A Basic Analysis of Cogeneration Economics

The economics of small scale gas turbine based cogeneration systems are analyzed on the basis of avoided costs for an electric utility exploiting such systems. This concerns a theoretical study in which the cogeneration system as a means for electricity generation is assumed to supplant the building of new central electricity generating plant. The results show that with increasing oil and gas price levels, the economics of cogeneration will become more favourable when the supplanted capacity is for peak load rather than for base load electricity generation. This implies a preference for applications with cogeneration operation taking place mainly during on-peak hours of the electricity demand.