Chapter 1: The Concept of Cogeneration

1.1 Introduction

Industries and commercial buildings all over the world are the major energy end-users. In the
developing countries of the Asia-Pacific region, electricity accounts for only around 20 per cent of
the total energy demand of the industrial sector, the remaining demand being mostly in the form of
thermal energy. Likewise, as much as 60 per cent of the energy demand of modern high-rise
buildings in the tropical climate comes from comfort cooling. Typically, state-owned power
companies assure electricity supply whereas on-site boilers and chillers meet the heating and
cooling needs of the users, respectively.
Thermal power plants are a major source of electricity supply in many developing countries.
The conventional method of power generation and supply to the customer is wasteful in the sense
that about a quarter of the primary energy fed into the power plant is actually made available to the
user in the form of electricity. The major source of loss in the conversion process is the heat rejected
to the surrounding water or air due to the inherent constraints of the different thermodynamic cycles
employed in power generation. Moreover, users may be far from the point of generation, which
results in additional transmission and distribution losses in the network. The concept of
cogeneration is based on the principle of thermal cascading which consists of generating power on
site where a substantial fraction of waste heat produced is recovered to satisfy the heating/cooling
demand of the end-user. There is thus a considerable enhancement of the overall conversion
efficiency.
Combined heat and power generation (CHP), or cogeneration as it is popularly known, is widely
recognized world-wide as an attractive alternative to the conventional power and heat generating
options due to its low capital investment, shorter gestation period, reduced fuel consumption and
associated environmental pollution, and increased fuel diversity.
Though the concept of cogeneration has been in existence for over a century now, it found its
popularity and renewed interest during the later half of the 70s and the early 80s. The main factors
that attributed to this phenomenon are the two oil shocks that led to spiralling energy prices and the
availability of efficient and small-scale cogeneration systems which became cost-effective and
competed well with the conventional large-scale electricity generation units. A variety of measures
were undertaken by several national authorities to promote the growth of cogeneration.
As energy prices started to fall during the mid-80s, some countries lost interest in this technology,
particularly those that had excess generating capacities. Taking the example of Europe, a great
diversity can be observed among the member countries; electricity produced from cogeneration
ranged from over 34 per cent in the Netherlands whereas it was less than 1.5 per cent in France.
The main reasons that have revived the interest in cogeneration once again are the rapidly
increasing demand for electricity, constraints faced by the national authorities to finance additional
power generating capacities, and the growing concern to limit the environmental emission and
pollution associated with the use of energy. Cogeneration is presently being recommended when
there is plan for expansion of existing facilities, development of new industrial zones, replacement
of outdated steam generation systems, or when the cost of energy is high and there is scope for
selling power.

1.2 Principle of Cogeneration

Cogeneration is defined as the sequential generation of two different forms of useful energy
from a single primary energy source, typically mechanical energy and thermal energy. Mechanical
energy may be used either to drive an alternator for producing electricity, or rotating equipment
such as motor, compressor, pump or fan for delivering various services. Thermal energy can be used
either for direct process applications or for indirectly producing steam, hot water, hot air for dryer
or chilled water for process cooling.
 Cogeneration provides a wide range of technologies for application in various domains of
economic activities. The overall efficiency of energy use in CHP mode can be up to 80 per cent and
above in some cases. A typical small gas turbine based CHP unit can save about 40 per cent of the
primary energy when compared with a fossil fuel fired conventional power plant and a boiler house
(see Figure 1.1 below). Along with the saving of fossil fuels, cogeneration also allows to reduce the
emission of greenhouse gases (particularly CO2 emission) per unit of useful energy output. The
production of electricity being on-site, the burden on the utility network is reduced and the
transmission line losses eliminated.

Figure 1.1 Conventional energy system versus cogeneration system

Cogeneration makes sense from both macro and micro perspectives. At the macro level, it
allows a part of the financial burden of the national power utility to be shared by the private sector;
in addition, indigenous energy sources are preserved or the fuel import bill is reduced. At the micro
level, the overall energy bill of the users can be reduced, particularly when there is a simultaneous
need for both power and heat at the site, and a rational energy tariff is practised in the country.

1.3 From Self Electricity Generation to Cogeneration

In Asian developing countries, it is not unusual to come across situations of grid power
supply interruptions either due to technical failure of the system or because the consumer demand
during a given time period exceeds the utility supply capacity. Industries and commercial buildings
normally adopt stand-by power generators for taking care of their essential loads during these
periods. It is essential to assure continuity of some activities to minimize production losses or
guarantee minimum comfort of the clients. The stand-by generators have limited use in the year;
moreover, these devices require investment and incur operation and maintenance costs while
contributing practically nothing to reduce the overall energy bill of the site.
Since these generators serve the main purpose of assuring emergency power to priority areas of the
site, no financial analysis is carried out to assess their economic viability. However, these generators
offer the possibility of continuous power generation so that the monthly power bill of the site can be
reduced. Such benefits accrued can well justify the need for higher investment that is associated
with prime movers which are designed to operate continuously and at higher efficiencies.
In a gas turbine or reciprocating engine, typically a third of the primary fuel supplied is
converted into power while the rest is discharged as waste heat at a relatively high temperature,
ranging between 300 and 500?C. At sites having a need for thermal energy in one form or the other,
this waste heat can be recovered to match the quantity and level of requirements. For instance,
steam may be needed at low or medium pressures for process applications. Any heat recovered from
the exhaust gases of the prime movers will help to save the primary energy that would have been
otherwise required by the on-site conversion facility such as boilers or dryers.
An ideal site for cogeneration has the following characteristics:
– a reliable power requirement;
– relatively steady electrical and thermal demand patterns;
– higher thermal energy demand than electricity;
– long operating hours in the year;
– inaccessibility to the grid or high price of grid electricity.
Typical cogeneration applications may be in three distinct areas:
a.Utility cogeneration: caters to district heating and/or cooling. The cogeneration facility may be
located in industrial estates or city centres;
b.Industrial cogeneration: applicable mainly to two types of industries, some requiring thermal
energy at high temperatures (refineries, fertilizer plants, steel, cement, ceramic and glass industries),
and others at low temperatures (pulp and paper factories, textile mills, food and beverage plants,
etc.);
 c.Commercial/institutional cogeneration: specifically applicable to establishments having round-
the-clock operation, such as hotels, hospitals and university campuses.

1.4 Technical Options for Cogeneration

Cogeneration technologies that have been widely commercialized include extraction/back pressure
steam turbines, gas turbine with heat recovery boiler (with or without bottoming steam turbine) and
reciprocating engines with heat recovery boiler.

1.4.1 Steam turbine cogeneration systems

The two types of steam turbines most widely used are the backpressure and the extraction-
condensing types (see Figure 1.2). The choice between backpressure turbine and extraction-
condensing turbine depends mainly on the quantities of power and heat, quality of heat, and
economic factors. The extraction points of steam from the turbine could be more than one,
depending on the temperature levels of heat required by the processes.

