Energy Policy 142 (2020) 111466

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Energy Policy
journal homepage: http://www.elsevier.com/locate/enpol

Comparative analysis of natural gas cogeneration incentives on electricity

production in Latin America
Alejandro Rivera-Alvarez a, b, c, *, Julian D. Osorio a, d, Laura Montoya-Duque c, e, Jose Fontalvo c,
Edgar Botero c, Ana Escudero-Atehortua f
a
Ingeniería T�ermica Ltda, Medellín, Colombia
b
Fundaci�on Ergon, Medellín, Colombia
c
MGM Innova Energy Services, Medellín, Colombia
d
Buildings & Thermal Sciences Center, National Renewable Energy Laboratory, Golden, CO, 80401, United States1
e
Decision Science Group, Universidad Nacional de Colombia, Medellín, Colombia
f
Departamento de Ingeniería Mec� anica, Universidad Pontificia Bolivariana, Medellín, Colombia

A R T I C L E I N F O A B S T R A C T

Keywords: An analysis to assess the influence of country-dependent variables and incentives on the feasibility of natural gas
Natural gas cogeneration cogeneration projects in Latin America is presented in this work. The analysis is performed using a hypothetical
Self-consumption industrial plant, where the cogeneration solution consists in the recovery of waste heat from the power gener­
Power surplus sale
ation for steam production. The feasibility is evaluated by calculating the Return of Investment (ROI) and the
Comparative analysis
Financial evaluation
Internal Rate of Return (IRR) of the project. Eight Latin American countries are studied considering their specific
Incentives natural gas markets, regulation, and macroeconomic variables. Two scenarios, electricity production for self-
consumption and electricity production with power surplus sale, are independently analyzed considering the
effects of available incentives. In the countries where the project is feasible, the application of incentives leads to
a significant reduction in the ROI and, consequently, to an increment in the IRR. The effect of the interest rate
and environmental impact were also analyzed. In general terms, along the region, the regulation for cogeneration
is incipient while incentives are very standard and similar respect to lowering of import, Value-Added Tax (VAT),
and income taxes, which seems to be designed purely to promote capital investment. Following the results from
this study, it is of paramount importance to create new policy instruments in the future to advance the regulatory
framework for cogeneration in Latin America.

1. Introduction
Cogeneration (also known as Combined Heat and Power or CHP) is
the joint and sequential production of electricity and useful thermal
energy (heat or cold), from a unique fuel source and usually at the same
place of consumption (Flin, 2009). Based on conventional thermoelec­
tric generation systems, which usually dissipate most of the primary fuel
energy in the form of waste heat (with typical efficiencies on the
35–45% range), cogeneration plants allow the recovery of a large
portion of such waste heat to use it in other processes, increasing the
total efficiency to values as high as 75–85% (Cakir et al., 2012; Gvoz­
denac et al., 2017). This makes cogeneration an important alternative to
reduce emissions generated in the energy sector and increase the effi­
ciency of electricity production.
As the recovered thermal energy is difficult to transport, cogenera­
tion systems are usually installed close to the energy demand location.
This feature makes cogeneration a Distributed Generation (DG) tech­
nology, which brings several advantages to modern electrical systems,
including an increased adaptability and reduced vulnerability toward
grid disconnection events (Jenkins et al., 2009; Pepermans et al., 2005).
Most cogeneration users belong to the industrial sector, even when it is
also common to find this type of systems in commercial facilities such as
university campuses, hospitals, military bases, power generation plants,
and even residential complexes (Shipley et al., 2008). In some cases, it is

* Corresponding author. Ingeniería T� ermica Ltda, Medellín, Colombia.

E-mail addresses: ajrivera@ingenieriatermica.com (A. Rivera-Alvarez), julian.osorio@nrel.gov (J.D. Osorio), lmontoyad@unal.edu.co, lmontoyad@unal.edu.co
(L. Montoya-Duque), jfontalvo@mgm-es.com (J. Fontalvo), ebotero@mgm-es.com (E. Botero), ana.escudero@upb.edu.co (A. Escudero-Atehortua).
1
Author current affiliation. This work was performed under the author’s other affiliation.

