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

84 Part II: Cogeneration experiences in Asia and elsewhere
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