs of the site and has a fairly high IRR but
natural gas is presently not available at the site.
4.3.4 Paper mill “D”

This is a big paper mill in Dông Nai province, with a capacity to produce 170 tons of paper per
day. The factory has a condensing steam turbine power generator but it is not used. The
company functions during 3 shifts per day, 300 days per year. It is presently connected to the
national grid to take care of all its power needs. The power supply reliability is essential for
the company for its production process. Self-generation with interconnection to the national
grid could be a good solution for the company in the existing difficult situation of the power
sector.
Analysis of the electricity and steam consumption data allows to conclude the following:

• Total Annual Fuel Oil Consumption: 13.8 million litres
• Total Annual Steam Use: 164,721 tons
• Maximum Steam Demand: 29.1 tons/hr
With an average power-to-heat ratio of 0.39 for the factory, the steam turbine cogeneration
configuration seems the most suitable. The analysis for the Paper Company “D” was done
with three configurations, including steam turbine, reciprocating engine and gas turbine, in
order to make a comparison. The results of the analysis for this company are shown in Table
4.6.
Among the above four alternatives, Alternative 2 seems to be the best since it gives a high
IRR and taking fuel supply availability into consideration. The alternative 4 with natural gas as
fuel seems to be the most attractive option but natural gas is not presently available at the
site.
Table 4.6 Summary of pre-feasibility study of the paper mill “D”
Cogeneration Alternatives ALT.1 ALT.2 ALT.3 ALT.4

Fuel price (VND) 1,800/ kg 3,710/GJ
Thermal energy requirement (TJ/yr.) 450
Steam generating capacity (kg/hr) 24,147 5,770 24,147 14,410
Excess(+)/Deficit(-) heat (TJ/year) 0 -342 0 -180
Excess(+)/Deficit(-) power (MWh/year) - 34,149 0 32,444 0
IRR (%) 19.8 29.4 24.8 30.7
Net present value (million VND) 9,842 75,280 64,618 74,992
Alternative 1 could be a suitable solution in the present situation of capital shortage for
investment; it requires the lowest investment cost among the four alternatives. However, it
can only meet 25 per cent of the annual electricity demand of the factory.
Alternative 3 seems to be able to cover all electricity and heat demands of the company. Its
IRR is also quite acceptable but the investment required is the highest among the four
alternatives. Furthermore, natural gas is presently not available at the site.
4.3.5 Pulp and paper mill “E”

The company “E”, sponsored by the Government of Sweden, was constructed in 1980 with
the purpose of satisfying the paper demand of the northern region. It is located in a province
where trees can be obtained as the primary material for making pulp and paper. The main
products of the company are paper and packaging paper. The existing capacity is 55,000
tons per year. For the next two years, its capacity is planned to go up to 100,000 tons per
year, and to 200,000 tons for the year 2005. Therefore the company projects to invest heavily
on its extension, as well as the energy supply system. This study however focuses only on
the existing plant.
Results of the analysis of data gathered from the electricity and fuel bills in 1997 are
summarized below:

• Total Annual Coal Consumption: 82,080 tons
• Minimum Steam Demand: 97 ton/hr
configuration seems the most suitable. The analysis for the Paper Company “D” was done
with three configurations, including steam turbine, reciprocating engine and gas turbine, in
order to make a comparison. The cogeneration systems that give favourable IRR values are
listed in Table 4.7.
Table 4.7 Summary of pre-feasibility study of the pulp and paper mill “E”
Cogeneration Alternatives ALT.1 ALT.2 ALT.3 ALT.4 ALT.5

