While natural gas has captured the lion’s share of the expandingcogeneration market in recent years, “the phenomenal growth of[cogeneration in] the past was a one-time event resulting from aunique combination of regulatory and market changes,” according tothe Gas Research Institute’s Marie Lihn.

Lihn is project manager for a new GRI report, “Summary of the1999 Cogeneration Projection” (GRI-99/0155). She expects to seegrowth in the cogeneration market shrink to produce a 20-yearaverage of 1.4% a year between 1996 and 2015 versus the 10% a yearcommon in the late 1980s and early 1990s. The projected averagegrowth rate will be greater in the earlier years and less in lateryears.

“Future growth in industrial gas consumption will be drivenpredominantly by more traditional gas applications, includingdrying, fluid heating, metal heating, smelting and heat treating,”according to the report prepared for GRI by Energy andEnvironmental Analysis of Arlington, VA.

The Public Utilities Regulatory Policy Act cleared theregulatory obstacles to the construction of efficient cogenprojects. The market, however, also was artificially stimulated byprojects built to take advantage of the law’s requirement thatutilities buy back cogenerated power at high prices. As a resultconsumption grew 22% per year from 1985 to 1990.

The buyback requirement was eased in 1992, cutting the legs outfrom under this so-called “non-traditional” market. That market isexpected to reverse and then decline through 2005 as uncompetitivecogen facilities are closed. The traditional facilities also willsuffer from the deregulating electric power market, surpluscapacity and low buyback rates, GRI said. “However, buyback rateswill again become a function of a region’s generation costs by 2010with the rebalancing of supply and demand.”

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