Avoided Costs

The costs avoided by a utility when a cogeneration plant displaces generation capacity and/or fuel usage are the basis to set the rates paid by utilities for co-generated power sold back to the utility grid. in some circumstances, the actual rates may be higher or lower than the avoided costs, depending on the need of the utility for additional power and on the outcomes of the negotiations between the parties involved in the cogen-eration development process.

All utilities are now required by PURPA to provide data regarding present and future electricity costs on a cent-per-kWh basis during daily, seasonal, peak and off-peak periods for the next five years. This information must also include estimates on planned utility capacity additions and retirements, and cost of new capacity and energy costs.

Tuttle (1980) points out that utilities may agree to pay greater price for power if a cogeneration facility can:

• Furnish information on demonstrated reliability and term of commitment.

• Allow the utility to regulate the power production for better control of its load and demand changes.

• Schedule maintenance outages for low-demand periods.

• Provide energy during utility-system daily and seasonal peaks and emergencies.

• Reduce in-house on-site load usage during emergencies.

• Avoid line losses the utility otherwise would have incurred.

in conclusion, a utility is willing to pay better "buyback" rates for cogenerated power if it is short in capacity, if it can exercise a level of control on the CHP plant and load, and if the cogenerator can provide and/ or demonstrate a "high" system availability.

PURPA further states that the utility is not obligated to purchase electricity from a QF during periods that would result in net increases in its operating costs. Thus, low demand periods must be identified by the utility and the cogenerator must be notified in advance. During emergencies (utility outages), the QF is not required to provide more power than its contract requires, but a utility has the right to discontinue power purchases if they contribute to the outage.

7.4.4 Other Regulations

Several U.S. regulations are related to cogenera-tion. For example, among environmental regulations, the Clean Air Act may control emissions from a waste-to-energy power plant. Another example is the regulation of underground storage tanks by the Resource Conservation and Recovery Act (RCRA). This applies to all those cogenerators that store liquid fuels in underground tanks. Thus, to maximize benefits and to avoid costly penalties, cogeneration planners and developers should become savvy in related environmental matters.

There are many other issues that affect the development and operation of a cogeneration project. For further study, the reader is referred to a variety of sources such proceedings from the various World Energy Engineering Congresses organized by the Association of Energy Engineers (Atlanta, GA). Other sources include a general compendium of cogeneration planning considerations given by Orlando (1990), and a manual-developed by Spiewak (1994)—which emphasizes the regulatory, contracting and financing issues of cogenera-tion.

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