By GARY L. FOWLER, ALBERT H. BAUGHER and STEVEN D. JANSEN

A cogeneration system with a capacity of 1.2 megawatts supplies both electricity and steam for AMOCO Chemicals Corp. of Wood River, manufacturers of petroleum additives. (Photo courtesy Jack Faddis, Argonne National Laboratory)

Cogeneration, the use of a common energy source for both heat and electricity, is an old technology that is being looked at with new interest. An example is Inland Steel's Indiana Harbor Works in East Chicago, Ind. The steel industry is no stranger to cogeneration, but Inland Steel brought it and other energy-saving technologies up to date in plant expansion completed in 1980. In general terms, the new system includes an efficient coke-fed blast furnace that refines iron ore and also supplies blast-furnace gas for plant use. The gas drives a 15 megawatt capacity electric generator and fuels the system's new coke-making ovens. The blast-furnace gas also fuels boilers used to power steam turbines. These in turn run blowers that supply air to the blast furnace. Meanwhile, steam extracted from the turbines still has enough heat and pressure to be used in others parts of the plant. Smaller firms as well as schools, hospitals, and cities are also examining cogeneration's potential to save money and fuel.

COGENERATION is the sequential production of electricity and useful thermal energy from a common energy source for use in industrial processes or commercial heating and cooling. The primary objective of any cogeneration system is to reduce energy waste by putting more of the energy content of the fuel to productive use.

In a conventional electricity generating power plant, as much as two-thirds of the combustion energy is disposed of as low-temperature heat, either into the air through cooling towers or into the water of nearby lakes and streams. In a cogeneration system, the heat is recovered at somewhat higher temperatures and directed to industrial processes, heating or cooling. Fuel efficiency is the total energy output of a system divided by the total energy input: by recovering unused heat, cogeneration systems can achieve fuel efficiencies of 60 to 85 percent compared with about 30 percent for conventional electric power plants.

There is nothing new about either the concept or the technology of cogeneration. Indeed, at the beginning of this century most of the electricity produced in the U.S. was cogenerated. The principal producers were industries which generated electricity along with the heat and steam needed for their manufacturing operations. Cogenerators could produce electricity at much lower rates than utilities charged, and they were more reliable.

The economic advantage of cogenerated electricity declined over the next

Partial support for the energy series has been provided through a grant from the Office of Consumer Affairs of the U. S. Department of Energy. Opinions and conclusions expressed in the article are solely the responsibility of the author.           — Editor

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few decades. The electric utilities were able to achieve economies of scale and [greater reliability by building large, central-station power plants and were able to further reduce costs by using low-cost fuels. With lower production costs, utilities could sell electricity at rates below the cost of cogenerating it; they also sought to discourage cogeneration by increasing the cost of standby service. By 1939, manufacturing industries in the U.S. generated only 36 percent of their own electricity needs. They currently supply about 5 percent of their own demand. Most of the cogenerators are large, energy-intensive industries. Some, like the manufacturers of steel, aluminum and plass, use a great deal of electricity and heat in the manufacturing process; others, like the pulp and paper industries, can burn waste products as fuel.

But since the OPEC oil boycott of 1973, the economics of electricity production have changed again. Escalating costs of fossil fuels, primarily oil and natural gas, and the huge capital investments required to build large, central-station power plants have sparked a renewed interest in cogeneration. The constraints on siting coal and nuclear plants, the uncertainties that go with the long lead time needed for power plant construction, and the costs of environmental protection have all encouraged reconsideration of cogeneration. As a result, the National Energy Act of 1978 made cogeneration and the production of electricity from small-scale facilities (such as wind generators and photovoltaic cells) a part of national energy policy. Regulatory changes, especially in the Public Utility Regulatory Act of 1978 (PURPA), have begun to address some of the principal issues involved in encouraging cogeneration (see box, page 24).

But cogeneration is also an issue in a fundamental debate over the direction U.S. energy development should take. Cogeneration is seen by its proponents as a strategy that would make the most efficient possible use of oil and natural gas while new technologies are being developed. Cogeneration, they argue, can contribute to rebuilding U.S. industries and U.S. cities to make the most effective and nonpolluting use of scarce energy resources.

Opponents of extensive use of cogeneration argue that any increase in the use of oil and natural gas, no matter how efficient, is strategically unsound because it would continue dependence on foreign sources of oil.They argue that the basis for energy self-sufficiency is fossil fuels and uranium.