https://doi.org/10.1016/j.enpol.2020.111466
Received 3 August 2019; Received in revised form 26 March 2020; Accepted 28 March 2020
Available online 6 May 2020
0301-4215/© 2020 Elsevier Ltd. All rights reserved.
A. Rivera-Alvarez et al.
possible to produce more electricity than required so that surplus power
can be injected to the grid in order to obtain additional benefits for the
project.
In general terms, cogeneration systems can be differentiated ac­
cording to the fuel utilized (natural gas, coal, solid biomass, biogas, or
petroleum products), which defines to some extent the technology for
electricity production (reciprocating engines, steam turbines, gas tur­
bines, or alternative engines) and for thermal energy recovery (waste
heat boilers, absorption chillers, heat exchangers, water/organic
Rankine cycles, or direct process heating with flue gas) (Boyce, 2004).
Other alternatives under development include solar and fuel cells-based
cogeneration technologies (Raj et al., 2011). For purposes of regulation
and access to incentives, cogeneration projects can be distinguished in
two types according to the fuel they use: fossil fuel-based and
biomass-based. The distinction is important because fossil fuel-based
cogeneration requires policies specifically directed to cogeneration or
energy efficiency, while biomass-based cogeneration usually relies on
additional policies designed for renewable energy technologies.
Regarding regulatory and commercial frameworks applicable to
cogeneration, some of the most important specific aspects are the per­
mits/licenses required by a project (including the requirements for
connection to the public grid), the minimum efficiency levels estab­
lished to qualify as cogeneration, the price scheme for electricity
transactions (including the rules for selling surplus power), the existence
of a carbon market, and the access to any type of promotion instrument
or incentives (Rivera-Alvarez, 2018). In general, for any country a
cogeneration project is usually regulated by the dispositions designed to
the traditional energy sector, which must consider some or all the
aforementioned aspects. However, with varying levels of complexity,
different countries have developed regulatory particularities that
depend on the national objectives within their energy sectors, the
existing macroeconomic conditions, the availability of fuels, and the
applicability of certain technologies.
According to the World Energy Council, by 2013 cogeneration rep­
resented approximately 7.3% of the total installed capacity for elec­
tricity generation worldwide. In absolute terms, installed cogeneration
capacity went from 437.4 GW in 2006 to 733.7 GW in 2015, which
corresponds to an annual growth rate of 5.9%. By regions, cogeneration
participation in the Commonwealth of Independent States (CIS) is
around 45%; in the European Union about 14.5%; in North America
approximately 6.2%; in Asia-Pacific 4.9%; and in Latin America just
around 3% (World Energy Council, 2013).
There is an interesting cogeneration potential through the Latin
American region, which remains untapped, as the market has not been
completely exploited, particularly for natural gas-based plants. Most
experience is focused on biomass systems, with some countries like
Brazil, Guatemala, Cuba, and Colombia having a significant number of
cogeneration plants based on sugar cane bagasse (Perez-Sanchez, 2016).
Cogeneration with natural gas has been experiencing a significant
growth in the past two decades. There are countries like Mexico,
Argentina, and Venezuela (SENER, 2015; Ministerio de Energía y Min­
ería, 2016) where most of the installed cogeneration capacity is fueled
by natural gas. In some others, the installed cogeneration capacity splits
between biomass-based and natural gas-based systems like Brazil
(around 15% of the installed cogeneration uses natural gas (COGEN,
2018a; COGEN, 2018b)), Colombia (about half cogeneration capacity is
natural gas-based (Consorcio HART-RE, 2014)), and Chile (around 60%
cogeneration is fueled by natural gas (4E-Chile, 2019; Agencia de Sos­
tenibilidad Energ�etica, 2020)). At the same time, some countries like
Uruguay, Guatemala, Ecuador, and Cuba have almost exclusively
biomass cogeneration plants (Ministerio de Energía y Minas, 2018;
PROBIO, 2017; Ministerio de Electricidad y Energía Renovable, 2017),
while countries like Peru and Bolivia do not seem to have significant
experience in cogeneration (Ministerio de Energía y Minas, 2019).
There is specific regulation for cogeneration, at different stages of
development, in countries like Brazil, Colombia, Mexico, and Uruguay.
2
Energy Policy 142 (2020) 111466
However, most countries have a very incipient specific regulation in that
matter. In general terms the incentives found in the region, unlike the
ones found in other regions like the European Union, are very standard
and similar respect to the lowering of import, Value-Added Tax (VAT),
and income taxes. They are designed to motivate capital investment
instead of trying to encourage the power production itself, and for that,
do not address the specific features of cogeneration systems. It is worth
noting that Brazil is the only country in the region with an incentive
specifically directed to cogeneration, which particularly favors the sale
of surplus power and recognizes the importance of cogeneration as a
distributed generation strategy. At the same time, most Latin American
countries have incentives directed to promote renewable energy, where
biomass-based cogeneration projects can find an opportunity. As most
countries have considered the energy sector within their strategies to
comply with emission reduction plans (United Nations, 2015), it is ex­
pected that new policy instruments will be created in the near future
through the region, which could advance the regulatory framework for
cogeneration.
Environmental concerns have promoted the expansion not only of
renewable energy sources around the world, but also the production and
consumption of natural gas as a fundamental alternative in the transition
towards a cleaner energy matrix. Natural gas is considered a clean en­
ergy source when compared with other fossil fuels like diesel and coal,
and can effectively serve as a backup to sustain the deployment of
intermittent solar and wind power generation technologies (Leal et al.,
2019; Garcez, 2017). Primary energy supply in Latin America mainly
consist on natural gas, hydro, and coal, with an important growth in
renewable energy sources (Simsek et al., 2019). In countries like Brazil
and Colombia hydro power accounts for more than 60% of the produced
electricity while the main role of thermoelectric plants (coal and natural
gas) is to guarantee the reliability of the systems and absorb peaks in
demand (Ruiz-Mendoza and Sheinbaum-Pardo, 2010).
Natural gas production in South and Central America has been
increasing at average rates of 1.4% per year from 2007 to 2017, reaching
176.1 billion cubic meters in 2018. The largest growth is presented in
Peru, Brazil, and Colombia with 17.6%, 8.9%, and 5.4%, respectively. At
the end of 2018, the proven reserves of natural gas in South and Central
America reached 8.2 trillion cubic meters (4% of the global share) with
the largest contribution from Venezuela with 6.3 trillion cubic meters
(Natural Gas – 2018 in Rev, 2018). Bolivia has become the main natural
gas exporter in Latin America with about 80% of its production being
exported to Brazil and Argentina. Bolivia is projected to keep its role as
major natural gas exporter during the next decade with approximately
74% of its production by 2030 (Leal et al., 2019; Chavez-Rodríguez
et al., 2016). Despite the significant natural gas reserves, the lack of
infrastructure and the need for a more robust physical integration
among Latin American countries are still the main challenges the natural
gas market faces today (Rudnick et al., 2014; Washburn and
Pablo-Romero, 2019). This situation, however, could favor an alterna­
tive scenario for distributed generation including cogeneration projects.
Different studies can be found in the literature that address subjects
related to the development of cogeneration projects at the regional level
for Latin America. For example, Jacobs et al. (Jacobs et al., 2013) pre­
sent an analysis of the existing renewable energy incentives in Latin
America with focus on feed-in tariffs, Santamaria et al. (Santamaria
et al., 2014, 2016) compare the regulation related to distributed gen­
eration along most Latin American countries, Souza et al. (Souza et al.,
2018) discuss the prospects of creating a cleaner energy scenario
through the region by expanding the production of sugarcane, and
Meneses-Jacome et al. (Meneses-J� acome et al., 2016) review the efforts
associated with the production of biogas for energy recovery from
wastewaters. Despite all these works discuss important aspects associ­
ated to the development of cogeneration projects for the region, there is
no study that compares the feasibility of implementing cogeneration
across the different Latin American countries, and in particular, that
addresses the influence of the incentives in place to promote natural
A. Rivera-Alvarez et al.
gas-based cogeneration projects. This topic is important as the cogene­
ration with natural gas can be one of the most cost-efficient alternatives
to reduce emissions, while helping the transit to distributed and more
sustainable electric systems. The analysis and comparison presented in
this work can help to devise proper regulation and incentives to boost
the widespread adoption of the technology, given the conditions of each
country.
The specific objective of this work is to analyze the influence of in­
centives and country-dependent variables on the feasibility of natural
gas-based cogeneration in Latin America. It focuses on the particularities
of eight different countries (Argentina, Bolivia, Brazil, Chile, Colombia,
Mexico, Peru, and Uruguay), where natural gas is available. Venezuela,
having the largest natural gas reserves in the region is not considered in
the analysis due to the difficulty to make any projections, given its
current macroeconomic situation. Ecuador and Cuba are also not
included as natural gas there is not broadly available, and consumption
is low and mostly reserved for electricity production. Trinidad and
Tobago, being one the largest natural gas producers in the region, is also
not included as it mostly goes directly to the production of electricity,
ammonia, methanol, and LNG to be exported. All other Latin American
countries, where natural gas is unavailable, are not taken into account in
this study. The comparative analysis is performed using a hypothetical
industrial plant, which could be installed at any of the studied countries.
The choosing of natural gas for the analysis (i) allows studying the ef­
fects of the regulation for cogeneration without interference of the
regulation for renewable energy, and (ii) makes the problem more
universal in the sense that biomass or biogas would limit the analysis to
certain productive sectors. Two options have been considered regarding
the possible scenarios for electricity generation and energy exchange to/
from the grid: electricity production for self-consumption and electricity
production with power surplus sale.
This paper is organized as follows, a description of the process plant
considered is presented in section 2, which includes the relevant infor­
mation about electricity and thermal energy consumption. In section 3,
the corresponding cogeneration plant selection process is described
emphasizing the selection of the power generation equipment and heat
recovery system. The influence of country-dependent variables and in­
centives on the feasibility of natural gas cogeneration projects in Latin
America is analyzed in section 4. After a clear statement of the as­
sumptions, parameters for each country, and methodology, a compara­
tive analysis is conducted considering two scenarios, electricity
production for self-consumption and electricity production with power
surplus sale. At the end of section 4 the effect of interest rate on the
financial results for the project is analyzed. Finally, the concluding re­
marks and recommendations for future work are presented in section 5.
2. Process plant description
In this section, a general description of the hypothetical process
plant, on which the cogeneration solution will be implemented, is pre­
sented. The description includes the electric and thermal consumption
scenarios for the plant. The characteristics of the plant are presented in a
general manner so it could be installed in any of the considered coun­
tries. At the same time, the plant has operation characteristics that are
applicable in the industrial and commercial sectors. The plant is
assumed to be located at sea level with an average ambient temperature
of 25 � C.
All analysis will be restricted to use of natural gas as fuel. As
explained, this selection allows examining the effects of regulation for
cogeneration, avoiding the intersection with the regulation for renew­
able energy. It also leads to a straightforward analysis, as the consid­
eration of biofuels would restrict the analysis to some specific
productive sectors. The use of natural gas restricts the power generation
technologies to internal combustion engines and gas turbines and con­
tributes to develop a clear cogeneration solution.
3
Energy Policy 142 (2020) 111466
2.1. Electricity consumption
The overall electricity consumption of the plant is considered
without taking into account particularities of any subsystem that could
impact the cogeneration design. Electricity is originally supplied to the
process plant by the public power grid with a mean consumption slightly
greater than 2 MWe and a maximum demand of nearly 3 MWe. This size
of plant has been selected considering that it is a representative condi­
tion for numerous projects along Latin America. The hourly electricity
demand for the process plant is presented in Fig. 1 for a period of twelve
months. The average demand for the process plant is 2133.0 kWe, the
average consumption is 1556.9 MWh/month, and most of the values are
larger than 1500 kWe.
The average and maximum demand will be the reference conditions
used in the selection of the power generation equipment. Two scenarios
of power generation and electricity supply from/to the public grid will
be considered in the analysis of the cogeneration plant: power genera­
tion for self-consumption and power generation with surplus sale. In the
first scenario, the cogeneration plant power production should be close
to the average demand, thus the total power is consumed in the process
plant and no energy is transferred to the power grid. In turn, power
would be taken from the grid when demand surpasses the power pro­
duction of the cogeneration plant. In the second scenario, the power
output of the plant should be higher than the maximum demand, thus
power surplus sale is possible. In this case, all electricity required would
be supplied by the cogeneration plant, except for periods when it is
unavailable. Analyzing independently both scenarios is important
considering that the commercial and regulatory frameworks of every
country could favor or disfavor power surplus sales.
2.2. Thermal energy consumption
As explained before, the plant operates with natural gas, which is
used for steam production in a system of boilers. No other use for the fuel
is considered and the sub-processes where steam is consumed are not
analyzed. Thus, the cogeneration plant configuration will be restricted
to steam production by recovering waste heat from the power genera­
tion equipment installed. The system of boilers has a total capacity of
12000 lb/h (5442.67 kg/h) and produces saturated steam at 125 psig
(8.62 barg).
The monthly fuel consumption for the plant is 8100 MMBtu/month
(8545.9 GJ/month), which is equivalent to an average demand of 11.25
MMBtu/h (3297 kW). Considering the efficiency, the steam production
conditions, and the feed water temperature, an average instant steam
production of 8200 lb/h (3719.5 kg/h) is obtained. Comparing this
value with the boilers’ capacity, the average operation load is approxi­
mately 68.3%. In contrast with the power consumption information,
Fig. 1. Hourly electricity demand for the process plant. Average demand: 2133
kWe; Maximum demand: 2924 kWe; Annual consumption 18.68 GWh/year.
A. Rivera-Alvarez et al. Energy Policy 142 (2020) 111466

