With mounting concerns about power prices, grid security and climate change, cogen (a.k.a. “CHP” for combined heat & power) is seen as a way to address multiple problems at the same time.
So what is cogen? Creating conventional electricity starts with heating water into steam, which then drives a turbine to produce electricity. The heat comes from sources such as nuclear, natural gas and coal. After the steam has driven the turbine, it reverts to hot water. In traditional processes, only about 35% to 40% of the input energy becomes electric energy, and the rest goes to waste.
By capturing that expelled heat for productive purposes, cogeneration dramatically increases the useful energy that is extracted from the input fuel.
Cogen is an appealing prospect for many companies. New natural gas cogen technology is small enough to fit into factory floors and even utility rooms. Cogen units can meet operational needs for heat, power and process-related CO2 requirements. They may reduce electricity costs or compensate for inadequate grid connections to a site.
But hold on... cogen isn’t always the best investment.
Here are some critical considerations for Ontario utility customers:
What are the Global Adjustment implications? Typically, a cogen investment is evaluated against all transmission, distribution and energy costs for electricity delivered to the site. This is still a valid method, but may not be sufficient. Ontario has lowered the threshold for participation as a Class A customer in the Global Adjustment program, which has changed the rate structure for many electricity customers.
Cogeneration projects should be evaluated against other actions that could specifically impact GA costs. If your site is already a “Class A” customer, cogeneration might lower your peak demand below the Class A threshold, thereby eliminating your ability to qualify for the more favourable and controllable Class A rates.
What are the Cap & Trade implications? Increasing your natural gas use will drive up site-based emissions and associated carbon costs. Small consumers will just pay for the associated costs through their utility while others—whose emissions rise above the Cap & Trade participation thresholds—may be able to access free carbon allowances to mitigate those costs.
Those already participating in Cap & Trade may find that new cogen negatively impacts their access to free allowances for at least part of the compliance period. If you are uncertain about the implications, expert advice could be very valuable.
What are the climate impacts? The Ontario electricity grid has very few carbon emissions compared to grids in other jurisdictions. For this reason, reducing grid electricity use and replacing it with onsite natural gas generation may hinder an Ontario site’s ability to meet carbon emission reduction targets. This may not be the case elsewhere. Conversely, for sites with processes that require CO2 and heat, as well as electricity, a cogen project could accelerate the achievement of corporate climate targets.
What other goals will you achieve? Power interruptions from the grid may be expensive. Power quality could be a key consideration. Cogeneration may mitigate other risks for you beyond the cost of electricity.
Effective energy management pays attention to both the energy you use as well as the cost. Evaluating a potential cogeneration investment is an excellent case example of why both energy cost and usage patterns must be taken into account.
To cogen or not to cogen... the choice is yours. By asking the right questions to get the best answers, you can come to a decision that’s right for your organization.
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James Williams is 360 Energy’s resident Cap & Trade expert, and our market and energy use analyst since 2013. He works extensively on evaluating business cases for onsite electricity generation and storage. Bob Hawkesworth has extensive experience in the areas of environment, energy and climate action, as well as government relations, risk management and community engagement. He is the former coordinator for the Municipal Climate Change Action Centre, and has served as an alderman with the City of Calgary and as an Alberta MLA. He is currently the principal of Hawkesworth Strategies and consults regularly to 360 Energy. For more information, visit www.360energy.net.