Industrial Use of Cogeneration Under Marginal Cost of Electricity Pricing in Sweden

This study uses Sweden's current experience with industrial cogeneration to gain insights into the future of industrial cogeneration in the United States. It concentrates on pricing issues, using the effects of Sweden's current form of marginal cost electricity pricing to draw inferences about the likely effects of future marginal cost pricing in the United States. The study finds that the use of true marginal costs in pricing can profoundly affect the type of cogeneration and, more generally, the type of self generation that industry chooses; the way industry uses cogeneration over time; and the form of cooperative arrangements industry enters to exploit cogeneration. The study uses data from the Swedish pulp and paper, iron and steel, chemical, food processing, and other industries to document those effects. It concludes with a set of hypotheses about the implications of these findings for U.S. policy on electricity pricing and industrial cogeneration.