Figure 1.2 Schematic diagrams of steam turbine cogeneration systems

Another variation of the steam turbine ping cycle cogeneration system is the extraction-back
pressure turbine that can be employed where the end-user needs thermal energy at two different
temperature levels. The full-condensing steam turbines are usually incorporated at sites where heat
rejected from the process is used to generate power.
The specific advantage of using steam turbines in comparison with the other prime movers is the
option for using a wide variety of conventional as well as alternative fuels such as coal, natural gas,
fuel oil and biomass. The power generation efficiency of the cycle may be sacrificed to some extent
in order to optimize heat supply. In backpressure cogeneration plants, there is no need for large
cooling towers. Steam turbines are mostly used where the demand for electricity is greater than one
MW up to a few hundreds of MW. Due to the system inertia, their operation is not suitable for sites
with intermittent energy demand.

1.4.2 Gas turbine cogeneration systems

Gas turbine cogeneration systems can produce all or a part of the energy requirement of the site,
and the energy released at high temperature in the exhaust stack can be recovered for various
heating and cooling applications (see Figure 1.3). Though natural gas is most commonly used, other
fuels such as light fuel oil or diesel can also be employed. The typical range of gas turbines varies
from a fraction of a MW to around 100 MW.
Gas turbine cogeneration has probably experienced the most rapid development in the recent years
due to the greater availability of natural gas, rapid progress in the technology, significant reduction
in installation costs, and better environmental performance. Furthermore, the gestation period for
developing a project is shorter and the equipment can be delivered in a modular manner. Gas
turbine has a short start-up time and provides the flexibility of intermittent operation. Though it has
a low heat to power conversion efficiency, more heat can be recovered at higher temperatures. If the
heat output is less than that required by the user, it is possible to have supplementary natural gas
firing by mixing additional fuel to the oxygen-rich exhaust gas to boost the thermal output more
efficiently.

Figure 1.3 Schematic diagram of gas turbine cogeneration

On the other hand, if more power is required at the site, it is possible to adopt a combined cycle
that is a combination of gas turbine and steam turbine cogeneration. Steam generated from the
exhaust gas of the gas turbine is passed through a backpressure or extraction-condensing steam
turbine to generate additional power. The exhaust or the extracted steam from the steam turbine
provides the required thermal energy.

1.4.3 Reciprocating engine cogeneration systems

Also known as internal combustion (I. C.) engines, these cogeneration systems have high power
generation efficiencies in comparison with other prime movers. There are two sources of heat for
recovery: exhaust gas at high temperature and engine jacket cooling water system at low
temperature (see Figure 1.4). As heat recovery can be quite efficient for smaller systems, these
systems are more popular with smaller energy consuming facilities, particularly those having a
greater need for electricity than thermal energy and where the quality of heat required is not high,
e.g. low pressure steam or hot water. Though diesel has been the most common fuel in the past, the
prime movers can also operate with heavy fuel oil or natural gas. In urban areas where natural gas
distribution network is in place, gas engines are finding wider application due to the ease of fuel
handling and cleaner emissions from the engine exhaust. These machines are ideal for intermittent
operation and their performance is not as sensitive to the changes in ambient temperatures as the gas
turbines. Though the initial investment on these machines is low, their operating and maintenance
costs are high due to high wear and tear.

1.5 Classification of Cogeneration Systems

Cogeneration systems are normally classified according to the sequence of energy use and the
operating schemes adopted.

Figure 1.4 Schematic diagram of reciprocating engine cogeneration

A cogeneration system can be classified as either a ping or a bottoming cycle on the basis of the
sequence of energy use. In a ping cycle, the fuel supplied is used to first produce power and then
thermal energy, which is the by-product of the cycle and is used to satisfy process heat or other
thermal requirements. ping cycle cogeneration is widely used in pulp and paper, food processing,
textile industries, districting heating, hotels, hospitals and universities. In a bottoming cycle, the
primary fuel produces high temperature thermal energy and the heat rejected from the process is
used to generate power through a recovery boiler and a turbine generator.
Bottoming cycles are suitable for manufacturing processes that require heat at high temperature in
furnaces and kilns, and reject heat at significantly high temperatures. Typical areas of application
include cement, steel, ceramic, gas and petrochemical industries.
Cogeneration systems can also be classified according to the operating scheme whose choice is
very much site-specific and depends on several factors, as described below:

1.5.1 Base electrical load matching

In this configuration, the cogeneration plant is sized to meet the minimum electricity demand of the
site based on the historical demand curve. The rest of the needed power is purchased from the utility
grid. The thermal energy requirement of the site could be met by the cogeneration system alone or
by additional boilers. If the thermal energy generated with the base electrical load exceeds the
plant’s demand and if the situation permits, excess thermal energy can be exported to neighbouring
customers.

1.5.2 Base thermal load matching

Here, the cogeneration system is sized to supply the minimum thermal energy requirement of the
site. Stand-by boilers or burners are operated during periods when the demand for heat is higher.
The prime mover installed operates at full load at all times. If the electricity demand of the site
exceeds that which can be provided by the prime mover, then the remaining amount can be
purchased from the grid. Likewise, if local laws permit, the excess electricity can be sold to the
power utility.

1.5.3 Electrical load matching

In this operating scheme, the facility is totally independent of the power utility grid. All the power
requirements of the site, including the reserves needed during scheduled and unscheduled
maintenance, are to be taken into account while sizing the system. This is also referred to as a
“stand-alone” system. If the thermal energy demand of the site is higher than that generated by the
cogeneration system, auxiliary boilers are used. On the other hand, when the thermal energy
demand is low, some thermal energy is wasted. If there is a possibility, excess thermal energy can be
exported to neighbouring facilities.

1.5.4 Thermal load matching

The cogeneration system is designed to meet the thermal energy requirement of the site at any time.
The prime movers are operated following the thermal demand. During the period when the
electricity demand exceeds the generation capacity, the deficit can be compensated by power
purchased from the grid. Similarly, if the local legislation permits, electricity produced in excess at
any time may be sold to the utility.

1.6 Important Technical Parameters for Cogeneration

While selecting cogeneration systems, one should consider some important technical parameters
that assist in defining the type and operating scheme of different alternative cogeneration systems to
be selected.

1.6.1 Heat-to-power ratio

Heat-to-power ratio is one of the most important technical parameters influencing the selection of
the type of cogeneration system. The heat-to-power ratio of a facility should match with the
characteristics of the cogeneration system to be installed. It is defined as the ratio of thermal energy
to electricity required by the energy consuming facility. Though it can be expressed in different
units such as Btu/kWh, kcal/kWh, lb./hr/kW, etc., here it is presented on the basis of the same
energy unit (kW). Basic heat-to-power ratios of the different cogeneration systems are shown in
Table 1.1 along with some technical parameters. The steam turbine cogeneration system can offer a
large range of heat-to- power ratios.

Table 1.1 Heat-to-power ratios and other parameters of cogeneration systems

1.6.2 Quality of thermal energy needed

The quality of thermal energy required (temperature and pressure) also determines the type of
cogeneration system. For a sugar mill needing thermal energy at about 120?C, a ping cycle
cogeneration system can meet the heat demand. On the other hand, for a cement plant requiring
thermal energy at about 1450?C, a bottoming cycle cogeneration system can meet both high quality
thermal energy and electricity demands of the plant.