there is not detailed hourly data for steam consumption. However, it is
expected that the instantaneous demand mostly lies around the reported
average. Table 1 summarizes the main operating parameters of the
steam system.
3. Cogeneration plant selection
As mentioned in section 2, the power generation technologies are
restricted to internal combustion engines and gas turbines, and the
cogeneration solution would consist in the recovery of waste heat from
the power generation equipment for steam production. The configura­
tion and parameters for the considered cogeneration solution are pre­
sented below.
3.1. Power generation equipment
In order to cover the power generation for the considered scenarios,
four different alternatives of equipment have been selected. For the self-
consumption and power surplus sale scenarios internal combustion en­
gines (equipment 1 and 2) and gas turbines (equipment 3 and 4) have
been chosen. Selected equipment with their respective characteristics
are presented in Table 2. For the self-consumption scenario (equipment
1 and 3), power is close to the average consumption of 2133 kWe
(see Fig. 1). For Equipment 2 and 4, power is much higher than the
maximum demand of 2924 kWe (see Fig. 1), which produces a signifi­
cant energy surplus for sale. It is important to note that the effective
power values for some equipment are lower than the nominal value due
to the operating conditions. The site conditions in this case are 25 � C and
0 MASL (Meters Above Sea Level) that are different to the reference ISO
conditions, i.e. 15 � C and 0 MASL for which the nominal power is given.
The power generated by the cogeneration plant (Welec ), the required
power to be taken from the grid (Wpurchase ), the surplus power available
(Wsurplus ), and the electricity no longer taken from the grid (Wsaved ) can
be determined by analyzing the demand curve presented in Fig. 1. For
this analysis, the hourly electricity consumption data reported in Fig. 1
are rearranged from highest to lowest values as shown in Fig. 2, where
the effective power output for the cogeneration plant (i.e. 2200 kWe
corresponding to Equipment 1) is represented by the horizontal line.
Three important regions can be identified in Fig. 2 resulting from the
interaction between the descendent demand curve and the effective
power output line. These regions determine the values, in kWh/year, of
power generation for self-consumption (region I, corresponding to
Wsaved ), required power to be taken from the grid (region II, corre­
sponding to Wpurchase ), and power surplus availability from the cogene­
ration plant (region III, corresponding to Wsurplus in the case of power
surplus sale scenario). The sum of regions I and II corresponds to the
demand of the process plant (18.68 GWh/year, c.f. Fig. 1). If the effec­
tive power is higher than the maximum demand, no power must be
taken from the grid (the area of region II becomes zero). The sum of
regions I and III equals the power generation capacity of the cogenera­
tion plant. In the case of power generation for self-consumption
(Equipment 1 and 3), no power is exported to the grid and the total
power generation corresponds to region I. It is important to note that the
values extracted from Fig. 2 must be corrected to take into account the
availability of the power generation equipment (assumed 90% for the
engines and 95% for the turbines). The availability indicates the fraction
of time the equipment is actually producing power and excludes the time
when the equipment is unavailable due to maintenance or other factors.
Operating parameters of power generation equipment depend on the
manufacturer and reference considered, with different equipment
leading to diverse designs of cogeneration plants. It is expected that a