Cogeneration's potential

The potential for cogeneration is greatest in a relatively small number of energy-intensive industries. They include: primary metal industries; pulp, paper and allied products; petroleum refining and coal products; food products; and stone, clay and glass. These industries require a large amount of electricity and thermal energy per unit of value added (for example, the difference in value between a ton of iron ore or scrap metal and a ton of steel is largely achieved by the huge amounts of heat and electricity used in the refining process). Not surprisingly, these energy-intensive industries account for most of the energy consumed by the industrial sector in the U.S. (About 40 percent of all energy consumed in the U.S. is used directly for industrial processes.)

In Illinois, the industrial sector uses only about one-quarter of the total energy consumed in Illinois. Of this 25 percent consumed by the industrial sector, a full 85 percent was used by the state's energy-intensive industries in 1977. In that year, energy-intensive industries used nearly 10 million barrels of fuel oil; 320 billion cubic feet of natural gas; and 7.8 million short tons of coke. These figures do not include the energy used to produce the 19,000 megawatt hours of electricity used by these industries.* Primary metals, chemicals and food products were the largest users. Most of this energy, 54 percent, was consumed by industries located in the Chicago metropolitan area, where all types of industry are represented; another 21 percent was consumed in other metropolitan areas,where there are not as many different types of industries.

Current industrial cogeneration capacity in the U.S. is estimated at 13,270 megawatts (MW) (see table below). That capacity is concentrated in the primary metals, pulp and paper products, and chemical industries and in those regions of the U.S. which are still heavily reliant on oil and natural gas as primary fuels: Texas, Louisiana and other states in the South Central

*A mega wall hour is the measure of a quantity of energy, usually elect heal. A megawatt hour equals 1 thousand kilowatt hours. A megawatt capacity is a measure of the rate at which electricity can be produced by a power plant or cogeneration facility.

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The 18 megawatt capacity cogeneration plant pictured above supplies all the heating, hot water, air conditioning and electricity needs of the 25,000 residents of Rochdale Village, Jamaica, N.Y. (Photo courtesy Jack Faddis, Argonne National Laboratory)

and Southern Atlantic regions. Estimates of future U.S. industrial cogeneration capacity differ widely: the Federal Energy Regulatory Commission (FERC) estimates an increase of 12,000 MW by 1995, while the U.S. Department of Energy (DOE) projects an additional 40,000 MW by the year 2000.

Industrial cogeneration may be especially attractive in regions where electric utilities depend heavily on oil and natural gas as primary fuels, where generating capacity is limited, and where alternate fuels are not available for potential industrial users. For example, a preliminary study for Northeast Utilities, the largest utility in Connecticut, concluded that cogeneration may be technically feasible for about two-thirds of Connecticut industries. Studies of cogeneration in other states and utility service areas have concluded that the technological potential of cogeneration is relatively high. (Cogeneration is technically feasible for an industry if the industry has the capacity to cogenerate and if cogeneration would be the most efficient technology in terms of energy use. Economic feasibility would depend on other factors, including the need for new equipment such as a new boiler system, the rate of return on the company's investment, fuel savings and tax incentives.)

Illinois is part of the East North Central Region which has the second largest regional cogeneration capacity in the U.S. Most of this capacity is concentrated in four plants: the Ford Motor Company at River Rouge, Mich.; Inland Steel's Indiana Harbor Works in East Chicago, Ind.; Union Carbide in Cleveland, Ohio; and U.S. Steel South Works in Gary, Ind. Much of the remaining capacity is located on relatively small sites in Illinois where steam turbine systems use oil or natural gas as primary fuels and produce electricity for on-site use. Central Illinois Light Co. is in a cogenerating relationship with Archer Daniels Midland Co., which took over the Hiram Walkers plant in Peoria and converted it to the production of ethanol.

Although the potential for cogeneration in Illinois is currently under study, there are no estimates of technological feasibility for the state. The Chicago metropolitan area appears to have the most opportunities for cogeneration. Temple, Barker and Sloane, in a study for the Illinois Commerce Commission (IlCC), concluded that the potential for cogeneration in Commonwealth Edison's service area, which includes Chicago, is limited because most of the industrial processes are not steam-intensive. (Steam is an essential part of the cogeneration equation since it is used for both heating and cooling and the production of electricity.) According to the study, 50 megawatts (MW) of cogeneration capacity, most of which uses gas turbines, are currently in operation. The study estimates an additional 1,278 MW of future demand for cogeneration from large industries, hospitals and universities; of this it finds an estimated 148 MW (about three times the current capacity) to be technologically feasible.

