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Cogen Market Growth Slows, GRI Says

Cogen Market Growth Slows, GRI Says

While natural gas has captured the lion's share of the expanding cogeneration market in recent years, "the phenomenal growth of [cogeneration in] the past was a one-time event resulting from a unique combination of regulatory and market changes," according to the Gas Research Institute's Marie Lihn.

Lihn is project manager for a new GRI report, "Summary of the 1999 Cogeneration Projection" (GRI-99/0155). She expects to see growth in the cogeneration market shrink to produce a 20-year average of 1.4% a year between 1996 and 2015 versus the 10% a year common in the late 1980s and early 1990s. The projected average growth rate will be greater in the earlier years and less in later years.

"Future growth in industrial gas consumption will be driven predominantly by more traditional gas applications, including drying, fluid heating, metal heating, smelting and heat treating," according to the report prepared for GRI by Energy and Environmental Analysis of Arlington, VA.

The Public Utilities Regulatory Policy Act cleared the regulatory obstacles to the construction of efficient cogen projects. The market, however, also was artificially stimulated by projects built to take advantage of the law's requirement that utilities buy back cogenerated power at high prices. As a result consumption grew 22% per year from 1985 to 1990.

The buyback requirement was eased in 1992, cutting the legs out from under this so-called "non-traditional" market. That market is expected to reverse and then decline through 2005 as uncompetitive cogen facilities are closed. The traditional facilities also will suffer from the deregulating electric power market, surplus capacity and low buyback rates, GRI said. "However, buyback rates will again become a function of a region's generation costs by 2010 with the rebalancing of supply and demand."

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