Allocation of Joint Costs and Price Setting for Electricity and Heat Generated in Cogeneration

Abstract

In the case of cogeneration, the allocation of operation costs has a particularity specific to the joint production of heat and electricity from the same primary energy source. The cost allocation is also influenced by the demand conditions faced by the joint products, and prices must be sufficient for both products to remain profitable and competitive with other power generation alternatives in the respective markets. Therefore, the choice of cost allocation methodology is influenced by market conditions. The paper presents an algorithm for determining the prices of energy and heat produced in cogeneration according to demand and market conditions. The economic market method was extended with an algorithm based on duality theory for verifying allocation methods and establishing forecasting strategies. An example is provided for a cogeneration plant (1.287 MWe; 5.386 MWth) based on ORC (Organic Rankine Cycle) technology and biomass fuel. The fuel cost has a major influence on the total costs of the cogeneration plant, between 68% and 77% in the analyzed scenarios. The fuel cost variation is considered in the application of the cost allocation methods for setting the prices of heat and electricity.