In addition to large, energy-intensive industries, however, Chicago has many concentrations of industrial manufacturing firms and commercial and institutional centers, including dense concentrations of high-rise residential and commercial buildings in development areas. The City of Chicago's Department of Planning, in conjunction with the Illinois Institute of Technology and the Energy Resources Center at the University of Illinois at Chicago Circle has identified cogeneration potential in more than 800 industrial and manufacturing firms and about 400 commercial and institutional facilities which use large amounts of steam or electricity. The aim of this ongoing DOE-funded project is to select and evaluate potential urban industrial cogeneration sites in Chicago and to determine the feasibility of developing cogeneration facilities on them. The project has identified approximately 75 unused-heat recovery sites where steam is currently generated (by incinerators, for instance) and where it could be used to cogenerate electricity, and 250 cogeneration sites where one large plant or several small firms on adjacent blocks could share the benefits of electricity and heat from a common source. Some sites would consist of a single company; others would include several adjacent firms with complementary demands for steam and electricity. The City of Chicago is pursuing an aggressive program to define opportunities for cogeneration and to encourage utilities, government agencies and private investors to work cooperatively in realizing the advantages from developing cogeneration systems applicable to the metropolitan area.

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Regulatory issues

On June 10, 1981, the IlCC issued rules to implement Sections 201 and 210 of PURPA, which deal with cogeneration and small-scale power production. The commission's General Order No. 214 established standards for the sale of energy and capacity from cogeneration and from small power production facilities. More efficient utilization of fossil fuels and a reduction in the scale of future utility capacity additions were among the benefits cited by the commission. In contrast to other states, however, the IlCC has: 1) encouraged greater reliance on negotiated rates for electricity sold by cogenerators to utilities; 2) granted to both old and new cogenerating facilities the full benefits of "avoided cost" rates (rates paid by utilities to cogenerators based on the cost of producing an equivalent amount of electricity, and on the capital expenses avoided by buying power rather that building a new generating unit); and 3) provided for greater flexibility in changing "simultaneous buy-sell" arrangements (in which a cogenerator aranges to sell all its electricity to a utility and to purchase back from the utility whatever electricity it needs).

Interest in cogeneration in Illinois has increased as a result of the hearings and workshops conducted by the IlCC in the seven months preceding its final order. Other state agencies and local governments have taken steps to examine cogeneration's potential. In addition to initiatives by the City of Chicago, the Capital Development Board (CDB) which is responsible for state facilities, has begun a study of cogeneration potential at three state institutions: Pontiac Correctional Center, Menard Penitentiary and Lincoln Correctional Center. A more detailed feasibility study will be conducted at the most promising of these. According to Don Terry, manager of research for CDB, 30 to 50 state sites may have a total cogeneration potentialof 10 MW. The Illinois Department of Energy and Natural Resources formerly the Institute of Natural Resources) has proposed to assess the technical feasibility of cogeneration in developing the state's energy plan.

The issues that concern the state, however, are not likely to focus on technological feasibility: current cogeneration technologies are adequate to achieve significant energy savings from scarce fuels. The major questions

