IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v42y2012icp580-590.html
   My bibliography  Save this article

Distributed cogeneration for commercial buildings: Can we make the economics work?

Author

Listed:
  • Siler-Evans, Kyle
  • Morgan, M. Granger
  • Azevedo, Inês Lima

Abstract

Although the benefits of distributed cogeneration are widely cited, adoption has been slow in the United States. Adoption could be encouraged by making cogeneration more economically attractive, either by increasing the expected returns or decreasing the risks of such investments. We evaluate the expected returns from demand response, capacity markets, regulation markets, accelerated depreciation, pricing CO2 emissions, and net metering. We find 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. We go on to argue that uncertainty in fuel and electricity prices present a significant risk to cogeneration projects, and we evaluate the effectiveness of feed-in tariffs at mitigating these risks. We find that guaranteeing a fixed electricity payment is not effective. 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.

Suggested Citation

  • Siler-Evans, Kyle & Morgan, M. Granger & Azevedo, Inês Lima, 2012. "Distributed cogeneration for commercial buildings: Can we make the economics work?," Energy Policy, Elsevier, vol. 42(C), pages 580-590.
    • Handle: RePEc:eee:enepol:v:42:y:2012:i:c:p:580-590
    DOI: 10.1016/j.enpol.2011.12.028
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421511010342
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2011.12.028?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Strachan, Neil & Farrell, Alexander, 2006. "Emissions from distributed vs. centralized generation: The importance of system performance," Energy Policy, Elsevier, vol. 34(17), pages 2677-2689, November.
    2. Strachan, Neil & Dowlatabadi, Hadi, 2002. "Distributed generation and distribution utilities," Energy Policy, Elsevier, vol. 30(8), pages 649-661, June.
    3. Crane, Keith & Curtright, Aimee E. & Ortiz, David S. & Samaras, Constantine & Burger, Nicholas, 2011. "The economic costs of reducing greenhouse gas emissions under a U.S. national renewable electricity mandate," Energy Policy, Elsevier, vol. 39(5), pages 2730-2739, May.
    4. Lemar, Paul L., 2001. "The potential impact of policies to promote combined heat and power in US industry," Energy Policy, Elsevier, vol. 29(14), pages 1243-1254, November.
    5. Walawalkar, Rahul & Fernands, Stephen & Thakur, Netra & Chevva, Konda Reddy, 2010. "Evolution and current status of demand response (DR) in electricity markets: Insights from PJM and NYISO," Energy, Elsevier, vol. 35(4), pages 1553-1560.
    6. Carley, Sanya, 2009. "Distributed generation: An empirical analysis of primary motivators," Energy Policy, Elsevier, vol. 37(5), pages 1648-1659, May.
    7. Allison, Juliann Emmons & Lents, Jim, 2002. "Encouraging distributed generation of power that improves air quality: can we have our cake and eat it too?," Energy Policy, Elsevier, vol. 30(9), pages 737-752, July.
    8. Mitchell, C. & Bauknecht, D. & Connor, P.M., 2006. "Effectiveness through risk reduction: a comparison of the renewable obligation in England and Wales and the feed-in system in Germany," Energy Policy, Elsevier, vol. 34(3), pages 297-305, February.
    9. Costa, Paulo Moisés & Matos, Manuel A. & Peças Lopes, J.A., 2008. "Regulation of microgeneration and microgrids," Energy Policy, Elsevier, vol. 36(10), pages 3893-3904, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Espirito Santo, Denilson Boschiero do & Gallo, Waldyr Luiz Ribeiro, 2017. "Utilizing primary energy savings and exergy destruction to compare centralized thermal plants and cogeneration/trigeneration systems," Energy, Elsevier, vol. 120(C), pages 785-795.