Fuel type Coal H.F.O. N.G.
Fuel price (VND) 280/kg 1,800/kg 1,430/m3
Electricity purchase price (VND/kWh) 0.87
Electricity price escalation rate 5
(%/year)
Heat generating capacity (ton/hr) 101.37 129.85 101.37 10.125 25.42
Power Generating Capacity (kW) 9,989 12,795 9,989 12,795 12,795
Thermal energy requirement (TJ/year) 1,931
Excess (+)/Deficit (-) heat (TJ/year) 0 295 0 -1,738 -1,447
Excess (+)/Deficit (-) power (MWh/year) -19,197 0 -19,197 0
IRR (%) 37.1 34.9 24.6 40.5 42
Total installation cost (million VND) 148,729 189,778 148,729 193,166 113,442
Net Present Value (million VND) 220,326 246,662 89,537 113,443 204,056
Pay back Period (year) 5 5 8 4 4
As shown in the above summary table, IRR of all five considering alternatives are all very
high.
However, the alternative 4 with the reciprocating engine using heavy fuel oil can be
considered as the best option considering the IRR and the availability of fuel supply.
Alternatives 1 and 3 need the same investment but IRR of the alternative 1 is higher than that
of the alternative 3. Alternative 5 is the most profitable option with the highest IRR and the
lowest investment cost but natural gas is presently not available at the site.
4.3.6 Rubber factory “H”

Located in a District of Hanoi, the Company belongs to the Complex Light Industrial “Rubber-
Detergent-Tobacco” Zone. The plant has been in operation since 1960’s and the annual
production of the company is more than 1 million sets of car tires, 50 million sets of bike tires
and 100 millions of bicycle air tubes. The product quality of the factory meets the standards
of many countries in the South East Asian region.
The company has plans to expand its production and increase its export earnings. Moreover,
the existing boilers operating with coal as fuel have been in operation for 30 years. The
company has high demand for both electricity and thermal energy, and would like to reduce
its annual energy bill that is over 9.3 billion VND.
Due to the lack of instrumentation, there is no measurement of the steam consumed in the
factory. The steam consumption pattern is established on the basis of the coal consumption
data of the boilers. Analysis of data gathered from the electricity and fuel bills shows the
following:

• Total Annual Coal Consumption: 23,500 tons
• Minimum Steam Demand: 8 tons/hr
configuration seems the most suitable. The analysis for the rubber factory was done with
three configurations, including steam turbine, reciprocating engine and gas turbine, in order to
make a comparison. The cogeneration systems that lead to acceptable IRR values are listed
in Table 4.8.
Table 4.8 Summary of pre-feasibility study of the rubber factory “H”
Cogeneration Alternatives Alt.1 Alt. 2 Alt. 3 Alt. 4

Configuration S.T. G.T. R.E. (TM) R.E. (PM)
Fuel type Coal N.G. H.F.O.
Fuel price (VND) 280/kg 1,430/m3 1,800/kg
Electricity consumption (MWh/yr.) 12,000
Excess (+)/Deficit (-) heat (TJ/yr.) 0 -193 0 -234
Excess (+)/Deficit (-) power (MWh/yr.) -4,047 0 105,751 0
IRR (%) 30.9 22.1 21.2 20.5
Net present value (million VND) 19,348 10,259 44,698 7,905
As shown in the above summary table, the alternative 1 can be considered as the best option
for cogeneration application in this factory as it gives the highest IRR and requires the lowest
capital investment cost which may be financially acceptable to the company. IRR of the three
other alternatives vary around 21 per cent. However, the alternative 4 seems to be attractive
because of its low investment cost. Alternative 3 can cover all heat and electricity demands
of the factory but its investment cost is the highest among all the four alternatives.
4.3.7 Hotel “F”

This hotel is located in the centre of Ho Chi Minh City. Originally, brought into business in
1995 as a joint venture between a foreign company and Ho Chi Minh City Tourist Company,
the hotel occupies an area of 3,000m 2. Its total operation area is 37,468 m2 with 542 rooms.
The hotel operates 24 hours a day and 365 days a year.
Presently, it does not operate full capacity due to the Asian financial crisis. Consequently,
energy consumption has become an increasing burden on the hotel management.
Cogeneration appears to be one of the good solutions to reduce the high-energy bills of the
hotel.
Analysis of the electricity consumption of the hotel shows that main electricity consumer is
the air conditioning system, consisting mainly of chillers. The electricity tariff applied is very
high as the hotel is classified in the commercial and service sector category. The hotel has
already installed stand-by generators to provide enough electricity to satisfy its present
requirement. The cost of power generation with the diesel generators is found to be even
higher than the purchased electricity. A small amount of steam is required mainly for cooking
and washing purposes.
A possible alternative at this site would be the use of vapour absorption chillers that can
operate with the steam generated by recovering heat from the exhaust gases of the diesel
engine. The total electricity demand will thus be reduced because of the cooling supplied by
the absorption chiller.
Analysis of data gathered from the electricity and fuel bills in 1997 shows the following:

