part 1: overview of cogeneration and its status in asia - Fire

Economic and financial aspects of cogeneration 27
CHAPTER 3: ECONOMIC 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: