Cogeneration: the Solution for Rising Industrial Costs

Cogeneration offers major economic and environmental benefits as it turns otherwise wasted heat into a useful energy source. This greater efficiency means carbon dioxide emissions are reduced by up to twothirds when compared with conventional power stations. IECEL is a Mexican company that focuses on the operation, maintenance and regulatory framework compliance of cogeneration plants, mainly through gas turbines and natural gas internal combustion engines. “Cogeneration has always offered the opportunity to fulfill all heating and electrical energy needed in industrial processes,” claims Enrique Morales, General Manager of IECEL. “It also provides a great opportunity for the industrial sector to lower its costs.” On the other hand, the company offers energy advisory services in areas such as interconnection contract revisions, agreements with CFE, supply and distribution of natural gas, energy sale contracts, and maintenance contracts with specialized suppliers like GE or Caterpillar. Morales explains that IECEL runs diagnostics for cogeneration and self-supply plants and evaluations for potential cogeneration projects.

Changes in CRE regulations concerning cogeneration have led to the creation of a cogeneration efficiency certification for projects that meet minimum efficiency standards. The modifications to the legal framework allow for capacity recognition, usage of energy, and more feasible transmission costs, which has led to an optimistic outlook for the sector according to Morales. “Cogeneration is on the right track but we are still missing the right approach to obtain more competitive prices for cogeneration equipment, such as turbines or motors, which could impact the profitability of projects,” Morales says. In his opinion, the federal government could work with manufacturers and producers, or establish commercial agreements with European or US players, to ensure more affordable prices. This would be especially helpful for smaller projects in which achieving profitability is more complicated, due to the fixed costs they need to cover such as engineering, permits and installation. “Potential cogeneration projects on Mexico are in the range of 10MW and below, which is exactly where costs and services start to be competitive. Projects of more than 10MW are more profitable,” claims Morales. IECEL has been behind some of Mexico’s first and most successful cogeneration projects such as Italaise (which has an installed capacity of 5.2MW) and Fermicaise (5MW), both of which have been up and running for over a decade with good results. Morales explains that cogeneration in Mexico has been being developed for approximately 14 years, and has benefited from the price of gas remaining competitive. Another essential aspect is the fact that cogeneration equipment is not very expensive, making investments affordable and allowing companies to expect a rapid ROI. Cogeneration projects enable a direct savings on a company’s electricity bill, which in turn raises its competitiveness, says Morales. “The reductions vary from project to project. Cogeneration is like a tailor-made suit. If it fits you, the reduction is big but if it is not used properly, the reduction is smaller,” states Morales. “These savings can fluctuate from 10% to 40%.”

The two things that the Energy Reform will bring to the cogeneration sector, in Morales’ opinion, is greater certainty in the supply of energy resources and the construction of required infrastructure. Once the energy sector opens up following the Energy Reform, it will bring the possibility for companies to enter energy generation projects with greater strength. Another basis for Morales’ confidence is the National Energy Strategy, which outlines a planned increase of 30GW in generation capacity and an increase in the proportion of natural gas in the energy mix to 72% by 2027. This will directly translate into more opportunities for all sectors that need a higher supply of gas. Another reason for this optimism is the support renewables are seeing from the current administration. Morales also expects the Mexican economy to return to a healthy growth rate, which means that power generation projects that were put on standby in recent years, given the lack of certainty regarding energy generation and consumption outlook, will be back on the table.

IECEL does not intend to rest on its laurels. Once the cogeneration sector matures, Morales says the firm will diversify its operations into renewables. “We have experience with permits and energy infrastructure management so we could operate a small solar or biomass plant, even a solid urban waste plant. However, we might enter these areas by providing consulting services first. We would need a technical partner, similar to the one we already have in biomass and biogas,” he points out. Nevertheless, Morales warns that before renewables are considered, the right balance must be struck for cogeneration, bringing together a complex mix of regulation, technical knowledge and human capital. “For that, there needs to be more support from all levels of government for cogeneration projects,” he says.