1.6.3 Load patterns

The heat and power demand patterns of the user affect the selection (type and size) of the
cogeneration system. For instance, the load patterns of two energy consuming facilities shown in
Figure 1.5 would lead to two different sizes, possibly types also, of cogeneration systems.
 Figure 1.5 Different heat and power demand patterns in two factories

1.6.4 Fuels available

Depending on the availability of fuels, some potential cogeneration systems may have to be
rejected. The availability of cheap fuels or waste products that can be used as fuels at a site is one of
the major factors in the technical consideration because it determines the competitiveness of the
cogeneration system. A rice mill needs mechanical power for milling and heat for paddy drying. If a
cogeneration system were considered, the steam turbine system would be the first priority because it
can use the rice husk as the fuel, which is available as waste product from the mill.

1.6.5 System reliability

Some energy consuming facilities require very reliable power and/or heat; for instance, a pulp and
paper industry cannot operate with a prolonged unavailability of process steam. In such instances,
the cogeneration system to be installed must be modular, i.e. it should consist of more than one unit
so that shut down of a specific unit cannot seriously affect the energy supply.

1.6.6 Grid dependent system versus independent system

A grid-dependent system has access to the grid to buy or sell electricity. The grid-independent
system is also known as a “stand-alone” system that meets all the energy demands of the site. It is
obvious that for the same energy consuming facility, the technical configuration of the cogeneration
system designed as a grid dependent system would be different from that of a stand-alone system.

1.6.7 Retrofit versus new installation

If the cogeneration system is installed as a retrofit, the system must be designed so that the existing
energy conversion systems, such as boilers, can still be used. In such a circumstance, the options for
cogeneration system would depend on whether the system is a retrofit or a new installation.

1.6.8 Electricity buy-back

The technical consideration of cogeneration system must take into account whether the local
regulations permit electric utilities to buy electricity from the cogenerators or not. The size and type
of cogeneration system could be significantly different if one were to allow the export of electricity
to the grid.

1.6.9 Local environmental regulation

The local environmental regulations can limit the choice of fuels to be used for the proposed
cogeneration systems. If the local environmental regulations are stringent, some available fuels
cannot be considered because of the high treatment cost of the polluted exhaust gas and in some
cases, the fuel itself.

CHAPTER 2: STATE OF ART REVIEW OF COGENERATION

2.1 Technological Advances in Cogeneration

Cogeneration plants benefit from many of the energy efficiency improvements that are brought
about in utility power generation because the same basic technology is employed in both cases.
However, cogeneration being more attractive for small-scale decentralized applications, significant
technological progress has been made in the development of modular and packaged cogeneration
systems of lower capacities. Moreover, as such systems are being adopted in industrial zones and
city centres, the stringent laws and regulations put in place for protecting the local environment has
obliged the cogeneration technology providers to innovate incessantly. The greater availability of
natural gas in many parts of the world has helped in the maturing of gas turbine technology. In
addition, the possibility of using alternative fuels such as wood, agro-industrial residues, biogas,
etc., for powering small-scale cogeneration systems has led to further technological progresses by
taking the specific characteristics of the fuels into consideration. This section briefly describes some
of the developments in this domain.

2.2 Reciprocating Engines

Reciprocating engines are mostly employed in low and medium power cogeneration units. The
lower and upper limits of engine sizes are often a function of the fuel in use; these can range from
50 kW to 10 MW for natural gas, from 50 kW to 50 MW for diesel, and 2.5 MW to 50 MW for
heavy fuel oil. One of the major advantages of reciprocating engines is their higher electrical
efficiency as compared to other prime movers.
The two main types of internal combustion engines employed in cogeneration systems are diesel
engines and Otto engines. The characteristic feature of the Otto engine is that an electric spark from
a spark plug ignites a mixture of fuel and air, and this is thus known widely as a spark-ignition
engine. In power generation applications, the Otto engine may be either a gasoline engine or a
diesel engine converted to have spark-ignition operation. Gasoline engines have the ratings ranging
from 20 kW to 1.5 MW. The spark-ignition engines converted from diesel engines and running on
natural gas are available in ratings from 5 kW to 4 MW. The Otto engines operate at speeds between
750-3000 rpm and have the electrical efficiencies of 25-35 per cent. These engines can run on
different fuels such as gasoline, natural gas, producer gas, and digester gas.
As opposed to Otto engines, fuel is injected into the diesel engine cylinders in which it mixes with
air and is ignited by the heat generated when the pistons compress the fuel/air mixture, and this
engine is often known as a compression-ignition engine. Diesel engines can generally be classified
into two main categories, i.e. two-stroke and four-stroke engines. The two-stroke engine is also
known as a low-speed engine, and is characterized by ignition taking place once every revolution,
and by the engine running at a speed below 200 rpm and delivering an output of 1-50 MW at a high
electrical efficiency of 45-53 per cent. In a four-strike engine, ignition takes place during every
other revolution, and this engine can be divided into two categories. Medium speed engines are
those running at speeds between 400 and 1000 rpm and can be designed for ratings between 0.5 and
20 MW with electrical efficiencies of 35-48 per cent. High-speed engines are those operating at
speeds between 1000 and 2000 rpm and with ratings between a few kW and about 2 MW with
electrical efficiencies of 35-40 per cent. Diesel engines can run on a variety of fuels such as diesel,
heavy fuel oil, light fuel oil, LPG, natural gas, producer gas, digester gas, etc. The diesel engines
that are converted to gas engines are also known as dual-fuel engines. In their operation, the main
fuel is gas, which is ignited by a small quantity of pilot oil, usually diesel oil. The pilot oil is used to
make sure that the gas in the cylinder will ignite. The gas/oil ratio is normally controlled so that the
proportion of pilot oil at full engine power will be around 5 per cent of the fuel quantity supplied.
Diesel engines running in gas engine mode can be classified in another way into two groups: low-
pressure dual-fuel engines and high-pressure dual-fuel engines. Typical heat balance diagram of a
gas engine is shown in Figure 2.1. About 25 per cent of the heat recovered from the engine cooling
system (cooling water, oil cooler and inlet air cooler) is low grade at a temperature of about 95?C.
Considering the same power output, the amount of heat recoverable at high temperature is lower
than that for the gas turbine. That is why cogeneration with reciprocating engine is more commonly
used for producing hot water/hot air or low pressure steam. However, medium pressure steam can
be generated by employing supplementary firing since exhaust gases from gas engines have an O2
content of about 15 per cent.

Figure 2.1 Typical heat balance of a gas engine

 In the operation of low-pressure dual-fuel engines, gas at low pressure, i.e. 3-5 bar, is mixed with
the engine combustion air during the induction cycle. The gas/combustion air mixture is
compressed in the cylinder and is ignited at the dead centre by a small amount (approximately 5 per
cent) of diesel oil being injected into the cylinder and ignited in the usual manner. Low-pressure
dual-fuel engines have relatively low ratings and efficiencies. The system is sensitive to variations
in gas quality. Gas is compressed outside the engine in a separate compressor in a high-pressure
dual-fuel engine up to 250 bar and is injected into the cylinder with a minor amount of pilot oil
when the piston is in the vicinity of the dead centre. High-pressure dual-fuel engines have higher
ratings and efficiencies and they are not sensitive to the gas quality. High-pressure dual-fuel engines
are available in both two-stroke and four-stroke versions.