Table 1
Operating parameters of the steam system.
Variable Value

Total capacity 12000 lb/h (5442.67 kg/h)

Steam pressure 125 psig (8.62 barg)
Steam temperature, Tst 178.2 � C
Feed water temperature, TfH2 O 80 � C
Efficiency, based on LHV, ηboiler 85%
Monthly fuel consumption, based on HHV 8100 MMBtu/month (8545.9 GJ/
month)
Avg. instant fuel consumption, based on 11.25 MMBtu/h (3297 kW)
HHV
Average instant steam production 8200 lb/h (3719.5 kg/h)
Fig. 2. Descendent demand curve.

Table 2
Operating parameters of selected power generation equipment.
Parameter Model 1 Model 2 Model 3 Model 4
Engine Engine Turbine Turbine
(self-cons.) (surplus) (self-cons.) (surplus)

Power (MWe) Nominal 2.20 5.20 2.00 5.77

Effective 2.20 5.20 1.90 5.10
Average 1.77 4.68 1.67 4.85
Electric (MWh/month) Generation, Welec 1290.20 3416.40 1216.30 3536.90
Purchase, Wpurchase 266.76 155.70 340.61 77.85
Surplus, Wsurplus - 2015.10 - 2057.80
Savings, Wsaved 1290.2 1401.3 1216.3 1479.1
Electric efficiency, based on LHV, ηelec 41.10% 45.60% 32.00% 30.50%
Fuel consumption, based on HHV (MMBtu/month) 11736 28008 14184 43344
Average exhaust gas flow, m_ gas (kg/s) 2.86 7.43 10.83 18.60
Exhaust gas temperature, Tgas;in (� C) 412 395 280 510

4
A. Rivera-Alvarez et al.
different selection of equipment would provide solutions close to the
configurations presented here, as the selected equipment are a good
representation of what is available in the market. The fundamental
operating parameters required in this study for the design of the
cogeneration plant are the electric efficiency (ηelec , from which the fuel
energy consumption can be calculated), exhaust gas flow (m_ gas ), and
exhaust gas temperature (Tgas;in ), which are presented in Table 2. All
these values can be found on the respective datasheet for the considered
equipment (Cummins, 2019; Rolls Royce, 2019; Capstone, 2019; Solar
turbines, 2019) and are taken at the average operating power. From the
presented values, it is clear that the power generation efficiency for
internal combustion engines is substantially higher, while the exhaust
gas flow is considerably larger for turbines.
Fig. 3. Cogeneration plant configuration. a) Combustion engines. Equipment 1 and 2. b) Gas turbines. Equipment 3 and 4.
5
Energy Policy 142 (2020) 111466
3.2. Heat recovery system
Cogeneration plant configurations for internal combustion engines
(equipment 1 and 2) and for gas turbines (equipment 3 and 4) are pre­
sented in Fig. 3. As can be seen, in both cases, the proposed solution
consists on installing a Heat Recovery Steam Generator (HRSG) to pro­
duce steam using waste heat from exhaust gases. Table 3 provides
detailed information about the main process variables for each config­
uration and equipment.
Values displayed in Table 3 have been obtained through mass and
energy balances for each configuration using the information provided
in Tables 1 and 2. These values represent the average operating condi­
tion given by the average power. Fig. 4 and Eqs. (1)–(4) show the basic
relationships between the key variables for the HRSG.
The HRSG comprises two sections: Evaporator and Economizer.
A. Rivera-Alvarez et al. Energy Policy 142 (2020) 111466