• Total Annual Steam Consumption: 7,245 tons
• Maximum Steam Demand: 1.6 tons/hr
• Minimum Steam Demand: 1.16 tons/hr
The power-to-heat ratio of the hotel is found to be 2.3, which is not suitable for any
cogeneration configuration. However, this can be changed by incorporating the absorption
cooling option that increases the steam demand to 7.5 ton/hour. The steam turbine and
reciprocating engine options are taken into consideration in the pre-feasibility study, and the
results are presented in Table 4.9.
Table 4.9 Summary of pre-feasibility study of the hotel “F”
Cogeneration Alternatives ALT.1 ALT.2 ALT.3 ALT.4

Configuration S.T. R.E.
Fuel type H.F.O. D.O.
Fuel price (VND) 1,800/kg 3,580/litre
Electricity purchase price (VND/kWh) 1,500
Electricity price escalation rate (%/yr.) 5
Electricity consumption (MWh/yr.) 12,882
Excess (+)/Deficit (-) heat (TJ/yr.) 0 84 -5 -259
Excess (+)/Deficit (-) power (MWh/yr.) -2,171 0 114,199 17
IRR (%) 25.6 20.2 29.6 27.5
Net present value (Million Dong) 25,897 13,687 129,808 31,015

As shown in the table, all options give favourable IRR. This can be explained by the fact that
the electricity price charged by the utility to the factory is very high. Currently, the hotel has to
pay 0.11 US$ / kWh due to its commercial and service classification.
The diesel engine cogeneration system with thermal matching option seems to be most
attractive if excess electricity can be sold to the grid. It requires an initial investment of about
140 billion VND (equivalent to 10 million US$), including the investment required for the
absorption chiller system, and leads to an internal rate of return of 29.6 per cent.
4.3.8 Summary of the pre-feasibility studies

The results obtained with different prime movers are summarized below:
Steam turbine
The steam turbine cogeneration appears to be an attractive option because of the favourable
IRR obtained for the different projects.
Table 4.10 Summary of results for steam turbine cogeneration
Factory Fuel type Excess heat Excess power IRR

(TJ/year) (MWh/year) ( per cent)
Textile mill “A” H.F.O. 0 -27,745 19.9
H.F.O. 0 -23,101 19.9
Textile mill “B” H.F.O. 0 -32,682 20.0
Textile mill “C” Coal 0 - 20,517 31.7

Coal 596 0 17.1
Paper mill “D” H.F.O. 0 -34,149 19.8
Paper mill “E” Coal 0 -19,197 37.1

Coal 295 0 34.9
H.F.O. 0 -19,197 24.6
Rubber factory “H” Coal 0 - 4,047 30.9
Hotel “F” H.F.O. 0 -2,171 25.6

H.F.O. 84 0 20.0
As shown in Table 4.10, fuel type strongly affects the project attractiveness. Coal is the most
suitable fuel type because of its low price. Considering thermal match with coal as fuel, the
IRR can exceed 30 per cent, whereas it is only around 20 per cent with fuel oil.
The financial performance also varies from one industrial sub-sector to another. In textile and
paper sub-sectors, IRR is around 20 per cent for the fuel oil fired boilers. Because of the high
electricity tariff applied by the utility to the commercial and service sector, the IRR can
exceed 25 per cent.
The highest IRR (37 per cent) is obtained for the paper sub-sector with coal fired boiler.
Reciprocating engine
The configuration of reciprocating engine with heat recovery boiler, using heavy fuel oil as
fuel, appears to be best suited as it leads to very high IRR; moreover, the availability of fuel
supply is not a problem at any of the sites. The IRR of the different projects varies in a wide
range, from 20 per cent to 44 per cent (see Table 4.11).
Table 4.11 Summary of results for reciprocating engine cogeneration
Reciprocating Engine
Factory Excess heat Excess power Elec. Price IRR
(TJ/year) (MWh/year) (VND/kWh) ( per cent)
Textile
Textile mill “A” -143 0 800 26.4
Textile mill “B” -50 65,541 800 20.1