2.3 Gas Turbines

Gas turbines used for cogeneration are usually designed for continuous duty because gas turbines
for stand-by use normally have low efficiencies and are most suitable for applications where the
operating periods are short. Gas turbines for continuous duty are traditionally divided into two
groups on the basis of differences in design philosophy (there is now some convergence in their
design). The aero-derivative gas turbine, as its name indicates, is more or less derived from an
aircraft propulsion engine. The characteristics of aero-derivative gas turbines are low specific
weight, low fuel consumption, high reliability, etc. The major advantages of aero-derivative gas
turbines are high levels of efficiency and a compact and modular design with easy access for
maintenance. However, because skilled service personnel are required, gas turbines of this type are
often taken off the site for maintenance. Aero-derivative gas turbines require a relatively high
specific investment cost ($/kWe), high quality fuel and may experience a lowering in output and
efficiency after a long period of operation. The industrial gas turbine, also referred to as the heavy
duty or heavy frame gas turbine, is a robust unit constructed for stationary duty and continuous
operation. It has a somewhat lower efficiency than the aero-derivative type, but usually maintains
its performance over a longer period of operation. Maintenance can be easily carried out on site, and
maintenance costs are low. The industrial gas turbine usually has a lower specific investment cost
than its aero-derivative counterpart. Furthermore, it has the ability to make use of low quality fuel.
The performance of a gas turbine depends on the pressure and temperature of ambient air that is
compressed. Since the ambient conditions vary from day-to-day and from location-to-location, it is
convenient to consider some standard conditions for comparative purposes. The standard conditions
used by the gas turbine industry are 15?C, 1.013 bar (14.7 psia) and 60 per cent relative humidity,
which are established by the International Standards Organization (ISO). The performance of gas
turbines is expressed under ISO conditions. The actual power output of a gas turbine varies with
ambient conditions. The power output of a gas turbine decreases when the ambient temperature
rises. In contrast, the power output increases with the ambient pressure. The variations in power
outputs of a typical gas turbine with ambient conditions are shown in Figure 2.2 as a percentage of
ISO power output. The heat recovery steam generator (HRSG) is one of the major components of
the gas turbine cogeneration system. Since the energy content of the exhaust gas rejected to the
atmosphere is considerably high, HRSGs are designed to produce process steam (or hot water) by
recovering a large share of the energy contained in the exhaust stream. The exhaust gas at 500-550?
C is cooled in the HRSG to about 150?C to extract useful heat. A temperature of 150?C is
recommended at the outlet of the HRSG to avoid condensation of exhaust gases. At lower
temperature levels, gases such as SOx and NOx would form acids along with the condensation and
corrode the materials of HRSG.

Figure 2.2 Power output variation of a gas turbine with the ambient conditions

The basic heat-to-power ratio of a simple gas turbine cogeneration system is about two. However,
supplementary firing can double the heat-to-power ratio. The HRSG with supplementary firing
option contains an additional burner to increase the heat output of the whole system. This is made
possible due to the high oxygen content of the exhaust gases, typically 14 to 17 per cent, as a result
of the need for high excess air in the combustion chamber (for avoiding very high hot gas
temperature that can affect the turbine). By adding supplemental firing, fuel consumption increases
slightly, however the steam production increases significantly. Addition of supplemental firing is
quite common in gas turbine cogeneration systems. In a gas turbine cogeneration cycle, the power
output can be increased by steam injection. High-pressure steam produced in HRSG can be injected
into the combustion chamber so that the mass flow rate through the turbine is increased. Steam
injection allows the flexibility of matching with the process steam demand and can increase the
power output by about 15 per cent.

Figure 2.3 Power generation efficiency ranges of gas turbines

The power generation efficiency ranges of aero-derivative and industrial gas turbines are compared
in Figure 2.3. The overall efficiency of the gas turbine cogeneration system is good without post-
combustion (70 to 85 per cent), which can be further boosted to between 83 and 89 per cent with
post-combustion. When the system is opted as a retrofit in a facility already having boilers, it is at
times possible to make use of the existing boilers. Recuperators are used to increase the power
output of gas turbine cogeneration systems if the heat demands are low. The recuperator is in fact
only a heat exchanger that is employed to heat the air leaving the compressor. The exhaust stream
from the turbine is passed through the recuperator before going into the HRSG so that a part of the
energy contained in turbine exhaust is utilized in the recuperator. The gas turbine cogeneration
system with recuperator is sometimes known as the heat exchange cycle.

2.4 Steam Turbines

Steam turbines are the most commonly employed prime movers for cogeneration applications,
particularly in industries and for district heating. The technology is well proven in sugar and paper
mills having demand for both electricity and large quantity of steam at high and low pressures.
Some steam turbine manufacturers are over 100 years old and have products ranging from a few
kW to 80 MW. However, turbines below two MW may be uneconomical except where the fuel has
no commercial value. A cogeneration system using a backpressure steam turbine (see Figure 1.2)
consists of boiler, turbine, heat exchanger and pump. In the steam turbine, the incoming high
pressure steam is expanded to a lower pressure level, converting the thermal energy of high pressure
steam to kinetic energy through nozzles and then to mechanical power through rotating blades.
Thermal energy of the turbine exhaust steam is then transferred to another fluid, water, air, etc., in a
heat exchanger, providing heat to the processes. For instance, the air heated by heat exchanger can
be used to dry products in food processing industries. Depending on the pressure (or temperature)
levels at which process steam is required, backpressure steam turbines can have different
configurations. The most common types of backpressure steam turbines are shown in Figure 2.4. In
extraction and double extraction backpressure turbines, some amount of steam is extracted from the
turbine after being expanded to a certain pressure level. The extracted steam meets the heat
demands at pressure levels higher than the exhaust pressure of the steam turbine. The backpressure
steam turbine has a higher heat to power ratio and higher overall efficiency. Furthermore, back
pressure turbine cogeneration systems need less auxiliary equipment than condensing systems,
leading to lower initial investment costs. The extraction condensing turbines have higher power to
heat ratio in comparison with backpressure turbines. Although condensing systems need more
auxiliary equipment such as the condenser and cooling towers, better matching of electrical power
and heat demand can be obtained where electricity demand is much higher than the steam demand
and the load patterns are highly fluctuating. In the reheat cycle, steam is extracted from the turbine
and reheated in the boiler during the expansion process. Reheat cycles improve the overall thermal
efficiency and eliminate any moisture that may form as the steam pressure and temperature are
lowered in the turbine. Steam turbines may also include a regenerative cycle where the steam is
extracted from the turbine and used to preheat the boiler feedwater. The efficiency of a backpressure
steam turbine cogeneration system is the highest. In cases where 100 per cent backpressure exhaust
steam is used, the only inefficiencies are gear drive and electric generator losses, and the
inefficiency of steam generation. Therefore, with an efficient boiler, the overall thermal efficiency
of the system could reach as much as 90 per cent.

