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October 30th, 2009:
Now for the commercial sector

Cogeneration in Australia has been largely limited to the industrial sector, which can use the heat from production processes for electricity or hot water. But it also has much to offer the commercial sector, saving energy and cutting emissions.

Industrial cogeneration in areas like sugar milling and mining is a well established source of power generation in Australia. The commercial sector, though, has been slower to take up the technology. Commercial buildings contribute up to 9 per cent of Australia’s greenhouse gas emissions, so using energy more efficiently in office buildings through cogeneration and other measures is a significant way to cut our emissions.

In the 1990s, a number of Melbourne commercial buildings installed cogeneration plants, which run mainly in peak-demand periods to reduce the buildings’ dependence on the electricity grid and to save costs. Some were originally installed as emergency back-up but the owners found they were reliable enough to provide peak-demand energy.

Yet, despite the success of most of these installations, cogeneration in Australian commercial buildings has struggled to be seen as a viable form of energy generation and has achieved limited market penetration.

To help explain this, Europe’s experience with cogeneration makes a useful contrast.

Unlike Australia, both the commercial and industrial sector in the European Union (EU) has been using cogeneration for many years. Europe’s success has been driven by the use of the cogeneration plant’s heat to warm buildings during the high proportion of cold months in the year. As a result, the European plants run at high efficiency levels and consequent commercial viability. COGEN Europe, the European cogeneration industry body, estimates the penetration of cogeneration in the EU at 14 per cent (6 per cent commercial and 8 per cent industrial). In 2005, the EU Commissioner for Energy mandated a target for cogeneration of 18 per cent of the total EU generator capacity by 2010 and the EU cogeneration industry expects this target to be exceeded.

By comparison, the penetration of cogeneration in theAustralian energy market is much lower: as at December 2005, Australia had 154 cogeneration plants operating – 80per cent of which are in the sugar industry (bagasse cogeneration). So why is cogeneration in the commercial sector booming in Europe and performing so poorly in Australia?

In a nutshell, it comes down to cost. Commercial-sector cogeneration in Australia has generally been dismissed as a viable source of energy generation in Australia due to:

-High capital cost to install;

-Narrow margin between retail cost of gas and electricity;

-High cost of operation and maintenance;

-Inability to achieve high efficiencies: heat energy cannot be used as effectively as in Europe, as most Australian buildings need cooling, not heating, for most of the year.

When these factors are quantified into a business case, the return on investment for most commercial buildings has not made good sense. However, innovative business models and recent technological developments can overcome the barriers. But now, a business model has been designed and is being implemented to increase the viability of cogeneration in large commercial buildings. Cogent Energy is well advanced with plans to deploy a distributed network of cogeneration plants in commercial buildings across Sydney and Melbourne in the next four years.

The traditional barriers in standalone building cogeneration projects have been overcome by establishing a large distributed network of multiple cogeneration plants, whereby economies of scale and volume purchasing power mean that plant capital costs, gas costs and the cost of ongoing operations and maintenance makes cogeneration viable for most commercial buildings above a minimum size. The system draws upon two-stage absorption chilling technology that can efficiently produce chilled water from waste heat, and therefore meet the near yearround cooling demand of most Australian buildings.