Industrial Cogeneration--What It Is, How It Works, Its Potential

EMD-80-7: Published: Apr 29, 1980. Publicly Released: Apr 29, 1980.

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The role that cogeneration can play in the nation's efforts to conserve valuable energy resources was reviewed. The cogeneration of power and heat can be employed by both industry and utilities. Since these two sectors account for about half of the fuel consumed in the United States, their acceptance of this technology can assist in accomplishing the national goals of using fuels more efficiently and decreasing the use of imported fuels. To determine the possible effects of various levels of cogeneration on the nation's energy system, GAO analyzed three scenarios for the paper and pulp, chemical, and petroleum refining industries.

Cogeneration systems and components must be selected for compatibility with the industrial processes which they complement, necessitating selection on a site-by-site basis. A coherent federal policy consistent with State and regional interests should be developed to encourage coal and other alternate fuel use for cogeneration with a controlled shift away from oil and natural gas. However, a policy that permits oil and natural gas cogeneration in smaller facilities is particularly relevant for the short term. The policy should: (1) seek to balance oil and natural gas savings with overall energy savings; (2) recognize regional differences regarding fuel use and fuel availability and ensure regional equity in benefits and costs; (3) be based upon reasonable expectations of cogeneration development; (4) balance federal expenditures for financial incentives in support of cogeneration and expected national benefits from cogeneration; and (5) be based upon the need to get all interested parties, including utilities, industry, and federal and state agencies, actively involved in the development of cogeneration. It would be reasonable to expect that, for the three industries evaluated, the equivalent of 228,000 to 354,000 barrels of crude oil per day would be saved in 1985. The maximum expectation of energy savings in the year 2000 would approximate 945,000 barrels of crude oil per day.

Recommendations for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of the Treasury should, in consultation with the Secretary of Energy, establish, for the short term, a regulation which specifies that cogeneration systems would not be eligible for the 10-percent investment tax credit under the provision for specially defined property in the Energy Tax Act of 1978; and assess the impact and benefits that any government financial incentives may have on cogeneration development before any such incentives are established for the long term.

    Agency Affected:

  2. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Commissioners of the Federal Energy Regulatory Commission should: (1) include, as part of their requirements for qualifying cogeneration facilities, a provision which requires industrial cogenerators to provide a means for maintaining fuel-efficient operations to the greatest extent possible; (2) ensure that the rules adopted to establish just and reasonable rates for the sale of power to, and the purchase power from, qualifying cogeneration facilities are fully implemented by state regulatory authorities and nonregulated electric utilities; (3) clarify the regulatory status of cogeneration facilities by adopting their proposed rules which define a qualifying cogeneration facility as one which is not composed of more than 50-percent electric utility ownership and by ensuring that the rules which exempt qualifying facilities from certain federal and state laws and regulations are properly implemented; and (4) develop rules which specify, in terms of user classes, the exemption if qualifying cogeneration facilities from the incremental natural gas pricing provision.

    Agency Affected:

  3. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Administrator for Economic Regulatory Administration should: (1) establish a rule for industrial cogeneration facilities that will set a size limitation, in terms of a fule input rate, on those facilities eligible for the cogeneration exemption; and (2) expand the cogeneration exemption, in accordance with the categories of user classes, to include those petitioners with large facilities that cannot use coal or other alternate fuels.

    Agency Affected:

  4. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Energy should: (1) establish a cogeneration policy and strategy as outlined in the report; (2) specify oil and natural gas use goals within overall energy conservation goals for cogeneration by 1985, 1990, and 2000; and (3) establish guidelines for monitoring oil and natural gas use goals for cogeneration.

    Agency Affected:

  5. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Energy should designate one office to be responsible for observing cogeneration-related activities.

    Agency Affected:

 

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