-192 1,210 800 27.7
Textile mill “C” -282 3,884 800 25.2

Paper
Paper mill “D” -342 0 800 29.4
Paper mill “E” -1,738 0 800 40.5

Others
Rubber factory “H” 0 105,751 780 21.2
-234 0 780 20.5
Hotel “F” -5 114,199 1,540 29.6

-259 0 1,540 27.5
Building “J” 16 2,473 1,540 23.1

19 3,845 1,540 17
29 8,102 1,540 30.6
16 2,473 1,540 44.4
The attractiveness of this option also varies with industrial sub-sectors. In textile industry, IRR
is around 26 per cent. In paper industry, IRR is high ranging from 29 to 40 per cent. In the
commercial sector, with diesel oil fuelled engine, IRR varies from 23 to 30 per cent; but with
engines using heavy fuel oil, the IRR is much higher, varying from 30 to 45 per cent.
4.3.9 Sensitivity Analysis

Following the techno-economic analysis of the different sites, sensitivity analysis is carried
out to identify the impact of some of the important parameters on the economics of the
project. The hurdle rate for accepting a project is assumed as 17 per cent.
Increase in the investment cost

Here, the investment is increased (from zero to 15 per cent) to see at which point the IRR
reaches the hurdle rate. The results are given in Table 4.12.
With steam turbine alternative, the coal fired boiler option always has IRRs higher than the
hurdle rate. In many cases, the IRR of the fuel oil fired boiler option reaches the hurdle rate
when the investment is increased by 15 per cent.
With the option of reciprocating engine operating with heavy fuel oil, the IRR is generally
above the hurdle rate for the industry sector. This can be explained by the low price of heavy
fuel oil. In some cases, the hurdle rate is reached with 11 to 15 per cent increases in the
initial investment. Due to the high price of electricity charged to the commercial and service
sector, the changes of investment cost do not have much effect on the IRR.
Table 4.12 Impact of the increase (up to 15 per cent) in investment on IRR
Steam turbine
Site Alternative Fuel type Elect. Price % Increase in
(VND/kWh) investment(a) IRR %
Textile mill “A” S.T.(TM) H.F.O. 800 15.0 19.9
Textile mill “B” S.T.(TM) H.F.O. 800 15.0 20.0
Textile mill “C” S.T.(TM) Coal 800 + 31.7
Paper mill “D” S.T.(TM) H.F.O. 800 15.0 19.8
Paper mill “E” S.T.(TM) Coal 870 + 37.1
S.T.(PM) Coal 870 + 34.9
S.T.(TM) H.F.O. 870 + 24.6
Rubber factory “H” S.T.(TM) Coal 780 + 30.9
H.F.O. 780 + 21.2
Textile mill “A” R.E.(PM.) H.F.O. 800 11.8 26.4
Textile mill “B” R.E.(TM.) H.F.O. 800 15.0 20.1
R.E.(PM.) H.F.O. 800 + 27.7
Textile mill “C” R.E.(PM) H.F.O. 870 + 25.2
Paper mill “D” R.E.(TM.) H.F.O. 800 + 29.4
Paper mill “E” R.E.(PM) H.F.O. 870 + 40.5
Rubber factory “H” R.E.(TM.) H.F.O. 780 + 21.2
R.E.(PM.) H.F.O. 780 15.0 20.5
Hotel “F” R.E.(TM) D.O 1,540 + 29.6
R.E.(PM) D.O 1,540 + 27.5
Note:
(a): It is the percentage increase when the IRR value reaches the hurdle rate (17 per cent)
(+ means the IRR always remains above the hurdle rate; and – means the IRR always
remains below the hurdle rate)
TM: Thermal match; PM: Power match.
Fuel price escalation