Cogeneration technology: topping, bottoming and prime movers GENERAL types of cogeneration configurations are classified according to the type of energy conversion device (prime mover) and whether electricity or thermal energy is produced first. The prime movers are steam turbines, gas turbines, combined cycle turbines and diesel engines. Electricity is the primary product in a topping cycle. Steam is generated in a boiler at high temperature and pressure and used to generate electricity. The remaining steam then leaves the turbine at lower pressure and is used for heating or industrial processes. In a bottoming cycle, fuel is first burned to produce high temperature process heat. The exhausted heat drives a turbine generator and is then exhausted to the atmosphere. In 1978, 85 to 90 percent of industrial cogenerated electricity in the U.S. came from steam turbines. Cogenerating systems produce electricity and thermal energy in different proportions. They are usually designed to meet the thermal needs of the plant rather than to produce its total electrical needs. Steam turbines customarily operate in a topping cycle mode. Although the incremental costs per megawatt (MW) are slightly higher for steam, a steam turbine has the highest energy efficiency (80 to 85 percent), is the most reliable and has the greatest flexibility in fuel use. Cogeneration fuels include conventional fossil fuels (oil, gas and coal) as well as uranium, industrial or commercial wastes, industrial byproducts and synthetic fuels. Because a steam turbine topping cycle has a relatively low electricity output per unit of process steam, it is normally suited for relatively large-scale industrial applications of 5 to 200 MW. In a gas turbine topping system, the hot gases are exhausted from a turbine and then used to raise steam in a waste heat boiler for process use. Although the cost per MW is somewhat less than for steam turbines, gas turbines have a lower fuel efficiency (65 to 80 percent) and are limited to gaseous fuels, primarily natural gas and light petroleum products. They are well-established and reliable but require more maintenance than steam turbines; they arc generally suited for smaller applications, with a range in unit sizes of from .5 to 75 MW. Combined cycle systems have a capacity of 1 to 150 MW. This type of system boosts electricity production by combining gas turbines with steam turbines. The steam from the gas turbine, rather than being converted immediately to process use, passes through a steam turbine to generate more electricity from the initial fuel input. Additional fuel or heat may be needed to raise the temperature of the steam before it enters the turbine. The exhaust heat can be used in an industrial process or for heating, although it is of a very low quality. Although the electrical output is higher than from gas turbines, a combined cycle system is similar in types of fuel that can be used. A diesel cogenerating system has the highest ratio of electricity to steam production of any system and is the most reliable. It is also costlier than a gas turbine and, because of design, is restricted to relatively small units in the .1 to 25 MW range. A diesel engine uses the same fuels as a gas turbine. Although diesel generating systems are restricted to small power and heat systems with low process heat requirements, new technologies are being developed for industrial applications. The potential applications for cogeneration systems are in industry, commercial buildings and district heating (where many adjacent buildings share heat piped in from a single source). The greatest potential for industrial cogeneration is concentrated in a few energy-intensive industries. Industrial plants that operate around the clock and require large amounts of process steam may find it advantageous to cogenerate if their electrical and thermal requirements are well-balanced and if their boilers are to be replaced or the plant expanded. In most applications, cogeneration systems are matched to meet heating or cooling needs. They may not generate sufficient electricity to meet the needs of the firm or facility. Large schools, hospitals, shopping centers and densely populated housing developments are particularly well-suited to steam or hot water district heating systems that are tied to cogeneration systems. By GARY L. FOWLER, ALBERT H. BAUGHER and STEVEN D. JANSEN

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will involve regulation: how to share the costs and benefits of cogeneration among the utilities, the cogenerators and the public.

Reliability factor

Because electric utilities are required by state regulation to provide their customers with reliable service at the lowest possible cost, a cogenerator's ability to supply electricity to the utility grid when it is needed is a basic concern. Industrial cogenerators may not be as reliable as large, central-station power plants when reliability is measured on a plant-by-plant basis. As a group, however, cogenerators can be very reliable because the probability is low that a significant number of them will be out of service simultaneously. Maximizing the economic benefits to cogenerators would be a strong incentive to them to maintain reliability with respect to utility demands for electricity during peak periods. In fact, a utility could choose to integrate a large number of industrial cogenerators into

A utilitiy could choose to integrate a large number of industrial cogenerators into its power pool by considering them collectively as a highly reliable single unit

its power pool by considering them collectively as a highly reliable single unit, almost as if they were a neighboring utility.

Impact on utilities

Increases in cogeneration capacity may result in electric utilities losing some of their baseload business in addition to paying cogenerators avoided cost rates for their electricity. Electric utilities which have relatively small reserve margins of baseload capacity or make heavy use of oil and gas-fired generating units may see substantial benefits in using cogenerated electricity: cogeneration can add generating capacity in small increments without adding to the utilities' capital costs. But utilities which have large reserve margins and use relatively inexpensive fuels such as coal or uranium to produce most of their electricity may see fewer advantages in cogeneration. Gas utilities, of course, would benefit from expanded markets and from more efficient use of natural gas, a resource which will get more expensive when price deregulation is completed in 1985.

In Illinois, 58 percent of the electricity is generated from coal and 30 percent from uranium; oil (9 percent) and natural gas (3 percent) are used primarily for peak demand. Commonwealth Edison, which generates about one-half of its electricity from uranium, is currently the only utility in the state with nuclear capacity, although Illinois Power is constructing a nuclear plant in Clinton. All other Illinois

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utilities meet their baseload demand with coal-fired units. And all Illinois electrical utilities have relatively large reserve margins despite deferring the construction of new generating units. Nevertheless, Commonwealth Edison Company and other electrical utilities have shown an increased interest in cogeneration as a means to conserve oil and natural gas used on peak loads and to minimize the need to invest in expensive new capacity. Peoples Gas, Light and Coke Company, which supplies natural gas to Chicago, also has taken an active interest in industrial cogeneration.