Figure 2.4 Different configurations for back pressure steam turbines

The overall thermal efficiency of an extraction condensing turbine cogeneration system is lower
than that of back pressure turbine system, basically because the exhaust heat cannot be utilized (it is
normally lost in the cooling water circuit). However, extraction condensing cogeneration systems
have higher electricity generation efficiencies. The techniques available for energy generation from
fossil fuels are well established. In order to make greater use of alternative fuels, efforts have been
made to take the specificity of fuel characteristics into account in order to overcome the
technological constraints. The physical properties of agro-industrial residues vary considerably and
can affect the conversion efficiency. Some areas where technological progresses have been made
include fuel handling, combustion system and pollution abatement equipment. Fuel handling and
transformation is important for appropriate functioning of the installation. Handling biomass
residues depends mainly on the fuel granulometry and moisture content. Coarse residues can be
transformed into homogeneous mass by crushing and chipping. Reduction of the moisture content
by drying represents two main advantages: increases in the fuel heating value, and decrease in the
fuel losses through fermentation during storage. Suitable technologies are available in the market to
cover the handling, drying and storage requirements of different types of fuels. The selection of
combustion system using alternative fuels depends on parameters such as the size of the unit,
energy required, fuel characteristics, etc. Though grate-fired systems (Dutch-oven type or spreader-
stokers) have been widely used because of the flexibility they offer, suspension burners and
fluidized-bed combustors are emerging as relevant technologies because of their high conversion
efficiencies and improved performance in meeting the environmental constraints. In suspension
burners, ash is dragged out with the exhaust gases or it falls to the furnace bottom. Fluidized-bed
combustors control the combustion better and make use of an inert material capable of absorbing
energy, thus maximizing the heat transfer from the fuel. These units are capable of burning fuels
with very low calorific values. Modern designs of furnaces offer staging combustion and good
control of air-fuel ratio.

2.5 Trigeneration and Vapour Absorption Cooling

Trigeneration is the concept of deriving three different forms of energy from the primary energy
source, namely, heating, cooling and power generation. Also referred to as CHCP (combined
heating, cooling and power generation), this option allows having greater operational flexibility at
sites with demand for energy in the form of heating as well as cooling. This is particularly relevant
in tropical countries where buildings need to be air-conditioned and many industries require process
cooling. A typical trigeneration facility consists of a cogeneration plant, and a vapour absorption
chiller which produces cooling by making use of some of the heat recovered from the cogeneration
system (see Figure 2.5).

Figure 2.5 Schematic presentation of a gas turbine based trigeneration facility

Although cooling can be provided by conventional vapour compression chillers driven by

electricity, low quality heat (i.e. low temperature, low pressure) exhausted from the cogeneration
plant can drive the absorption chillers so that the overall primary energy consumption is reduced.
Absorption chillers have recently gained widespread acceptance due to their capability of not only
integrating with cogeneration systems but also because they can operate with industrial waste heat
streams. The benefit of power generation and absorption cooling can be realized through the
following example that compares it with a power generation system with conventional vapour
compression system. A factory needs 1 MW of electricity and 500 refrigeration tons (RT). Let us
first consider the gas turbine that generates electricity required for the processes as well as the
conventional vapour compression chiller. Assuming an electricity demand of 0.65 kW/RT, the
compression chiller needs 325 kW of electricity to obtain 500 RT of cooling. Hence, a total of 1325
kW of electricity must be provided to this factory. If the gas turbine efficiency has an efficiency of
30 per cent, primary energy consumption would be 4417 kW. A schematic diagram of the system is
shown in Figure 2.6.

Figure 2.6 Schematic diagram of power generation and cooling with electricity

However, a cogeneration system with an absorption chiller can provide the same energy service
(power and cooling) by consuming only 3,333 kW of primary energy. A schematic diagram of the
system is shown in Figure 2.7.

Figure 2.7 Schematic diagram of power generation and absorption cooling

It can be seen that the cogeneration system incorporating an absorption chiller can save about 24.5
per cent of primary energy in comparison with the power generation system and vapour
compression chiller. Furthermore, a smaller prime mover leads to not only lower capital cost but
also less standby charge during the system breakdown because steam needed for the chiller can still
be generated by auxiliary firing of the waste heat boiler. Since many industries and commercial
buildings in tropical countries need combined power and heating/cooling, the cogeneration systems
with absorption cooling have very high potentials for industrial and commercial application. Note:
Refrigeration ton (RT) is defined as the transfer of heat at the rate of 3.52 kW, which is roughly the
rate of cooling obtained by melting ice at the rate of one ton per day.

2.6 Working Principle of Absorption Chillers

Like the vapour compression chiller (VCC), the vapour absorption chiller (VAC) extracts heat in
the evaporator which is placed in the space to be cooled and rejects this heat in the condenser.
However, VAC needs a heat source as the driving force while VCC requires mechanical power or
electricity for the same duty. Figure 2.8 shows the schematic diagrams of VCC and VAC.

Figure 2.8 Comparison between vapour compression and absorption cycles

The improved version of the VAC, commonly known as the double effect type, is designed such
that it utilizes the vaporized refrigerant as an extra heat source. The generator is divided into high
and low temperature sections. The refrigerant vapour produced in the high temperature generator
gives up its latent heat to the partially refrigerant-rich solution in the low temperature generator that
operates at a low pressure, hence the lower boiling point of the refrigerant. The energy consumption
of a double effect VAC is approximately half that of the single effect VAC for the same cooling
effect. Moreover, heat rejected in the condenser is also reduced, resulting in smaller condenser and
cooling tower. The performances of absorption chillers strongly depend on the thermo-physical
properties of the working pair, i.e., the refrigerant and absorbent. Binary working pairs such as
ammonia-water (NH3-H2O) and lithium bromide-water (LiBr-H2O) have been employed
commercially in absorption chillers for a long time and these are in commercial use. A single effect
LIBr-H2O absorption chiller requires about 0.8 m3/h of hot water at around 90?C or 8.3 kg/h of
steam at 1.5 bar to provide 1 RT. On the other hand, a double effect chiller requires only 4.5 kg/h of
steam, though at a higher pressure between 6 and 8 bar.

2.7 District Heating/Cooling Network

Individual buildings and industries may lack economies of scale when setting up cogeneration
facilities and it may not be always possible to optimize the design parameters due to the peculiarity
of the energy demand patterns. In such cases, one may think of developing a facility that caters to
several user-groups with varying demand patterns that can be complimentary. In the building sector,
for instance, offices are active during the daytime whereas hotels may have high loads at nights.
When the two loads are combined, a uniform composite curve may be obtained with very small
amplitude. Besides, there are a number of justifications for grouping together several buildings and
industries in order to meet their different energy services, such as:
– larger cogeneration system and the economies of scale associated with it;
– system expansion to users for whom individual facility cannot be justified;
– improvement in the overall generation efficiency;
– increased reliability and availability of utility services;
– pooling of maintenance personnel and reduction in manpower cost;
– saving of mechanical room space in the user buildings;
– purchase of fuel at more competitive rate;
– better negotiation power for power purchase/sale to the electric utility, etc.
There are, however, a few drawbacks to district heating/cooling, the most important among them
being the high initial investment on the system. The cost of steam/hot water and chilled water
transportation and distribution can also be high. Because of the down-sizing of the different
components installed at the central plant, capital investment cost can in fact be reduced by 10 to 20
per cent as compared to those which would have been required in the individual buildings. This
takes into account the piping distribution network cost that is not required in conventional
decentralized systems. For instance, a district cooling network is installed in Paris which includes
three chiller plants with a total of 25,500 RT to supply to a museum, shopping complex, exhibition
centre and offices having a total equivalent area exceeding one million m2. Decentralized plants
would have required a total capacity of approximately 34,100 RT to be installed. The district-
cooling network has thus helped to achieve an investment saving of over US$ 8 million for the
reduced installed cooling capacity.

