Factors Affecting Industry's Decision To Cogenerate

by Ron Hess, J. J. Turner, W. H. Krase, Richard Y. Pei


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Presents the results of an analysis of the technical and economic factors that influence an industrial manufacturing firm's decision to engage in cogeneration. The study considers the influence of industry characteristics, fuel costs, and government regulations. In general, cogeneration is a financially attractive option. Electrical power from a cogenerating plant can be produced relatively cheaply and in most cases can be made more cheaply than (1) the current median U.S. industrial rate (approximately 50 mills/kWh), and (2) that possible from a new central station steam plant (40+ mills/kWh). Furthermore, the real, after-tax rate of return for all but a very few of the cases analyzed exceeded 10 percent. The study shows that cogeneration is most financially attractive for industrial plants with large process steam requirements that operate 24 hours a day year-round. However, for small industrial plants with lower load factors, the financial attractiveness of cogeneration is heavily influenced by the level of credit available through the Public Utility Regulatory Policies Act of 1978.

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