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

90 Part II: Cogeneration experiences in Asia and elsewhere
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.