Electric utility forecasting of customer cogeneration and the influence of special rates

Abstract

Cogeneration, or the simultaneous production of heat and electric or mechanical power, emerged as one of the main components of the energy conservation strategies in the past decade. Special tax treatment, exemptions from fuel use restrictions, and regulatory policy changes were crafted to encourage its more wide-spread adoption in anticipation of higher energy conversion efficiencies. The expansion of cogeneration still faces a broad spectrum of problems, current and future: environmental restrictions; capital constraints; fuel prices; utility rates and future utility economics; and the difficulties of management.

The most debated issue has been the reform of rates between individual cogenerators and the local electric utility. Many of the major cogeneration studies in the late 1970's urged an analysis of the exact impact from current electric utility rates upon cogeneration project economics (1,2,3). The changes mandated by the Public Utilities Regulatory Policy Act of 1978 (PURPA) are now reaching the final implementation stage and the cogeneration projects of the mid- 1970s are nearing completion. To better understand the relationship between utility rates, the economics of cogeneration, and its potential development, the New England Electric System and the Massachusetts Institute of Technology Energy Laboratory Utility Systems Group began a study to refine methods for forecasting cogeneration in a specific utility service area with special attention devoted to the utility rates (4).

This paper surveys the insights gained from this effort, which is now nearing completion. Many of the central issues reflect conditions in New England, but this analysis should provide an approach for examining the question in other regions as well. Since the project has not undergone complete review, however, this paper reflects the opinions of the author alone.