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

Policy framework for promoting cogeneration 39
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