CEDM News: “Distributed cogeneration for commercial buildings? Can we make the economics work?” recently published by Siler-Evans, Azevedo, and Azevedo
In “Distributed cogeneration for commercial buildings? Can we make the economics work?” by K. Siler-Evans, G. Morgan, and I. Azevedo, the authors evaluate strategies for making cogeneration more economically attractive, either by increasing the expected returns or decreasing the risks of such investments. Results show that (1) there is an incentive to overcommit in the capacity market due to lenient non-response penalties, (2) there is significant revenue potential in the regulation market, though demand-side resources are yet to participate, (3) a price on CO2 emissions will make cogeneration more attractive relative to conventional, utility-supplied energy, and (4) accelerated depreciation is an easy and effective mechanism for improving the economics of cogeneration. The authors argue that uncertainty in future fuel and electricity prices presents a significant risk to cogeneration projects. Results show that feed-in tariffs with fixed electricity payments does not effectively reduce this risk. A two-part feed-in tariff, with an annual capacity payment and an energy payment that adjusts with fuel costs, can eliminate energy-price risks.