Assessing the Economics of Industrial Gas Turbine Cogeneration Applications

Gas turbines are often used at industrial plants to generate electricity. However, turbines convert a greater portion of the input fuel into waste heat than into electricity. The degree to which this waste heat can be captured and used to produce steam, hot water, or simply hot air for drying, greatly improves the overall efficiency of the turbine system. This process is called cogeneration. There is no question that cogeneration can improve overall efficiencies. The question is whether cogeneration can be accomplished in an economic manner. This paper presents a straight-forward methodology for comparing the costs and benefits associated with cogeneration. All costs and savings are converted to a consistent before tax cent per kilowatt-hour basis. The inconsistencies encountered with simple payback analysis are avoided, as well as the complexities of discounted cash flow analysis. The effects of income taxes, depreciation, financing, and cogeneration load factor are incorporated.