2.8 Evolution of Package Cogeneration

Cogeneration systems traditionally constituted various components which were ordered and
assembled at the site according to the client’s requirements, mostly matching the thermal energy
needs. The minimum power generation capacity was of the order of a few MW due to the limited
products available in the market, some of the reasons being:
1.Investment cost per kWe is considerably higher for smaller units;
2.Limited financing capabilities of small and medium scale enterprises;
3.Additional investment needed by smaller units to cope with environmental regulations;
4.Unavailability of guarantee for the overall system.
However, trends have changed considerably with the introduction of modular concept which
consists of cogeneration units packaged as “of-the-shelf’ products and whose performances, both
electrical and thermal, are guaranteed by suppliers who act as the sole responsible for the design of
the overall system and all its interfaces. This has led to widespread propagation of cogeneration
plants with power generating capacities less than a MW. Many of these adopted by enterprises that
are located at the end of electric networks and are faced with the problem of getting reliable and
uninterrupted power. Moreover, the expansion of the natural gas network has made it possible to
employ gas engines of smaller capacities in urban areas without violating the environmental
regulations. For example, over 2,500 units have been installed in the Netherlands alone in the range
between 100 and 300 kW, the main clients being hospitals, community buildings, sports centres,
teaching establishments, commercial buildings, small and medium enterprises, etc. A typical
module of less than one MWe capacity presents itself as a mono-bloc, compact and soundproofed
packaged unit, consisting of the following:
– engine for mechanical energy generation;
– alternator for electrical output;
– heat recovery unit for thermal energy generation;
– component for evacuation of combustion products;
– control system, electrical protection and low voltage connection box;
– soundproofing insulation.
These modules are designed for being installed within a few days with very little structural or
engineering work at the site. Moreover, as the components are well matched, high efficiency is
guaranteed for the overall system. Some of these cogeneration facilities are designed for
“trigeneration” at sites with process or space cooling needs.
The strength of the package units lies with their high overall efficiency and system availability.
Manufacturers propose cogeneration systems whose overall efficiency can be between 84 and 92
per cent (with a mechanical efficiency between 30 and 35 per cent) and 95 per cent availability.
Variations in their performances are a function of the type of prime mover, the level at which heat is
required, and the quality of heat recovery devices. The package cogeneration plants are well suited
for intermittent operations and variable loads. The nominal power can be delivered within a few
seconds after starting (typically 90 seconds) and the loading can be modulated between 50 and 100
per cent without much reduction in the efficiency. When supplied in soundproof casing, the unit
may limit the noise level to only 65 dB at a metre. The supplier defines a well-defined maintenance
schedule to guarantee long-term operation without unscheduled breakdowns. Use of the same core
prime mover for numerous applications allows to have improved availability of the spare parts at a
lower cost. A well maintained package cogeneration unit can have a life span of over 60,000 hours.
The maintenance cost on small size engine-based units still remains relatively high compared with
units with capacities exceeding 600 kW.

2.9 Innovation in Exhaust Gas Heat Recovery

Sites requiring more thermal energy than that is available at the exhaust of reciprocating engine or
gas turbine have the option of adopting post-combustion of oxygen-rich exhaust gases. For this,
either the fuel required by the prime mover or an alternate cheaper fuel may be employed. New
types of burners have been designed in the recent years that can be operated efficiently to provide
the varying thermal energy demand of the site. The “GRC Induct” type of burners has been
specially designed by EGCI Pillard for combustion of either liquid or gaseous fuels, by making use
of the gas turbine exhaust gas (leaving at around 500?C and 13 per cent of O2 content) as the
oxidizing air. Located at the inlet of the heat recovery boiler, it helps to increase the temperature of
the gas turbine exhaust gas, and thus the overall efficiency of the cogeneration installation. In case
the gas turbine is out of operation, these burners can assure steam generation by making use of cold
inlet air from the surrounding. The heat output per burner can range from 4 to 50 MW. These
burners function equally well on natural gas as well as liquid fuels (light or heavy fuel oil, residual
fuel) or in simultaneous mixed mode. Steam or compressed air assures pulverization of the liquid
fuel. The design based on the GRC LONOxFLAM technology, assures perfect flame stability, a
low-pressure drop and an excellent combustion with low emissions of unburnts and NOx, thus well
within the environmental pollution thresholds set by the regulation. When there is a combustion
zone in the boiler, it is possible to reduce the oxygen level in the exhaust gas to around three to four
per cent for further increasing the efficiency, while still maintaining the emission of pollutants lower
than the norms. For its operation with cold ambient air, the control flaps close a part of the recovery
section. While using heavy fuel oil, a suitable adaptation is necessary for limiting emissions. One of
the main features of the system is the mechanism for quick dismantling which allows to change the
burners during operation by opening the whole frame laterally within 15 minutes.

2.10 Research and Development on Cogeneration Technologies

There has been a steady rise in the efficiency of gas turbines and diesel engines. The inlet
temperature of a large size gas turbine has risen to 1,350?C and can be expected to reach 1,500?C in
the near future. The thermal efficiency of gas engines has been increasing thanks to an increase in
compression ratio, and the application of pre-chamber lean burn technologies. These improvements
have been made possible mainly due to the progresses made in cooling, heat-resist materials, turbo
machinery and combustion technologies. Various projects are ongoing to achieve rapid efficiency
improvements by the year 2000. These include development of ceramic gas engine and gas turbine
that require advanced technology related to ceramic science. To prove the concept, the Miller cycle
gas engine system is being developed which has a unique intake and exhaust timing mechanism that
allows to power generation efficiency exceeding 35 per cent.
In a ceramic gas engine, ceramic is used as the materials of the combustion chamber to allow an
advanced combustion. Similar to a thermos structure, air gap is provided and gaskets with low
thermal conductivity are placed between the ceramic and metallic parts to enhance the effect of
insulation. The wall temperature of the combustion chamber is maintained above 1,000?C, which
helps to reduce the heat transfer from the combustion gas to the wall. Such a structure eliminates the
need for a cooling system and renders the engine very compact. High efficiency is achieved by both
diesel cycle combustion and the energy recovery unit where exhaust energy from the heat insulation
is recovered and converted into electricity by a turbo compound system, an ultra high speed
generator, and a highly efficient converter. As for the ceramic gas turbine, the target is to develop
units having efficiencies of 42 per cent or more. The thermal efficiency of an Otto cycle engine is a
function of the difference between the maximum combustion temperature and the exhaust gas
temperature. The maximum combustion temperature in an engine increases with a higher
compression ratio while the exhaust gas temperature decreases with a lower expansion ratio. But the
compression and expansion ratios of an Otto cycle engine are the same and the engine is adjusted
for a lower compression ratio to avoid knocking. In a Miller cycle, the expansion ratio can be set
larger than the compression ratio by adjusting the intake timing, and this results in an improved
efficiency as well as improved durability due to the lower exhaust temperature. The gas injection
diesel engine can now attain an electrical efficiency of 45 per cent, which is the highest among
commercialized gas engines. The engine no longer requires pilot oil and glow plugs be used to
ignite natural gas ignited into the cylinder at 25 MPa. R&D efforts are also on going to develop
solid oxide fuel cells to exploit the excellent properties of ceramic materials and achieve
efficiencies in the range of 50 per cent. Once these technologies are commercialized, cogeneration
promotion can get a further boost as an energy saving and environmentally sound technology.