    2. Ahn, Hyeunguk & Freihaut, James D. & Rim, Donghyun, 2019. "Economic feasibility of combined cooling, heating, and power (CCHP) systems considering electricity standby tariffs," Energy, Elsevier, vol. 169(C), pages 420-432.
    3. Teng, Jiaying & Wang, Wan & Mu, Xiaofei, 2020. "A novel economic analyzing method for CCHP systems based on energy cascade utilization," Energy, Elsevier, vol. 207(C).
    4. Dominik Kryzia & Marta Kuta & Dominika Matuszewska & Piotr Olczak, 2020. "Analysis of the Potential for Gas Micro-Cogeneration Development in Poland Using the Monte Carlo Method," Energies, MDPI, vol. 13(12), pages 1-24, June.
    5. Deetjen, Thomas A. & Vitter, J. Scott & Reimers, Andrew S. & Webber, Michael E., 2018. "Optimal dispatch and equipment sizing of a residential central utility plant for improving rooftop solar integration," Energy, Elsevier, vol. 147(C), pages 1044-1059.
    6. Zheng, C.Y. & Wu, J.Y. & Zhai, X.Q. & Wang, R.Z., 2016. "Impacts of feed-in tariff policies on design and performance of CCHP system in different climate zones," Applied Energy, Elsevier, vol. 175(C), pages 168-179.
    7. Tataraki, Kalliopi G. & Kavvadias, Konstantinos C. & Maroulis, Zacharias B., 2018. "A systematic approach to evaluate the economic viability of Combined Cooling Heating and Power systems over conventional technologies," Energy, Elsevier, vol. 148(C), pages 283-295.
    8. Capuder, Tomislav & Mancarella, Pierluigi, 2014. "Techno-economic and environmental modelling and optimization of flexible distributed multi-generation options," Energy, Elsevier, vol. 71(C), pages 516-533.
    9. Antonio Piacentino & Roberto Gallea & Pietro Catrini & Fabio Cardona & Domenico Panno, 2016. "On the Reliability of Optimization Results for Trigeneration Systems in Buildings, in the Presence of Price Uncertainties and Erroneous Load Estimation," Energies, MDPI, vol. 9(12), pages 1-31, December.
    10. Miao Li & Hailin Mu & Huanan Li, 2013. "Analysis and Assessments of Combined Cooling, Heating and Power Systems in Various Operation Modes for a Building in China, Dalian," Energies, MDPI, vol. 6(5), pages 1-22, May.
    11. Cappa, Francesco & Facci, Andrea Luigi & Ubertini, Stefano, 2015. "Proton exchange membrane fuel cell for cooperating households: A convenient combined heat and power solution for residential applications," Energy, Elsevier, vol. 90(P2), pages 1229-1238.
    12. Lin, Haiyang & Liu, Yiling & Sun, Qie & Xiong, Rui & Li, Hailong & Wennersten, Ronald, 2018. "The impact of electric vehicle penetration and charging patterns on the management of energy hub – A multi-agent system simulation," Applied Energy, Elsevier, vol. 230(C), pages 189-206.
    13. Garcez, Catherine Aliana Gucciardi, 2017. "What do we know about the study of distributed generation policies and regulations in the Americas? A systematic review of literature," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 1404-1416.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carley, Sanya, 2009. "Distributed generation: An empirical analysis of primary motivators," Energy Policy, Elsevier, vol. 37(5), pages 1648-1659, May.
    2. López-González, A. & Domenech, B. & Ferrer-Martí, L., 2018. "Lifetime, cost and fuel efficiency in diesel projects for rural electrification in Venezuela," Energy Policy, Elsevier, vol. 121(C), pages 152-161.
    3. Wouters, Carmen & Fraga, Eric S. & James, Adrian M., 2015. "An energy integrated, multi-microgrid, MILP (mixed-integer linear programming) approach for residential distributed energy system planning – A South Australian case-study," Energy, Elsevier, vol. 85(C), pages 30-44.
