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Analysis

Market Price Hinders the Future of Cogeneration

Wed, 02/19/2014 - 12:08

The 2013-2027 National Energy Strategy emphasizes the importance of cogeneration, a process in which electricity and useful heat are simultaneously generated using the same fuel. A similar process, trigeneration, simultaneously generates electricity, useful heat and cooling. Cogeneration systems have been used in Mexico since the 1990s, although mostly in individual industrial applications with an energy demand of over 1MW.

The main factors motivating the use of this technology are Mexico’s high electricity costs, especially in the commercial sector, and the relatively low fuel prices. Although most energy sources can be used for cogeneration, natural gas has proven the most popular source on the market. One of the greatest advantages of cogeneration is that energy is produced close to the consumption point, thus avoiding changes in voltage and long distance deployment, which are responsible for energy losses. In Mexico, cogeneration users enjoy independence from the grid and the stable availability of electricity and heat, in addition to reducing the release of greenhouse gases into the atmosphere. However, the advantage of local generation is offset by the inability to transmit that energy anywhere.

Cogeneration’s fundamental principle is the recovery of residual heat, a byproduct of combustion, in an energy generation plant. In trigeneration the residual heat is used for absorption refrigeration. Usually, said residual heat would be released into the atmosphere, wasting an important source of available energy. Cogeneration’s expelled heat can be used for thermal or refrigerating processes as well as heating water near the plant. Because residual heat is used, cogeneration turns 75-80% of the fuel source into useful energy. The average efficiency rates in traditional plants using fossil fuels is 35-37%, while combined cycle plants reach efficiency rates slightly above 50%. The advantages that cogeneration provides when speaking of energy efficiency thus become self-evident.

These advantages have already been noticed and used around the world. For example, the US currently draws 8% of its energy from combined heat and power solutions. The Department of Energy has set the goal of raising that figure to 20% by the year 2030. To meet this target, eight clean energy application centers have been established across the US. Mexico has promoted the implementation of cogeneration projects in order to achieve maximum energy efficiency, reduce fossil fuel consumption, and avoid greenhouse gas emissions. The installation of cogeneration plants does not require subsidies, according to SENER, and its penetration is explained by the technology’s economic and energy efficiency. Attractive gas prices also incentivize the substitution of oil fuel plants. However, several structural limitations should be addressed, such as uncertainty regarding the value of energy surplus resulting from cogeneration.

A 2009 study done by CONUEE and GIZ concludes that the national potential for cogeneration is divided among three important sectors: sugar mills, PEMEX, and other industries. The latter category is rather ambiguous, but SENER mentions the cardboard, cellulose, paper and food industries as being particularly prone to benefit from this energy production method. A significant interest in these systems can be observed in hospitals, hotels, malls and small and medium-sized businesses. Hospitals benefit from trigeneration because its final products are electricity for illumination and air conditioning, while heat is used for hot sanitary water and laundry purposes. Hotels reduce costs by using cogeneration for illumination, elevators and air conditioners. If full economic feasibility is taken into account, CONUEE has calculated that the maximum exploitable potential for cogeneration in Mexico is 10,164MW.

Cogeneration is of particular interest to PEMEX. Mexico’s state owned oil company consumes 9% of the country’s energy and is therefore the primary client of cogeneration projects. The Nuevo Pemex Gas Processing Complex, located in Tabasco, is an important step in PEMEX’s path to self-sufficiency. It produces 300MW of electricity and up to 800 tonnes of vapor. The plant’s production is equal to 11.2% of Mexico’s total electricity from cogeneration installations. As for micro-cogeneration, small-scale cogeneration and trigeneration, their implementation has been less generalized due to a lack of definition and certainty regarding legislation, technology costs, energy costs, low efficiency in small capacity plants and users’ lack of knowledge about the benefits of these systems. These systems are mainly used in hotels, hospitals, and commercial settings and their respective installed capacities varies between 240kW and 3,600kW, out of an estimated potential of 1,671MW.

According to various polls, most project developers do not follow through when the return on investment takes longer than five years. Limitations in the availability of natural gas also deter users from implementing cogeneration systems. Micro and small cogeneration and trigeneration projects could see an increase in profitability in Mexico if the excess energy could be sold at a reasonable market price, either to CFE or to third parties.