Table 3
Process variables for the cogeneration plant.
Parameter Model 1 Model 2 Model 3 Model 4
Engine (self- Engine Turbine (self- Turbine
cons.) (surplus) cons.) (surplus)

Power (MWe) Average 1.77 4.68 1.67 4.85

Heat Recovery Steam Generator (HRSG), Flue gas flow, m_ gas (kg/s) 2.86 7.43 10.83 18.6
average values Fraction through HRSG (%) 100 100 100 30.5
Inlet flue gas temperature, Tgas;in (� C) 412 395 280 510
Outlet flue gas temperature, Tgas;out (� C) 150 153 173 133
Recovered heat, QHRSG (kWt) 837 2.008 1.290 2.395
Produced steam, m_ st (kg/h) 1234.2 2962.0 1903.3 3533.5
Cogeneration fuel savings, based on HHV, Qsaved 2690 6450 4143 7693
(MMBtu/month)

Efficiency, based on LHV Electric efficiency, ηelec (%) 41.10 45.60 32.00 30.50
Cogeneration efficiency, ηcogen (%) 60.60 65.20 56.80 45.60
Effective Electric Efficiency, EEE (%) 53.30 59.20 45.20 37.10

QHRSG
Qsaved ¼ (5)
ηboiler

with ηboiler ¼ 85% as defined in Table 1.

For equipment 1, 2, and 3, the amount of steam produced in the
HRSG is lower than the process plant demand of 3719.5 kg/h
(see Table 1). This implies that a conventional boiler system must be
kept as a backup to produce the missing steam at any time. Compared
with the situation without cogeneration, this conventional boiler will
have a lower fuel consumption equivalent to the cogeneration fuel
savings (Qsaved ) presented in Table 3, which represents a reduction of
33.2%, 79.6%, and 51.2% for equipment 1, 2, and 3, respectively. In the
case of Equipment 4, due to the large flow of gases coming from the
Fig. 4. Temperature diagram for the HRSG. turbine, the HRSG has the capacity to produce 11571 kg/h of steam,
� �
Qev ¼ m_ gas cp;gas Tgas;in Tgas;ev ec ¼ m_ st hg cp;H2 O TH2 O;ev ec
�
(1) which is much larger than the process plant demand. For that reason,
only 30.5% of the flue gases goes through the HRSG, while the
Tgas;ev ec ¼ Tst ΔTpinch (2.1) remaining gases are diverted to the atmosphere. Despite the HRSG can
produce the full amount of steam, the assumed availability of 95% for
TH2 O;ev ec ¼ Tst ΔTappr (2.2) the cogeneration plant requires a conventional backup boiler to provide
� � the other 5% of steam.
Qec ¼ m_ gas cp;gas Tgas;ev Tgas;out ¼ m_ st cp;H2 O TH2 O;ev TfH2 O (3)
In addition to the electricity generation (surplus and savings, see
ec ec

QHRSG ¼ Qev þ Qec
Equation (1) corresponds to the energy balance for the Evaporator,
where the evaporation process occurs using the gas energy. In the
Evaporator, the gas temperature is reduced from Tgas;in (see Table 2) to
the gas temperature at the interface between the Economizer and the
Evaporator (Tgas;ev ec ), which is given by Eq (2) as a function of the steam
temperature (Tst ) and the pinch point temperature ΔTpinch (see Fig. 4).
Equation (3) corresponds to the energy balance for the Economizer,
where the water is preheated from the feed water temperature (TfH2 O ,
see Table 1) to the steam temperature minus the approach temperature,
i.e., Tst ΔTappr (see Fig. 4). The total heat recovered by the HRSG
(QHRSG ) is the sum of the evaporator heat transfer (Qev ) and economizer
heat transfer (Qec ), see Eq. (4). In Eqs. (1)–(4) the following values are
being used: gas mass flow (m_ gas , see values in Table 2), Tst ¼ 178:2� C,
TfH2 O ¼ 80� C (see Table 1), cp;gas ¼ 1:118KJ=kg� C, cp;H2 O ¼ 4:186 KJ=
kg� C, ΔTpinch ¼ 11:11� C, ΔTappr ¼ 11:11� C, and the enthalpy of vapor­
ization of water hg ¼ 2775:7 KJ=kg. From these equations Qev , Qec ,
QHRSG , Tgas;ev ec , the outlet gas temperature (Tgas;out ), and the mass flow of
the steam (m_ st ) are determined. Finally, the cogeneration fuel savings
produced by the installation of the HRSG are given by Eq. (5):
(4) Table 2), the cogeneration fuel savings represent an economical benefit
from the cogeneration project. The extent of those benefits compared to
the energetic cost (accounted by the fuel consumption in the cogene­
ration equipment) is quantified by the Cogeneration Efficiency (ηcogen )
and the Effective Electric Efficiency (EEE), which are defined in Eqs. (6)
and (7) and presented in Table 3.
Welec þ QHRSG
ηcogen ¼ (6)
Qfuel
Welec
EEE ¼ (7)
Qfuel Qsaved
The performance of internal combustion engines widely surpasses
the performance of gas turbines for both the self-consumption and
power surplus sale scenarios (see Table 3). For self-consumption,
equipment 1 (internal combustion engine) presents an EEE of 53.30%
in comparison with 45.20% for equipment 3 (gas turbine). Similarly, for
power surplus sale, equipment 2 presents an EEE of 59.20%, while
37.10% of EEE is obtained for the equipment 4. It is worth noting that
this situation where internal combustion engines present a superior
energetic performance with respect to gas turbines depends on charac­
teristics of the process plant and the equipment selection. For instance, if
all steam that can be produced in equipment 4 (gas turbine, 5100
effective kWe) could be consumed in the process plant, the EEE value

