Cogeneration in Italy

Background

The deregulation of the Italian electricity market has created an opportunity for the expansion of co-generation in Italy.  Currently, industrial users of energy are paying, typically, €65-70/MWh for electricity and €18-20/MWh for gas.  This electricity price to gas price ratio of only just over 3:1 at first appearances would not seen to be ideal for co-generation to flourish.  However, approximately 25% of the electricity price is due to use of system charges, which can be totally avoided by electricity generated on site.

In addition, a discount of approximately 10% can be achieved on the cost of gas if the gas is used in a co-generation plant that achieves a thermal usage efficiency of at least 10%.  In this context thermal efficiency is heat used by the host site divided by the fuel input.  In international terms this relatively low thermal usage efficiency hurdle means that many more industrial sites can qualify for a tax rebate from co-generation than perhaps they would in other countries, notably the UK which has a punitively high rate and accordingly a low take up rate of cogeneration.

Even if the co-generation plant is built, owned and operated by a third party it would be expected that the host site should be able to reduce their energy bills by 15-20% depending on the heat to power ratio of the site and its consumption levels.

The typical contract length would be 15 years and the site would have the right to extend the supply contract beyond 15 years if they so wish.

The other main contract requirement by the host site would be a take or pay of steam that guarantees the thermal usage efficiency target of 10%.

Given that the site is willing to commit to this minimal steam take or pay level and is willing to grant a long term lease on its site for the cogeneration plant, then the installation of cogeneration offers an opportunity to significantly reduce energy costs.

The case study  is typical of the type of cogeneration plant and tariff that is currently being offered by various developers in Italy. 

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