Facilitating distributed generation in Australia - the opportunities and challenges of cogeneration

Abstract

Stationary energy, predominately electricity and thermal energy production, is one of the largest sectors of primary energy consumption in industrialised countries. Electrification has delivered economic growth and improved standards of living while thermal energy provides comfort and sustains industrial growth. However, a range of economic, market, technological and environmental issues exist. In Australia, these include declining energy productivity and increasing energy prices, changing demand and usage patterns, accommodating emerging forms of electricity production and contribution to long-term climate change. Solutions to these issues include adoption of a mix of technical, regulatory and investmentrelated initiatives. In particular, the adoption of decentralised energy technologies, principally gas-fired cogeneration (also known as Combined Heat and Power or CHP) and solar photovoltaic (PV) appear to offer substantial technological and economic benefits over incumbent centralised technologies (especially, coal-fired generation). The adoption ofthese technologies may be enhanced by improved government incentives and regulatory reforms and a better appreciation of factors that influence the availability of investment capital. This study aims to identify the potential rate and extent of adoption of distributed generation in general and CHP in particular, by comparison with theoretical diffusion rates of other energy technologies. It seeks to expose and explore other factors which impact adoption, including supporting government policy and the need for demonstration to overcome technical risk. Finally, it examines the potential economic and environmental benefits associated with the large scale adoption of distributed energy technology. Through a mixture of literature review, analysis of a range of technical feasibility studies and a detailed case study, the extent to which distributed technologies may be adopted, and their financial, efficiency and environmental benefits are assessed. The analysis suggests that cogeneration is technically and economically feasible and is therefore a critical transition technology for the Australian stationary energy sector while distributed generation technologies in general, which are relatively mature and low risk, have the potential to substantially reduce emissions while also reducing costs and network and centralised generation investments.