6
A. Rivera-Alvarez et al. Energy Policy 142 (2020) 111466

would increase up to 72.70%. Due to their superior performance for the
considered cases, the analysis in the following sections will only be
conducted for plant configurations comprising internal combustion
engines.
4. Comparative analysis for Latin American countries
The cogeneration unit analyzed in this work modifies the energy
economics of the process plant. For the evaluation, the performance of
the cogeneration plant is compared with the corresponding pre-project
situation. Savings in electricity (Wsaved ), cogeneration fuel savings
(Qsaved ), and power surplus sales (Wsurplus ) constitute the project income.
Other possible income related with the increase in reliability of the
process plant, quality in the electricity supply, or those corresponding to
demand response mechanisms will not be considered, as they are
relevant just in particular circumstances or are not fully regulated.
Among project costs, the fuel consumption for generation (Qfuel ), oper­
ation and maintenance (O&M), and capital costs are included. Based on
these income and cost values for the corresponding cogeneration plant
configuration, a comparative analysis to determine the viability of the
project is developed in this section. The analysis is carried out inde­
pendently for the two scenarios: power generation for self-consumption
and power surplus sale. As mentioned before, differences in commercial
and regulatory frameworks among countries could favor or disfavor
surplus sales; also, only internal combustion engines are considered as
they present a better performance than gas turbines.
4.1. Assumptions, parameters, and methodology
The parameters used in the comparative analysis are presented in

Table 4
Parameters for the comparative analysis.
Variable Argentina Bolivia Brazil Chile Colombia Mexico Peru Uruguay

Electricity cost (USD/MWh)1 61.90 150.40 92.70 140.30 122.90 90.10 87.70 128.20
Surplus price (USD/MWh) 70.132,3 40.474 73.585 95.206 52.437 56.00 57.038 61.00
Fuel cost (USD/MMBtu) 5.049,10 2.2910,11 14.3810,12 14.0510,13 13.7010 5.0810,14 6.2510 15.4110,15
Inflation16 10.33 4.75 7.14 3.47 4.12 3.50 3.37 8.77
Income tax (%)17 35.00 25.00 19.00 9.00 33.00 30.00 29.50 25.00
VAT (%)17 21.00 13.00 17.00 19.00 19.00 16.00 18.00 22.00
Tariff (%) 14.0018 0.0019 25.7520,21 6.0022 0.0023 5.0024 0.0025 14.0018
Emission factor electricity (kgCO2/kWh)26 0.5175 0.5888 0.2947 0.6156 0.3297 0.5282 0.5948 0.5741
Emission factor natural gas 59.19 59.19 59.19 59.19 59.19 59.19 59.19 59.19
(kgCO2/MMBtu)27
1
Osinergmin, “Tarifas el�ectricas industriales y comerciales en Latinoam� erica - 2do trimestre del 2018,” 2018. http://observatorio.osinergmin.gob.pe/tarifas-
electricas-industriales-comerciales-latinoamerica.
2
CAMMESA, “Informe Anual 2017,” Argentina, 2017.
3
Ministerio de Energía y Minas, “Precio Mayorista de la Energía El�ectrica,” Argentina, 2017.
4
Autoridad de Fiscalizaci�on y Control Social de Electricidad, “Anuario Estadístico Hist� orico 2017,” Bolivia, 2018.
5
C^amara de Comercializaç~ ao de Energia El�etrica, “Preços m�edios - PLD - Preço de Liquidaç~ ao das Diferenças,” 2018. https://www.ccee.org.br/portal/faces/
pages_publico/o-que-fazemos/como_ccee_atua/precos/precos_medios?_afrLoop¼465171281125591&_adf.ctrl-state¼405iniypb_53#!%40%40%3F_afrLoop%
3D465171281125591%26_adf.ctrl-state%3D405iniypb_57.
6
Comisi� on Nacional de Energía, “Precio Medio de Mercado,” 2019. https://www.cne.cl/precio-medio-de-mercado-2/.
7
XM, “Informes Anuales - Precio y participaci� on en contratos de largo plazo por tipo de mercado,” 2018. http://informesanuales.xm.com.co/2017/SitePages/
operacion/2-7-precio-participacion-en-contratos-de-largo-plazo-por-tipo-de-mercado.aspx.
8
Osinergmin, “Precio a nivel de Generaci� on y Mecanismo de Compensaci� on para Usuarios Regulados del SEIN,” 2019. http://www.osinergmin.gob.pe/seccion/
institucional/regulacion-tarifaria/procesos-regulatorios/electricidad/precio-a-nivel-generacion-y-mecanismo-usuarios-sein.
9
Ministerio de Energía y Minería, “Precio del Gas Natural en el PIST,” Argentina, 2017.
10
Gas Energy, “Reporte de formaci� on de precios de gas natural en Am� erica Latina,” 2018. https://w5s.bnamericas.com/bnamericas/reportes/Reporte_Formacio
n_Precios_Gas.pdf.
11
Agencia Nacional de Hidrocarburos, “Resoluci� on Administrativa RAR-ANH-ULGR N0. 0331/2017,” La Paz, Bolivia, 2017.
12
Minist�erio de Minas e Energia, “Boletin mensal de acompanhamento de indústria de g� as natural,” 2018. http://www.mme.gov.br/web/guest/secretarias/pet­
roleo-gas-natural-e-combustiveis-renovaveis/publicacoes/boletim-mensal-de-acompanhamento-da-industria-de-gas-natural/.
13
Metrogas, “Tarifas Industriales,” 2019. http://www.metrogas.cl/industria/?q¼node/101&nodeid¼99&red¼1
14
Comisi� on Reguladora de Energía, “Consulta los precios de Petrolíferos, Gas LP y los �Indices de Referencia de Precios de Gas Natural,” 2019.https://www.gob.mx/
cre/articulos/consulta-los-precios-de-petroliferos-gas-lp-y-los-indices-de-referencia-de-precios-de-gas-natural?idiom¼es.
15
Unidad Reguladora de Servicios de Energía y Agua, “Gas Natural - Tarifas y precios,” 2018. http://www.ursea.gub.uy/inicio/Combustibles/Gas_Natural/Tar­
ifas_Precios_GLP/Evolucion_tarifaria_GAS/.
16
The World Bank, “Inflation, consumer prices (annual %),” 2017. https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG.
17
Inter-American Center of Tax Administrations, “Tax Rates in Latin America,” 2017. https://www.ciat.org/tax-rates-in-latin-america/?lang¼en.
18
Sistema de Apoyo a Reuniones del MERCOSUR, “Consultas a la Nomenclatura Común y al Arancel Externo del MERCOSUR,” 2018. https://sarem.mercosur.int/
nomenclatura/pt.
19
Aduana Nacional. Estado Plurinacional de Bolivia, “Arancel Aduanero 2018,” 2018. https://www.aduana.gob.bo/aduana7/arancel2018.
20
Invest & Export Brasil, “Imposto de Importaç~ ao - II.” http://www.investexportbrasil.gov.br/imposto-de-importacao-ii.
21
Receita Federal - Brasil, “IPI - Imposto sobre produtos industrializados,” 2019. http://receita.economia.gov.br/acesso-rapido/tributos/ipi.
22
Servicio Nacional de Aduanas. Aduanas Chile, “Arancel Aduanero Vigente,” 2017. https://www.aduana.cl/arancel-aduanero-vigente/aduana/2016-12-30/09
0118.html.
23
Direcci�on de Impuestos y Aduanas Nacionales de Colombia, “Consultas Arancel,” 2018. https://muisca.dian.gov.co/WebArancel/DefMenuConsultas.faces;
jsessionid¼748E80E63003B11E128DE932C7388D19.
24
Sistema Integral de Informaci� on de Comercio Exterior. M�exico, “Tarifa de la Ley de los Impuestos Generales de Importaci� on y Exportaci�on (TIGIE),” 2017. http://
www.siicex.gob.mx/portalSiicex/SICETECA/Decretos/Arancel/Tigie/tigiex.htm.
25
Superintendencia Nacional de Aduanas y de Administraci� on Tributaria. Perú, “Tratamiento Arancelario por Subpartida Nacional,” 2018. http://www.aduanet.
gob.pe/itarancel/arancelS01Alias.
26
Institute for Global Environmental Strategies, “IGES List of Grid Emission Factors,” vol. 10.4. 2018.
27
IPCC, “Chapter 2: Stationary Combustion,” 2006 IPCC Guidel. Natl. Greenh. Gas Invent., p. 47, 2006.

