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ALTERNATIVE POWER SOURCES
The Potential For Cogeneration in Ontario's Open Market
By Tania Henvey
Power plants that produce energy with traditional coal, oil or natural gas usually only convert one-third of the power into electricity, while the remainder is unusable. But instead of losing this energy, it is possible to turn it into something practical through another resource.
Cogeneration, also known as "combined heat and power" in Europe, is a means of generating heat and electric power at the same time, from the same energy source. Heat or steam that is normally lost from the combustion of fuel is recovered and used in heating buildings or other industrial processes. It can increase the efficiency of a fossil fuel from an average of 40 per cent to over 80 per cent, which can mean lower costs and less pollution than if both were created separately.
Cogeneration has been in use for over a century, but has only become popular in North America over the past twenty years or so. Lower gas prices in the 1980s made cogeneration the best alternative power source. It also played a large role in decreasing the construction of nuclear and hydraulic plants (which accounted for over half of the new power plants built in the last decade).
The Success of Cogeneration
A couple of years ago, the Ontario government released a report detailing cogeneration in the province. The "Potential for Cogeneration in Ontario - Final Report" was prepared for the Ministry of Energy, Science and Technology in August 2000, detailing the need to understand opportunities and challenges of cogeneration in the deregulated electricity market. It was believed that cogeneration would become a popular method of generating electricity, when the market opened in May 2000, since natural gas is the energy choice in the industrial sector (almost double that of electricity).
If cogeneration could serve to heat these industries, it would replace natural gas, and the electricity could be sold in the marketplace.
"An Ontario Hydro survey in the 1980s found that 46 per cent of energy use in the office sector came in buildings with more than 200,000 square feet. The analysis assumed that such buildings would be candidates for cogeneration," according to the Ontario report.
The success of cogeneration is dependent upon factors such as the price of natural gas, the capital cost of the equipment and the price of displaced electricity. As technology becomes less expensive, and the industrial sector expands, cogeneration should mean economic growth.
"The current economic potential (of cogeneration) is about 23 per cent of technical potential. In the base case, the fraction of total technical potential that is economic was assumed to increase by about 0.5 per cent per year to 2008, and by one per cent from then to 2010. The proportion of economic cogeneration is expected to increase due to lower costs of cogeneration and increasing electricity prices," according to the Ontario report.
As cogeneration becomes more efficient to produce, through an increase in demand, it could lead to lower costs for such things as equipment.
Previous to the deregulated market, it was easy to estimate profitability since the price of electricity was fixed. Now with an open market, the prices are constantly changing, based on market forces.
"For this report, the cogeneration potential estimates will consider two extremes of the resolution of the pricing issue: potential if the cogeneration must compete with the wholesale electricity price, and potential if the cogeneration competes with the delivered retail price," reads the Ontario report.
It goes on to note that those who are participating in cogeneration should be able to take advantage of price volatility. If they have flexible systems, they should be able to operate only during the hours when the spot electricity wholesale price is above their production costs. This means that cogenerators must be able to meet steam or heat loads, or shut down when the market prices are low.
"Installing cogeneration can reduce a company's exposure to gas prices or raise it, depending on how fuel supply contracts are handled and on what the non-cogeneration electricity supply options are. It can also reduce a company's exposures to extremes of electricity market prices," says the Ontario report.
Gas prices must also be factored in to determine what they mean to this type of energy production. These prices could affect the market for cogeneration and the renumeration charged for it, depending on the fee being charged for gas at the time.
District Heating Systems
One of the largest benefits of cogeneration is that the steam produced can be used to heat large areas. A district heating system transfers steam to multiple secondary buildings via a system of steam or hot water pipes, capturing the heat for space heating.
"For some companies, the value of the increased reliability may make cogeneration economic even if its monetary cost is higher than that of central supply," reads the Ontario report.
This is because cogeneration makes efficient use of the primary energy supply over other means of generation.
The Environment
Ontario is the third largest producer of coal-fueled electricity in the country, and this fuel source is the largest producer of greenhouse gas (GHG) emissions. Cogeneration is environmentally friendly. When it replaces traditional generation sources, it reduces GHG emissions and toxins such as carbon dioxide and sulphur dioxide, both of which are pollutants that contribute to global warming and produce acid rain.
If Canada signs the Kyoto Protocol, something will need to be done in relation to the environment. By signing this agreement, Canada must, "reduce its GHG emissions to six per cent below their 1990 levels by the 2008 to 2012 time period," according to the Ontario report. By introducing cogeneration, this is an effective way of reducing GHG emissions and other pollutants caused by other methods of generation.
Geographic Locations Of The Plants
Cogeneration plants tend to be smaller than their counterparts and must be built close to the primary user of the electricity. This means there are fewer transmission losses, stray currents and need for distribution equipment. In addition, because they are usually built close to highly populated areas, they are held to stricter pollution controls. On the down side, this means that plants which have been built outside of high density areas cannot be used for cogeneration since they are too far from the source. Unless there are industries near the plant to take advantage of the steam, it will be wasted.
Is Plant Size Important?
Cogeneration plants can be different sizes -- smaller generators use a variety of technologies, while gas turbines usually power those of a larger scale.
Although it used to be believed that bigger was better, cogeneration has changed that theory. There are benefits of smaller plants: they can be built in a much shorter time span; it is less likely that an energy reserve will be needed; and these plants most likely will not go down at the same time. The residential sector would be a good place for smaller units, but they are rarely used since there isn't a high demand for power.
However, it is believed that hospitals, office buildings and condominiums often have enough demand for space heating and hot water to be powered by a small cogeneration plant. Perhaps that will be the case in the future.
"Most of the large-scale (above 50MW) applications of cogeneration relate to industrial steam hosts. Only a few industries are large enough and need enough process steam or heat to create a possibility of applications on this scale. Examples include forest products, iron and steel making, chemicals and refineries," reads the Ontario report.
The pulp and paper industry in Canada seems ideal for cogeneration because of the need for both electricity and steam. It has been estimated that in Ontario, this industry could generate about 300MW of electricity from wood waste and steam, according to an article, "Energy Facts: Cogeneration," by Stuart Baird.
Investment in the Energy Source
In order to meet demand, cogeneration plants may wish to purchase electricity from an external supplier. But this might cause problems for investors.
"While the actual cost of the additional electricity would presumably be at a competitive rate for the amount purchased, stakeholders are concerned that the transmission and distribution charges could be set so high that they prohibit investment in the cogeneration facility," concludes the Ontario report.
Stakeholders are reluctant to invest in this type of energy at the current time because regulatory treatment of the energy production has not been settled and there are reservations surrounding the generation. For example, questions need to be cleared up regarding transmission and distribution tariffs, and environmental approvals and requirements.
Following a workshop for the Ontario report, it was noted that it was important to specify generation prices and transmission and distribution tariffs separately, to create investment potential.
Conclusion
Cogeneration is a reliable energy source because it provides power even when the transmission or distribution system fails. Currently, many power outages are a result of the electrical distribution system or the transmission system, which wouldn't be a problem with cogeneration. In addition, the heat produced can be used for industrial purposes, instead of it being lost.
In the United States, there is legislation that forces utilities to purchase electricity from cogeneration plants. Perhaps that is the way of the future in Canada, especially in the provinces where electricity deregulation, and its uncertain prices, have taken hold of the market.
If you wish to read more about the report released by the Ontario government, "Potential for Cogeneration in Ontario - Final Report," the full document is at http://www.est.gov.on.ca/english/PDF/CogenerationFinalReport.pdf. ET
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