In this analysis, the escalation of fuel price is varied from zero and 15 per cent per annum to
see its impact on the IRR. The results are given in Table 4.13.
With steam turbine cogeneration, the escalation rate of fuel price does not have any adverse
effect the financial attractiveness of the coal fired boiler option. This can be explained by the
low price of coal. On the other hand, when fuel oil is used in the boiler, an escalation rate of
over 8 per cent will tend to lower the IIR below the hurdle rate. At the fuel price escalation rate
of 9.5 per cent, the oil fuelled boiler option does not seem to be acceptable.
With reciprocating engine cogeneration, although heavy fuel oil is much cheaper than diesel,
many projects have IRRs below the hurdle rate with more than 10 per cent increase in the
fuel price escalation rate. In the textile “B”, even an increase of 6.6 per cent in fuel price
escalation rate can render the project unfeasible. Diesel as a fuel for reciprocating engines is
acceptable only for applications in the commercial sector where the purchased price of
electricity can be as high as 1,500 VND/kWh.
Table 4.13 Impact of fuel price escalation rate (0-15 per cent per year) on IRR
Steam turbine
Site Alternative Fuel type Elect. Price % escalation
(VND/kWh) in fuel price(b) IRR %
Textile mill “A” S.T.(TM) H.F.O. 800 7.0 19.9
Textile mill “B” S.T.(TM) H.F.O. 800 8.0 20.0
Paper mill “D” S.T.(TM) H.F.O. 800 8.0 19.8
S.T.(PM) Coal 870 + 34.9
S.T.(TM) H.F.O. 870 12.0 24.6
Textile mill “A” R.E.(PM.) H.F.O. 800 + 26.4
R.E.(PM.) H.F.O. 800 12.0 27.7
Textile mill “C” R.E.(PM) H.F.O. 870 10.8 25.2
Paper mill “D” R.E.(TM.) H.F.O. 800 12.9 29.4
Rubber Co. “H” R.E.(TM.) H.F.O. 780 + 21.2
R.E.(PM.) H.F.O. 780 15.0 20.5
Hotel “F” R.E.(TM) D.O 1,540 + 29.6
R.E.(PM) D.O 1,540 + 27.5
Note:
(b): It is the percentage escalation when the IRR value reaches the hurdle rate (17 per cent)
Electricity price escalation

In this analysis, the escalation of electricity price is varied from zero and 15 per cent per
annum to see its impact on the IRR. The results are summarized in Table 4.14.
As it would have been expected, if the electricity price escalation rate goes up, the value IRR
also increases accordingly.
Table 4.14 Impact of electricity price escalation rate (0-15 per cent per year) on IRR
Steam turbine
Factory Alternative Fuel Elect. Price % escalation in
type (VND/kWh) electricity price(c) IRR %
Textile mill “A” S.T.(TM) H.F.O. 800 + 19.9
Textile mill “B” S.T.(TM) H.F.O. 800 + 20.0
Paper mill “D” S.T.(TM) H.F.O. 800 + 19.8
S.T.(PM) Coal 870 + 34.9
S.T.(TM) H.F.O. 870 + 24.6
Textile mill “B” R.E.(TM.) H.F.O. 800 + 20.1
R.E.(PM.) H.F.O. 800 + 27.7
R.E.(PM.) H.F.O. 780 + 20.5
Hotel “F” R.E.(TM) D.O 1,540 + 29.6
R.E.(PM) D.O 1,540 + 27.5
(c): It is the percentage escalation when the IRR value reaches the hurdle rate (17 per cent)
Changes in the income tax rate