    4. Mancarella, Pierluigi & Chicco, Gianfranco, 2009. "Global and local emission impact assessment of distributed cogeneration systems with partial-load models," Applied Energy, Elsevier, vol. 86(10), pages 2096-2106, October.
    5. Mallikarjun, Sreekanth & Lewis, Herbert F., 2014. "Energy technology allocation for distributed energy resources: A strategic technology-policy framework," Energy, Elsevier, vol. 72(C), pages 783-799.
    6. Chicco, Gianfranco & Mancarella, Pierluigi, 2009. "Distributed multi-generation: A comprehensive view," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(3), pages 535-551, April.
    7. Miguel Pérez de Arce and Enzo Sauma, 2016. "Comparison of Incentive Policies for Renewable Energy in an Oligopolistic Market with Price-Responsive Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    8. Chicco, Gianfranco & Mancarella, Pierluigi, 2007. "Trigeneration primary energy saving evaluation for energy planning and policy development," Energy Policy, Elsevier, vol. 35(12), pages 6132-6144, December.
    9. Athawale, Rasika & Felder, Frank A., 2014. "Incentives for Combined Heat and Power plants: How to increase societal benefits?," Utilities Policy, Elsevier, vol. 31(C), pages 121-132.
    10. Ruan, Yingjun & Liu, Qingrong & Zhou, Weiguo & Firestone, Ryan & Gao, Weijun & Watanabe, Toshiyuki, 2009. "Optimal option of distributed generation technologies for various commercial buildings," Applied Energy, Elsevier, vol. 86(9), pages 1641-1653, September.
    11. Strachan, Neil & Farrell, Alexander, 2006. "Emissions from distributed vs. centralized generation: The importance of system performance," Energy Policy, Elsevier, vol. 34(17), pages 2677-2689, November.
    12. Swinbank, Alan, 2009. "EU Support for Biofuels and Bioenergy, Environmental Sustainability Criteria, and Trade Policy," Price Volatility and Beyond 320208, International Centre for Trade and Sustainable Development (ICTSD).
    13. Degirmenci, Tunahan & Yavuz, Hakan, 2024. "Environmental taxes, R&D expenditures and renewable energy consumption in EU countries: Are fiscal instruments effective in the expansion of clean energy?," Energy, Elsevier, vol. 299(C).
    14. Gucciardi Garcez, Catherine, 2017. "Distributed electricity generation in Brazil: An analysis of policy context, design and impact," Utilities Policy, Elsevier, vol. 49(C), pages 104-115.
    15. Thornton, Alexander & Monroy, Carlos Rodríguez, 2011. "Distributed power generation in the United States," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4809-4817.
    16. Eleftheriadis, Iordanis M. & Anagnostopoulou, Evgenia G., 2015. "Identifying barriers in the diffusion of renewable energy sources," Energy Policy, Elsevier, vol. 80(C), pages 153-164.
    17. López-González, A. & Domenech, B. & Ferrer-Martí, L., 2018. "Formative evaluation of sustainability in rural electrification programs from a management perspective: A case study from Venezuela," Renewable and Sustainable Energy Reviews, Elsevier, vol. 95(C), pages 95-109.
    18. Chen, Yen-Haw & Lu, Su-Ying & Chang, Yung-Ruei & Lee, Ta-Tung & Hu, Ming-Che, 2013. "Economic analysis and optimal energy management models for microgrid systems: A case study in Taiwan," Applied Energy, Elsevier, vol. 103(C), pages 145-154.
    19. Keon Baek & Woong Ko & Jinho Kim, 2019. "Optimal Scheduling of Distributed Energy Resources in Residential Building under the Demand Response Commitment Contract," Energies, MDPI, vol. 12(14), pages 1-19, July.
    20. Mulder, Peter & de Groot, Henri L.F., 2013. "Dutch sectoral energy intensity developments in international perspective, 1987–2005," Energy Policy, Elsevier, vol. 52(C), pages 501-512.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:42:y:2012:i:c:p:580-590. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.