7
A. Rivera-Alvarez et al. Energy Policy 142 (2020) 111466

Table 4 for each of the considered countries. The electricity cost pre­
sented in this table corresponds to an average value, typical for the in­
dustrial sector in each country for the second quarter of 2018
(Osinergmin, 2018). Even when the electricity cost varies according to
the particular negotiations of every company, the presented values can
be considered as representative in the market, including all the associ­
ated charges. Prices for the power surplus sale are mostly set according
to information of long-term contracts in energy markets for each country
during 2017 or 2018 depending on the most recent value available
(CAMMESA, 2017; Ministerio de Energía y Minas, 2017; Autoridad de
Fiscalizacio�n y Control Social de Electricidad, 2018; C^ amara de Com­
ercializaça
~o de Energia El�etrica, 2018; Comisio �n Nacional de Energía,
2019; XM, 2018; Osinergmin, 2019). Note that for Argentina, the sur­
plus price is larger than the electricity cost due to the highly subsidized
price scheme. Values presented for the fuel correspond to the average
price of natural gas for each country during 2018 (Ministerio de Energía
y Minería, 2017; Gas Energy, 2018; Agencia Nacional de Hidrocarburos,
2017; Minist�erio de Minas e Energia, 2018; Metrogas, 2019; Comisio �n
Reguladora de Energía, 2019; Unidad Reguladora de Servicios de
Energía y Agua, 2018). Values for annual inflation, income tax, and
Value-Added Tax (VAT) for 2017 are also reported in Table 4 (The World
Bank, 2017; Inter-American Center of Tax Administrations, 2017). In the
case of Brazil, the income tax rate corresponds to a company with a net
profit larger than 240.000 BRL (Inter-American Center of Tax Admin­
istrations, 2017). Any local taxes that could be applied to the project are
not considered in this analysis. The tariff values differ depending on the
items to be imported, the country of origin, and the existence of special
conditions and programs. The values presented in Table 4 correspond to
the average tariff rate for each country (Sistema de Apoyo a Reuniones
del MERCOSUR, 2018; Aduana Nacional, 2018; Invest & Export Brasil,
2019; Receita Federal - Brasil, 2019; Servicio Nacional de Aduanas,
2017; Direccio �n de Impuestos y Aduanas Nacionales de Colombia, 2018;
Sistema Integral de Informacio �n de Comercio Exterior, 2017; Super­
intendencia Nacional de Aduanas y de Administracio �n TributariaPerú,
2018). Emission factors for electricity taken from the public power grid
and the thermal energy are also reported in Table 4. The first factors are
taken from the Institute for Global Environmental Strategies (Institute
for Global Environmental Strategies, 2018) and correspond to the last
available data for each country before May 2018. They are different for
every country as they depend on the electricity matrix. The emission
factors for thermal energy are extracted from ref. (IPCC, 2006), corre­
spond to natural gas burning, and are identical for each country even
when natural gas composition could slightly differ.
Important for the analysis is the consideration of incentives available
for cogeneration projects. Table 5 presents a summary of incentives for
each country. In general, the type of incentives found are the reduction
or exception of VAT, income tax, or tariffs (Secretaría de Energía -
República Argentina, 2018; Presidente Constitucional del Estado Pluri­
nacional de Bolivia, 2014; Schechtman, 2012; ANEEL, 2015; Presid^ encia
da República, 2002; Agencia de Sostenibilidad Energ� etica, 2020; Unidad
de Planeacio �n Minero Energ�etica UPME, 2017; Unidad de Planeacio �n
Minero Energ� etica UPME, 2018; Comisio �n Reguladora de Ener­
gía“Comisio �n Reguladora de Energía - CRE, 2019; Presidente de la
República, 2008; Comisio �n de Integracio�n Energ�etica Nacional, 2013;
Consejo de Estado, 1974; Presidente de la República, 2009). In the case
of Brazil, an additional incentive for surplus sales applies, which grants a
50% reduction in the usage cost for transmission and distribution sys­
tems. In the case of Mexico, there is an additional income for the project
from the Clean Energy Certificates (CELs) market, which is not taking
into account in this study. More information about other incentives
applicable to other countries worldwide can be found in refs. (World
Energy Council, 2013; Schechtman, 2012; Kallakuri et al., 2016). The
“does not apply” input in Table 5 corresponds to the cases where no
information was found.
To observe the effect of incentives, the financial evaluation of the
project is conducted under three main situations: without incentives,
current incentives, and maximum incentives:
� Without incentives: the project assumes the total VAT, tariffs, and
income tax reported in Table 4. Power surplus price is also taken
from Table 4.
� Current incentives: the current incentives for cogeneration avail­
able for each country are considered, see Table 5.
� Maximum incentives: the project is exempted of VAT and tariffs
related to CAPEX (Capital Expenditures). During the first five years
of operation, the CAPEX is deducted from the taxable base, reducing
the income tax. In addition, a preferential price for surplus power is
assumed using the corresponding current incentive for Brazil.
Table 6 presents the estimated CAPEX and OPEX (Operational Ex­
penditures) values for the project for each of the two considered sce­
narios. The CAPEX comprises the estimated cost of the main equipment
and the Balance of Plant (BOP). The BOP includes the supply and
installation of all secondary elements of the project related to mechan­
ical, electrical, and civil components. Therefore, total CAPEX corre­
sponds to a turnkey project. It is worth noting that several values are
country-dependent due to factors such as local prices for components
and workforce, and cost associated to local licenses and procedures. In
this study, however, the project cost before tariffs are considered con­
stant for all countries, with the local components of the supply presented
as a separated item, as they will not be affected by tariffs in the financial