The income tax is varied from 5 to 35 per cent to see its impact on the profitability of the
project, in terms of IRR. The results are given in Table 4.15.
Table 4.15 Impact of increase in income tax rate (5-35 per cent per year) on IRR
Steam turbine
Factory Alternative Fuel type Elect. Price % increase in
(VND/kWh) tax rate(d) IRR %
Textile mill “A” S.T.(TM) H.F.O. 800 + 19.9
Textile mill “B” S.T.(TM) H.F.O. 800 25% 20.0
Paper mill “D” S.T.(TM) H.F.O. 800 23% 19.8
Paper mill “E” S.T.(TM) Coal 870 35% 37.1
S.T.(PM) Coal 870 + 34.9
S.T.(TM) H.F.O. 870 + 24.6
R.E.(PM.) H.F.O. 800 + 27.7
R.E.(PM.) H.F.O. 780 15% 20.5
Hotel “F” R.E.(TM) D.O 1,540 + 29.6
R.E.(PM) D.O 1,540 + 27.5
(d): It is the percentage increase when the IRR value reaches the hurdle rate (17 per cent)
In the case of steam turbine, an increased tax rate does not affect the IRR much. All coal
fired boiler options are attractive with the IRR being higher than the hurdle rate. The heavy
fuel oil fired boiler option is also attractive up to a tax rate of 23 to 25 per cent beyond which
the IRR falls below the hurdle rate. So far, there has not been any official document on
taxation of energy generated from unconventional plants. However, higher than 20 per cent
tax rate seems highly unlikely for the energy generation sector. Therefore, the steam turbine
option with oil fired boilers should be very much feasible.
Projects with reciprocating engines operating with heavy fuel oil do not seem to be affected
adversely by high tax rates. Only one case of a textile industry will have IRR below the hurdle
rate if the tax rate exceeds 25 per cent, and in another case of rubber factory, the threshold of
tax rate is 15 per cent. Again, these tax rates seem high for the energy sector.
4.4 Conclusions and Recommendations for Follow-up Actions1
Conclusion
Cogeneration is an important issue in the National Energy Conservation & Efficiency Master
Plan of Viet Nam. Cogeneration can be applied in big and medium scale factories, centralized
industrial estates and commercial building complexes where power, heating and cooling are
required. Beside, Cogeneration can be applied also in agriculture for post-harvest
processing. The wide application of Cogeneration technology can bring positive effects on
energy conservation, production cost reduction, and environment protection of the country as
well as the region.
Cogeneration technology has been employed in Viet Nam since a very long time (Viêt Trì and
Hà Bác industrial zones, Cogido paper mill, sugar mills) but it has not been widely
propagated. Cora supermarket has recently set up a cogeneration facility in order to generate
high quality and reliable power as well as meet the cooling demands.
Results of the techno-economic and sensitivity studies undertaken for selected sites show
that the financial viability of a cogeneration project is strongly affected by the energy demand
pattern, system configuration and fuel type. The purchase price of electricity also strongly
affects the IRR. It can be considered as a key-factor in the consideration of alternatives.
The IRRs of steam turbine option vary from 20 per cent for oil fired boilers to above 30 per
cent with coal-fired boilers. The IRR of coal fired steam turbine cogeneration is not affected
by the change of investment cost whereas the oil fired option can be unfeasible if there is
more than 15 per cent increase in the investment.
The heavy fuel oil would be the most suitable fuel for reciprocating engine option since it can
lead to very high IRR.
The escalation in fuel price does not have any adverse impact on coal-fired steam turbine
cogeneration, but the IRR of oil fired option is sensitive to hikes in fuel prices.
Tax rates beyond 25 per cent can affect some of the cogeneration projects, but these rates
can be considered too high for the energy sector in Viet Nam. Therefore, enterprises opting
for cogeneration presently need not give importance to the effect of tax rate on their project’s
financial feasibility. There is so far no official document about taxation on energy generated by
unconventional plants.
Recommendation for follow-up actions