Ownership

PURPA currently encourages those who use the energy to be the primary investors in cogeneration plants. A utility can participate in joint ownership of a cogeneration facility, but it is not generally eligible for all of the benefits that are available to qualifying cogenerators under PURPA and other regulations (see box, page 24). So far, large, energy-intensive industries have led in filing qualifying applications with FERC. Many small and medium-size manufacturing firms and multiple users (groups of firms located in the same area which could share cogenerated electricity and thermal energy) have been reluctant to invest capital at current high interest rates in a business they know little about.

Another potential source of capital for cogeneration is outside investors or third parties. They are becoming increasingly involved in cogeneration. Third parties may be large lending institutions, manufacturers of cogenerating equipment or specialized cogeneration companies. They can invest their own capital in building a cogeneration facility at the energy user's site. The user can then either lease the cogeneration plant or enter into a contract to purchase all or a portion of the plant's thermal energy and electricity. Electricity is sold to the utility at avoided cost rates, and the cogeneration facility qualifies for all incentives. Some observers believe that third party involvement in cogeneration will increase, especially among relatively small users, such as adjacent small industrial firms, clusters of stores in a shopping center or owners of a high-rise residential development. Others argue that users will eventually want to control the cogeneration facility themselves and not share the savings in energy costs.

There have been proposals, such as House Resolution 2876 introduced in Congress last spring, to allow utilities to qualify as cogenerators. According

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to DOE, passage of this resolution would lead to an estimated 700 MW of additional cogeneration capacity, primarily in the chemical and food processing industries. Utility ratepayers might also benefit because utility-owned cogenerating units could operate at substantial savings, thus keeping rates low. But in congressional hearings last April, the paper industry opposed H.R. 2876, arguing that it would actually slow the development of industrial cogeneration by allowing the utilities to institute discriminatory pricing practices that PURPA was designed to eliminate.

Metropolitan areas

Metropolitan areas have large numbers of manufacturing firms and commercial and institutional facilities located in close proximity to each other. Utilities, as well as the owners of firms and facilities, may find it advantageous to encourage cogeneration for adjacent establishments that have complementary demands for thermal energy and electricity: for example, a steel plant which uses a large amount of electricity located next to an oil refinery, or a grain or food processing plant. Cogeneration enables utilities to add smaller increments of new generating capacity to the grid with shorter lead times; at the same time, businesses can operate more economically by conserving on the cost of energy.

Individual industrial cogeneration applications in cities such as Chicago are likely to use natural gas, oil or some type of alternative fuel rather than coal as the primary fuel. Cogeneration with liquid or gaseous fuels is likely to reduce overall air pollution as well as provide immediate savings by more efficient use of these scarce and expensive fuels. Using municipal refuse as fuel for cogeneration can also provide an economic advantage to metropolitan areas which already bear the cost of waste pickup and disposal.

Industrial cogeneration can also be used as a redevelopment tool to attract new industries to cities while providing assistance to existing industries in controlling rapidly increasing energy costs. Cities can integrate cogeneration strategies in their long-range energy management programs to better serve the energy needs of the entire community. The planners at the City of Chicago's industrial cogeneration project view cogeneration as a redevelopment tool that will provide significant energy savings and financial benefits to industrial and commercial users and create a positive environment for local business development that will conserve limited resources and capital.

The IlCC has taken the first steps toward deregulating the production of electricity in Illinois. The utilities, their industrial and commercial customers, local governments and other interested parties, including third party investors, are studying the costs and benefits of cogeneration. Their actions will, in part, depend on the Reagan administration's decision on how to defend and enforce PURPA.

PURPA represents a step toward deregulation by opening an area of power production to competition, but it also raises questions of state's rights and of developing renewable fuels (such as biomass and waste products) and new technologies (such as photovoltaics) that are of marginal interest in current federal energy policy. Recent federal legislation and regulatory initiatives, however, suggest that broader access to tax benefits and incentives will encourage wider participation in industrial cogeneration (see box, page 23).

In summary, during the next few years conservation can continue to reduce the demand for electricity in the commercial and industrial sectors; increased energy efficiency can be promoted by policies that encourage unused-heat recovery, conversion to less expensive fuels and cogeneration. Cogeneration can increase fuel efficiency by as much as 40 percent and result in immediate savings in the use of oil and natural gas.

Gary L. Fowler is associate professor of geography and associate director of the Energy Resources Center, University of Illinois at Chicago Circle. Albert H. Baugher is assistant commissioner in the City of Chicago's Department of Planning and chairperson of the Urban Consortium for Technology Initiatives Task Force on Energy. Steven D. Jansen is a research geographer at the Energy Resources Center. This article draws in part on materials developed in a project funded by the U.S. Department of Energy to assess the potential for industrial cogeneration in Chicago.

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