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 electrical generation equipment, the utility's rate tariffs would often prohibit this arrangement;
based on perceived possible safety and reliability problems. With PURPA, if the energy
conservation parameters are met, the customer must be allowed to connect the equipment to the
system. The only provision is that the costs and rates paid for power are subject to local utility
rate regulations.
Modern cogeneration systems consist of two basic types. The first type generally involves a
large industrial plant that has a need for process steam. Many refineries, chemical plants, paper
mills, and similar facilities typify this application. Prior to PURPA, many of these plants had
boilers for steam production and purchased all of their electric power from electric utilities. In
some parts of the country, these large facilities had large electric power production plants that
also produced part of the electric power required to operate the plants. This reduced the need for
the plants to purchase additional power elsewhere. The plants were in fact already
"Cogeneration" plants. The amount of electric power purchased from the utility depended on the
size of the plant load, the reliability of the local electric utility, the cost of utility power and the
incremental cost of the plant's electric power. During the 1950s and 1960s, fuel costs and
electric utility costs were such that many industrial plants shut down internal electric generation
systems, as the cost of utility power made in plant "cogeneration" uneconomical. With the large
electric power rate increases of the 1970s and 1980s, not all attributable to increased fuel costs,
many large users suddenly rediscovered "cogeneration". These users discovered that they
could use internally produced fuels, such as waste gases in refineries, and wood chips in lumber
and paper plants, to fire boilers to produce the needed process steam and produce electricity
cheaper than the local utility's increased rates. Use of such waste products also partially solved
environmental disposal problems that had arisen from the advent of the Environmental
Protection Agency (EPA). Many large industrial cogeneration projects now involve the use of
gas turbine driven electric generators with a waste heat recovery device on the gas turbine
exhaust that is used to make process steam. These plants are often called "combined cycle"
plants if a portion of the steam produced is then also used to drive a steam turbine electric
generator. The relatively low cost and ready availability of natural gas has made these systems
quite popular and economical to operate.
A second type of cogeneration system evolved from a change in traditional electric utility rates
from one in which increasing usage resulted in lower incremental rates to one of increasing usage
resulting in increasing incremental rates. Smaller customers, such as office complexes, hotels,
hospitals, and shopping malls found that they could economically use cogeneration systems for
peak load shaving (a strategy to reduce the connected demand during each billing demand period
to less than that used by the utility for billing purposes). Peak load shaving was implemented as
the incremental cost of internal generation during peak daily use was now on a higher time of day
utility rate, and the load increased regularly to put the last portion into a higher demand charge
category. Often these sites already had a standby or emergency generator system which was
required by local building codes. This invested capital was standing idle, waiting for a power
failure that hardly ever occurred. In addition, the engine's waste heat could be used to heat water
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