The first objective to consider for effective promotion of cogeneration in Viet Nam is to satisfy
the energy demand of the cogenerator. The sale of excess electricity is important but it
should not be considered as the first priority.
By taking care of their energy demand through self-generation and cogeneration, big energy
consumers can reduce a part of the burden on the electricity sector.
Most of industrial factories in Viet Nam is out-dated and are in the process of renovating their
facilities. There are a lot of new investment projects in industrial and commercial sectors that
provide an ideal occasion for promoting cogeneration.
1
These conclusions and recommendations are based on the deliberations of participants in the
South-East Asia Sub-Regional Seminar organized at Ho Chi Minh City on 9 November 1998 and at
Hanoi on 10 and 11 November 1998. The programme details of the Seminars are included in Appendix
4A.
Co-ordination among the users, suppliers, financiers, developers, etc., is very important and
there is a need to have a facilitator or an intermediary. Cogeneration promotion activities
should be combined with energy conservation and efficiency activities. In other countries,
promoting cogeneration is one of the activities of the National Energy Conservation Agency.
Clear official taxation policies related to profit from energy saving and efficiency improvement
are imperative for the cogeneration promotion.
The long run marginal tariffs for purchased electricity and selling of excess electricity to the
grid are key factors for the cogeneration promotion. It should be issued under price formula
being based on capacity charge and energy charge separately, particularly for long term
contracts.
The official synchronization regulation for small scale decentralized power plant should be
studied and issued.
As natural gas is being recognized universally as the most appropriate fuel for cogeneration,
setting up of local natural gas supply stations, with underground storage tanks, in centralized
industrial parks or export processing zones should be considered.
Institutionally, the support from the Government is necessary in the following areas:
• Interconnection with the national power grid;

• Fixing of tariff for sale of excess power;
• Favourable credit for rehabilitation of existing cogeneration facilities and development of
new cogeneration utilities.
Bilateral and international support should be channelled for setting up cogeneration

demonstration projects using modern technologies in various sectors of activities in order to
achieve rational use of energy.
APPENDIX 4.A
Programme of the South East Asia Sub-Regional Seminar on
Date: Monday, 9 November 1998

Place: New World Hotel, Ho Chi Minh City, Viet Nam
Organiser: Ministry of Education and Training (MOET) of Viet Nam, in Collaboration with
Economic and Social Commission for Asia and the Pacific (ESCAP) and Asian
Institute of Technology (AIT)
Supporters: EC-ASEAN COGEN Programme (COGEN) and French Environment and Energy
Management Agency (ADEME)
10h10-10h40 “Business potential for cogeneration in Agro-industrial sector in ASEAN”
Dr. L. Lacrosse (Technical Adviser, EC-ASEAN Cogen Programme)
11h00-12h30 “Results of Pre-feasibility Studies in Selected Vietnamese Industries”
Vietnamese National Study Team
12h30-14h00 Lunch
14h00-15h15 “Prospects for Cogeneration Development in Viet Nam”
Discussion and Conclusion
15h30-16h30 Optional: “Individual Consultations”
Potential cogenerators from industries, manufacturers, suppliers,
developers, financiers, consultants, etc.
ROLE OF COGENERATION IN THE NATIONAL ENERGY SCENARIO:

PERSPECTIVES FOR ENERGY POLICY
Date: Tuesday, 10 November 1998

Place: Hanoi University of Technology, Hanoi, Viet Nam
“Message from ESCAP”
09h00-09h30 “Economic and Environmental Benefits of Cogeneration Applications”
09h30-10h00 “Use of Cogeneration in Japanese Industries”
Mr. Akira Ishiyama (JICA/ESCAP Expert on Energy Conservation)
10h20-11h30 “Potential for Use of Cogeneration in the Industrial Sector in Viet Nam”
11h30-12h15 “Regulatory Framework for Promoting Cogeneration”
Panel discussion with policy makers and industry representatives
12h15-13h45 Lunch
13h45-15h15 “Experiences with Promotion of Cogeneration in South East Asia”
Mr. P. Marpuang (Ministry of Energy and Mines, Indonesia)
Mr. F. X. Jacob (Ministry of Energy, Telecommunications and Posts,
Malaysia)
Mr. A. M. Nabong (Department of Energy, Philippines)
Mr. P. Srisovanna (Energy Conservation Center of Thailand)
15h30-16h30 “Round table discussion, policy recommendations and conclusion”
Date: Wednesday, 11 November 1998