2.11 Cogeneration and the Environment

The high efficiency of cogeneration and efficient use of fuel guarantee a significant reduction of
CO2 emission. However, cogeneration can have environmental implications in the form of CO,
SO2 and NOx emissions to the atmosphere. The quantity of each of the pollutant generated depends
largely on the type of fuel used and the characteristics of the cogeneration technology adopted. CO
is a poisonous gas produced due to incomplete combustion and can be reduced to negligible levels
by assuring satisfactory air-fuel ratio control. SO2 is an acidic gas produced when sulphur-
containing fuels such as oil or coal are burned. Its emissions cause acid rain. Sulphur-containing
exhaust gases are the main cause of corrosion of heat recovery devices when the SO2 in the gas is
cooled below its condensation temperature. NOx is a mixture of nitrogen oxides produced due to
the combustion of a fuel with air, and its formation is a function of the combustion condition,
characterized by the air-fuel ratio, combustion temperature, and residence time. It also causes acid
rain and can result in ozone and smog after undergoing several chemical reactions in the
atmosphere. Technologies which have undergone rapid development are those based on spark and
compression ignition engines and gas turbines, primarily using natural gas as the fuel. Natural gas is
considered the cleanest among the fossil fuels as it does not practically contain any sulphur,
nitrogen and is free of dust particles. However, the emission of NOx is greater, particularly for the
prime movers operating at high temperatures. Appropriate designing of the combustion chambers
and control of the flame characteristic help to reduce NOx formation in engines and turbines.
Engine design alone cannot eliminate NOx formation. Moreover, efforts to reduce NOx emission
can lead to increase in CO emissions while adversely affecting the power output and efficiency.
Therefore, end-pipe NOx abatement technologies such as those based on catalytic reduction
systems must be applied to assure very low emission.

2.11.1 Gas engine

Technical options adopted to minimize emissions from gas engines are optimal combustion process
and flue gas cleaning. Lean-burn techniques are used for self-igniting engines using natural gas as
fuel. With high load pressure and excess air (typically, 35 to 60 per cent), NOx emission can be
reduced to 200 mg/m3, below the standards set by many industrialized countries. Flue gas can be
cleaned with a 3-way catalyst; as its name implies, NOx, CO and hydrocarbon emissions are
reduced. In order for it to function efficiently, a constant NOx-CO ratio needs to be maintained by
proper control of air-fuel ratio and ignition.

2.11.2 Gas turbine

Three commonly employed methods for eliminating NOx emissions from gas turbines are water or
steam injection, use of dry low NOx burners, and selective catalytic reduction. Water or steam
injection are well established techniques which boost the power output due to increased mass flow
rate in the turbine. These also help to lower the flame temperature and the partial pressure of
oxygen, thus inhibiting NOx formation. There is an upper limit to NOx reduction by this method
without affecting gas turbine performance. Beyond a certain injection rate of water or steam, there
is greater flame instability that leads to formation of CO and emission of unburned hydrocarbons.
More modern gas turbines make use of dry low-NOx systems instead of water or steam injection in
order to avoid the costs of treating and pressurizing water or producing high quality steam. The fuel
is mixed with combustion air to a homogeneous mixture in a mixing chamber before being sprayed
into the flame; this reduces the peak flame temperature and assures less NOx generation. Such
systems are effective at high loads but perform poorly at partial loads. Where the cogeneration
system is required to have a wide range of operating conditions, a hybrid design of low NOx
burners is employed which incorporates a small diffusion pilot flame for stabilizing flame at low
loads. At sites where stringent environmental standards are applied, selective catalytic converters
can be adopted as an end-of-pipe technique. A reducing agent, normally ammonia, is used to
convert NOx to nitrogen and water in the presence of a catalyst, the most common being vanadium
oxide.

2.11.3 Steam turbine

In steam turbine cogeneration systems, sulphur and nitrogen oxide emissions are important in oil-
fired boilers whereas particulate and nitrogen oxides have to be considered in wood-fired boilers.
As far as the boilers are concerned, technologically advanced equipment has been developed to
meet increasingly stringent environmental requirements. A significant development is the use of a
secondary combustion chamber where complete combustion of the unburned gases occurs. Better
monitoring of combustion parameters through adequate instrumentation has allowed the operator to
better regulate the combustion. Four types of emission control devices widely used in boiler
systems are electrostatic precipitation, fabric filters, multi-tube cyclones and wet scrubbers.
Chemical agents such as lime, magnesium oxide, etc., are used for flue gas desulphurization.
Commonly used techniques employed for NOx emission abatement in steam turbine cycles include
low NOx burners, selective catalytic reduction, flue gas recirculation, ammonia injection, etc.
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:
– heat-to-power ratio;
– quality of thermal energy needed;
– electrical and thermal energy demand patterns;
– fuel availability;
– Required system reliability;
– Local environmental regulations;
– dependency on the local power grid;
– option for exporting excess electricity to the grid or a third party, etc.
Some of these concerns are further elaborated below.
 Figure 3.1 Typical steps for cogeneration project development
A cogeneration system may be sized to meet either the electricity or the heat demand of the site.
When the local power utility allows selling excess electricity generated at the site, one should make
sure that the buy-back rate is attractive enough before over-sizing the cogeneration plant. As the
electrical and thermal loads of the site tend to vary with time, the cogeneration system may require
that any shortfall in the electricity supply be met by the purchase of electricity from the grid.
Likewise, any shortfall of thermal energy should be met by either post-combustion of exhaust gases
in the case of gas turbines or reciprocating engines, or from an auxiliary source such as a stand-by
boiler. These solutions will certainly have consequences on the annual average efficiency and the
economics of the project. The ideal operation would thus consist of the use of the maximum
electricity on site, while assuring continuous operation of the processes at nominal conditions and
avoiding the generation of excess thermal energy. If the thermal load is negligible or if it is required
to produce only low-pressure steam or to heat a fluid at low temperature, gas engine may be
preferred because of its higher efficiency. When opting for gas turbine, it is advisable to first verify
gas supply pressure. If the pressure of gas in the pipeline is low, it will necessitate additional
investment on the gas compression station. Moreover, some amount of electricity generated would
be diverted for running the compressor, and the operation and maintenance costs will be higher. The
availability of fuel, its price and guarantee of its long-term supply are the major factors determining
the choice of the prime movers. As prime movers can operate with different types of fuels, the
option for fuel switching should be taken into consideration. Designing of the cogeneration facility
at the initial stage should incorporate the possible evolution of future energy demand. This would
help in the appropriate choice of equipment and in planning the schedule for expanding capacity
according to the changes in need. Modern cogeneration plants are highly reliable and have a high
load factor; one cannot however ignore the occurrence of spages for scheduled maintenance or
unscheduled breakdown. There may be a need for back-up power to assure continuous operation of
activities at the site. One solution would be to provide stand-by generation capacity at the site,
which will increase the investment further. Alternatively, a stand-by contract may be signed with the
power utility so that electricity can be tapped from the grid up to the maximum contracted demand
whenever the cogeneration plant ss operating.

