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

Policy framework for promoting cogeneration 45
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.