Place: Hanoi University of Technology, Hanoi, Viet Nam
09h40-10h10 “Business potential for cogeneration in Agro-industrial sector in ASEAN”
Dr. L. Lacrosse (Technical Adviser, EC-ASEAN Cogen Programme)
10h30-12h00 “Results of Pre-feasibility Studies in Selected Vietnamese Industries”
12h00-14h00 Lunch
14h00-15h15 “Cogeneration Case Studies from South East Asian Countries”
Mr. P. Marpuang (Ministry of Energy and Mines, Indonesia)
Mr. F. X. Jacob (Ministry of Energy, Telecommunications and Posts,
Malaysia)
Mr. A. M. Nabong (Department of Energy, Philippines)
Mr. P. Srisovanna (Energy Conservation Center of Thailand)
15h30-16h30 “Prospects for Cogeneration Development in Viet Nam”
Discussion and Conclusion

Overview of Cogeneration and Its Status in Asia

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PART 1:

OVERVIEW OF COGENERATION AND ITS STATUS IN ASIA

CHAPTER 1: T HE CONCEPT OF COGENERATION

Combined heat and power generation (CHP), or cogeneration as it is popularly known, is

1.2 Principle of Cogeneration

Cogeneration provides a wide range of technologies for application in various domains of

Figure 1.1 Conventional energy system versus cogeneration system

1.3 From Self Electricity Generation to Cogeneration

An ideal site for cogeneration has the following characteristics:

• a reliable power requirement;

• relatively steady electrical and thermal demand patterns;

• higher thermal energy demand than electricity;

• long operating hours in the year;

• inaccessibility to the grid or high price of grid electricity.

Typical cogeneration applications may be in three distinct areas:

b) Industrial cogeneration: applicable mainly to two types of industries, some requiring

c) Commercial/institutional cogeneration: specifically applicable to establishments having

1.4 Technical Options for Cogeneration

Cogeneration technologies that have been widely commercialized include extraction/back

1.4.1 Steam turbine cogeneration systems

(i) Back-Pressure Turbine (ii) Extraction-Condensing Turbine

Figure 1.2 Schematic diagrams of steam turbine cogeneration systems

1.4.2 Gas turbine cogeneration systems

Figure 1.3 Schematic diagram of gas turbine cogeneration

1.4.3 Reciprocating engine cogeneration systems

1.5 Classification of Cogeneration Systems

Figure 1.4 Schematic diagram of reciprocating engine cogeneration

A cogeneration system can be classified as either a topping or a bottoming cycle on the

1.5.1 Base electrical load matching

1.5.2 Base thermal load matching

1.5.3 Electrical load matching

1.5.4 Thermal load matching

1.6 Important Technical Parameters for Cogeneration

1.6.1 Heat-to-power ratio

Table 1.1 Heat-to-power ratios and other parameters of cogeneration systems

Cogeneration System Heat-to- Power output Overall

1.6.2 Quality of thermal energy needed

1.6.3 Load patterns

(i) Factory “A” (ii) Factory “B”

Electricity Thermal Energy

1.6.4 Fuels available

1.6.5 System reliability

1.6.6 Grid dependent system versus independent system

1.6.7 Retrofit versus new installation

1.6.8 Electricity buy-back

1.6.9 Local environmental regulation

CHAPTER 2: STATE OF ART REVIEW OF COGENERATION

2.1 Technological Advances in Cogeneration

2.2 Reciprocating Engines

36.5% 25.0% 24.5%

Figure 2.1 Typical heat balance of a gas engine

Gas is compressed outside the engine in a separate compressor in a high-pressure dual-

2.3 Gas Turbines

% of ISO Power Output

Ambient Pressure (psia) Ambient Temperature (°C)

Electrical Efficiency (%)

(i) Aero-Derivative (ii) Industrial

Figure 2.3 Power generation efficiency ranges of gas turbines

2.4 Steam Turbines

High pressure steam Extracted steam Exhaust steam

(i) Simple backpressure (ii) Extraction backpressure (iii) Double extraction

Figure 2.4 Different configurations for back pressure steam turbines