3.3 Key Parameters for Cogeneration Economic Analysis

Cogeneration may be considered economical only if the different forms of energy produced have a
higher value than the investment and operating costs incurred on the cogeneration facility. In some
cases, the revenue generated from the sale of excess electricity and heat or the cost of availing
stand-by connection must be included. More difficult to quantify are the indirect benefits that may
accrue from the project, such as avoidance of economic losses associated with the disruption in grid
power, and improvement in productivity and product quality. Following are the major factors that
need to be taken into consideration for economic evaluation of a cogeneration project:
1.initial investment;
2.operating and maintenance costs;
3.fuel price;
4.price of energy purchased and sold.
Initial investment is the key variable that includes many items in addition to the cost of the
cogeneration equipment. To start with, one should consider the cost of pre-engineering and
planning. Barring a few exceptional cases, the cogenerator would normally hire a consulting firm to
carry out the technical feasibility of the project before identifying suitable alternatives that may be
retained for economic analysis. If the cogeneration equipment needs to be imported, one should add
the prevailing taxes and duties to the equipment cost. If one plans to purchase cogeneration
components from different suppliers and assemble them on site, one should take into account the
cost of preparing the site, civil, mechanical and electrical works, acquiring of all auxiliary items
such as electrical connections, piping of hot and cold utilities, condensers, cooling towers,
instrumentation and control, etc. Table 3.1 provides an example of the breakdown of typical costs
for a 20 MWe gas turbine cogeneration plant.
Table 3.1 Cost breakdown (US$) of a 20 MWe gas turbine cogeneration plant

If cogeneration is being adopted as a retrofit at an existing site, the cost items will depend greatly
on the existing facilities, some of which may be retained while others are discarded, replaced or
upgraded. The cost of land may be a crucial factor at some sites where cogeneration facility is
commissioned, particularly in the case of urban buildings or when additional space is required for
storage and handling of fuel. Integration of the cogeneration plant into the existing set-up may lead
to some economic losses to the cogenerator (e.g. production downtime). Costs associated with such
losses should be included in the total project cost. The operating and maintenance (O&M) cost
should include all direct and indirect costs of operating the new cogeneration facility, such as
servicing, equipment overhauls, replacement of parts, etc. The cost of employing additional
personnel as well as their training needed for operating the new facility must also be taken into
account. Present technology allows complete automation of small pre-packaged and pre-engineered
units, helping to reduce the O&M costs considerably. Annual costs incurred due to the cogeneration
plant, such as the insurance fees and property taxes should be included in the analysis. These are
often calculated as a fixed percentage of the initial investment. Fuel costs may form the largest
component of the operating expenditures. If cogeneration is added to an existing plant, only the fuel
cost in excess of that used earlier for heat and power generation may be considered. Since the
cogeneration plant is expected to operate for a long time period, escalation of the fuel price over
time should be included in a realistic manner. The price of energy purchased and sold is a decisive
parameter. This includes the net value of electricity or thermal energy that is displaced as well as
any excess electricity or thermal energy sold to the grid or a third party. A good understanding of the
electric utility’s tariff structure is important, which may include energy charge and capacity charge,
time-of-use tariff, stand-by charges, electricity buy-back rates, etc. As for the fuel, there should be
provision to account for electricity price escalation with time. This is particularly true where power
utilities depend heavily on fuel in their power generation-mix.

3.4 Source of Financing of Cogeneration Projects

Cogeneration systems are capital intensive projects and the sources of capital financing can be an
important consideration in the investment analysis in which different sources may be used. It is
important, therefore, to know the rate of return for each alternative. The sources of capital financing
could be one of the following:
1.self financing: capital generated from cogenerator’s own activities;
2.borrowing: requiring certain equity and guarantee;
3.leasing: ownership maintained by the leasing company;
4.third-party financing: undertaken by an energy service company; and
5.facility management: reduction of energy bill for user with zero capital risk.
Self-financing can be in various forms, such as equity capital, depreciation fund and retained profit.
Equity capital is supplied and used by its owner in the expectation that a profit, of a minimum
acceptable level, will be earned. In equity financing, however, the owner has no assurance that a
profit will actually be made or that even the equity capital invested will be recovered. When the
funds that are set aside out of the revenue as the cost of depreciation are a part of the net cash flow,
these can be retained and used for capital financing of expansion projects like cogeneration. The
equipment may continue to be used after its original value has been recovered through normal
depreciation procedures. Hence the accumulated funds may be available for use until the original
equipment is actually replaced. Also, if the depreciation procedures used in accounting are such that
they provide large recoveries of the first costs during the first few years of equipment life, there will
usually be funds available before the equipment must be replaced. Thus, the depreciation funds may
provide a revolving investment fund that will become a source of capital for new ventures like
cogeneration. Obviously, the management of these funds must ensure the availability of required
capital when the time does come for replacement of essential equipment. Existing enterprises have
an important source of capital financing for expansion of activities, like setting up cogeneration
power plants, through retained profits. Normally a part of the profit earned by an enterprise is
retained after payment of adequate dividend to the shareholders, and this capital is then re-invested
for a further increase in profits. In reality, the enterprise concerned may prefer to save the capital for
financing its main activity that may present a smaller risk and can be a source of greater financial
profitability. As an alternative, borrowed financing may seem more attractive because the suppliers
of debt capital do not get a share of the profits accrued from the use of their capital. Here, a fixed
rate of profit, or value of money, must be paid to the supplier of the capital and the repayment of the
borrowed funds is negotiated on the basis of the amount borrowed, duration, and the interest rates.
Normally, the terms of the borrowed financing (loan) may place some restrictions on the uses to
which the funds may be put. Moreover, any amount borrowed will require a certain percentage of
equity investment and guarantees may be required in the forms of mortgages or securities. Leasing
is only one of the several ways of obtaining working capital and a decision to lease, rather than
purchase, should be based upon the cost of capital financing by other possible methods, some of
which have been described above. The leasing company guarantees full financing of the
cogeneration plant, which remains its owner till the user buys it back according to the conditions of
the contract. Most leases cannot be cancelled, or cancelled by incurring costly penalties, whereas
borrowed financing works on some fixed obligations and may provide better terms. Some indirect
costs, which are difficult to determine in most cases, are associated with the ownership that may not
apply to the equipment under lease. In many cases, leasing turns out to be cheaper than owning, but
the actual comparative costs and all other factors must be considered before a decision is taken. An
Energy Service Company (ESCO) often does third party financing which, after preliminary analysis
of the requirement of the client and feasibility study of the cogeneration project, implements the
project in agreement with the client. When the ESCO covers the whole cost of financing the project,
it is repaid by sharing the actual savings realized according to a predetermined contract. Accurate
measurement of the actual monetary saving is essential to assure fairness to the ESCO as well as the
client. Here, the client does not have to investment in the cogeneration project and starts getting
benefits from the day the cogeneration plant is in operation. The concept of facility management is
not very different from third party financing, except that the facility manager does more than an
ESCO in meeting practically all the requirements of the site which are not directly involved with the
main line of activity of the client. For example, a facility management firm can assure the supply of
all utilities including electricity, steam, compressed air, water, etc., to the client, while also handling
the wastes or effluents generated from the production process. This firm signs a contract with the
client to meet the present and future requirements of the site and invests in the development of
infrastructure and undertakes to operate and maintain it. By adopting innovative schemes such as
cogeneration, sizing the components appropriately, operating the facility reliably and maintaining it
efficiently, the facility management firm manages to reduce the overall cost considerably. Moreover,
a part of the benefits accrued is shared with the client in the form of reduced bill. Facility
management is normally feasible for bigger clients or where one firm can cater to the needs of
several clients in the same locality. Then it becomes economical to make investment on a bigger
facility and employing a limited number of personnel who can deal with several clients at the same
time.