Fuel-saving power plant also wins as oil prices slip

While low energy prices benefit consumers and the economy, they are also, paradoxically, aiding a conservation-oriented industry born during the energy crises of the 1970s: cogeneration. Cogeneration uses one fuel source -- oil or natural gas -- to produce both electricity and thermal energy for steam or hot water. Proponents touted cogeneration's ability to do with 10 barrels of oil what it normally takes 17 barrels to do. It produces energy savings of up to 45 percent. In the National Energy Act of 1978, Congress specifically encouraged cogeneration as a conservation measure.

Government studies at the time estimated cogeneration could account for 15 to 20 percent of the nation's electric output and eventually become a $20 billion industry. Cogeneration proponents now call these figures ``minimal'' and point to a recent Department of Energy study raising the total estimate to $60 billion.

If those estimates are correct, it will mean cogeneration continues to grow despite diminished incentives to conserve energy. ``The question,'' says Daniel Yergin, president of Cambridge Energy Research Associates, ``is to try to gauge how much conservation efforts will continue despite the fall of energy prices. Cogeneration is different than other forms of conservation, but conservation is clearly a lower priority in times of falling costs.''

But it wasn't conservation that interested the town of Taunton, Mass., when town leaders decided this fall, after a year of study, to place a cogeneration system in Taunton's high school.

Mayor Richard Johnson describes cogeneration as ``almost too good to be true. We will cogenerate with natural gas and even with the falling prices of fuel, the studies we did came up with a saving of roughly $100,000 a year through cogeneration.''

Further sweetening the deal for the town was the fact that the company installing the unit this month, Cogenic Energy Systems Inc. of New York, will finance the installation by splitting the savings of the system with the town for 10 years. ``This is great for a municipality,'' Mayor Johnson says. ``It would cost us $600,000 in capital improvements to buy the system ourselves. This way it costs us nothing up front, and we don't have to enter the bond market and endanger our credit rating.''

Those in the cogeneration business point out that no matter how high or low the price of energy, cogeneration will still produce savings, since the cogenerator can produce electricity at 6 cents a kilowatt-hour compared with more than double that charged by a utility.

Even if oil fell to $2 a barrel, ``It'll cost us 2 cents a kilowatt to produce electricity instead of 6 cents,'' says Richard Nelson, president of Cogenic Energy Systems. ``But the electric company can't cut much below the retail price of around 14 cents because they have too many fixed capital costs, such as nuclear power plants. Electric rates will continue to go up faster than the rate of inflation for the rest of the century, no matter what happens to the price of oil.''

In addition, the cogenerator cuts heating bills by using the thermal byproducts of the cogeneration process.

Cogenic Energy Systems claims to be the largest firm in the nation designing, installing, and operating small modular cogeneration systems. With total assets of $8.5 million, the company has installed 55 cogeneration systems with 25 more in the planning stages. It is also booking orders for new systems at a rate of $1 million a month this year.

Paul Shaffer, fuel and power editor of the Energy Users News, an industry and commercial publication for users of various kinds of energy, confirms that the number of applications placed with utilities to cogenerate is up, and interest in the technology is still growing. He believes that instead of deterring cogeneration, falling energy prices actually encourage it.

``The effect of falling oil prices on cogeneration is indirect because most cogenerators use natural gas,'' Mr. Shaffer says. ``But the decline of oil prices impacts on what natural gas companies charge for gas and when that price is kept low, it makes it more attractive to cogenerate.

``What it comes down to is that oil prices are tending to drop right now while electric rates are stable-to-rising'' he continues. ``In many cases the cogenerator isn't hedging against the future by going into the system. His investment will pay off in a 15- to 20-year period no matter what happens to the price of fuel now. Lower prices are just an additional incentive to cogenerate.''