Table 6
Table 5 Estimated CAPEX and OPEX for the project.
Available incentives for cogeneration projects. Concept Self- Power surplus
Country Incentives consumption sale

Argentina Does not apply. (Secretaría de Energía - República Argentina, 2018)

Bolivia Does not apply. (Presidente Constitucional del Estado Plurinacional de Nominal 2200 5200
Bolivia, 2014) Power (kWe)
Brazil Exemption of import tariff for PIS and CONFIS. This reduces the tariff to CAPEX
14%. Also, 50% reduction in the cost usage for transmission and (thousands USD)
distribution systems for cogeneration surplus sales up to 30 MW. ( Imported Internal 1200 (56%) 3100 (68%)
Schechtman, 2012; ANEEL, 2015; Presid^encia da República, 2002) Combustion
Chile Does not apply. (Agencia de Sostenibilidad Energ�etica, 2017) Engine
Colombia VAT and income tax exemption (applicable for five years and up to 50% Recuperation 150 (7%) 250 (6%)
of the taxable base). (Unidad de Planeaci� on Minero Energ�etica UPME, Boiler
2017; Unidad de Planeaci� on Minero Energ� etica UPME, 2018) Local Plant Balance 800 (37%) 1200 (26%)
M�
exico Does not apply. (Comisi�on Reguladora de Energía“Comisi� on Reguladora Total (thousands USD) 2150 4550
de Energía - CRE, 2019) Specific Cost (USD/kWe) 977 875
Perú Does not apply. (Presidente de la República, 2008)
Uruguay Income tax exemption (up to 40%) and Import tariff exemption. ( OPEX
Comisi�on de Integraci�on Energ�etica Nacional, 2013; Consejo de Estado,
O&M (USD/MWh) 17 12
1974; Presidente de la República, 2009)

8
A. Rivera-Alvarez et al.
Table 7
Parameters for the financial evaluation.
Parameter Value Notes
Evaluation period 20 years Used in the Internal Rate of Return (IRR)
calculation
Equity/loan 30%/70% Both in USD to avoid the effect of exchange
rate and local currency devaluation
Annual loan 10%
interest rate
Indexation Country- Electricity, fuel, and O&M costs are inflation-
dependent indexed. The indexation of fuel is assumed to
be independent of oil prices.
Depreciation 10 years A linear depreciation with zero residual
value is assumed.
evaluation. Concerning OPEX, estimated values in USD/MWh for the
O&M are presented. These values include imported spare parts and local
consumables and workforce. The assumed value includes periodical
maintenances and major overhauls, which have been levelized to be
constant over time instead of changing with each maintenance event.
Other OPEX costs such as service availability charge from the public
electricity supplier are neglected, as they represent just a small fraction
of the total OPEX cost. The resulting values for the specific CAPEX and
OPEX in USD/kWe and USD/MWh, respectively, are in the expected
range for this type of project. As can be seen, both values are lower for
the power surplus sale scenario due to the larger plant capacity.
Finally, the financial parameters presented in Table 7 are considered
for evaluation. The values of these parameters are chosen according to
standard practice for project financial evaluation. The evaluation period
for a project usually ranges between 10 and 25 years. The chosen value
of 20 years is representative of the lifetime of a cogeneration project.
The selected equity/loan distribution is typical of private financed
projects across the region. An investor may consider a different distri­
bution based on the feasibility and risk of a specific project; however, as
equity/loan values were equally chosen for all countries, they do not
exert any effect on the comparison results. The annual loan interest rate
has been chosen as 10% as this is commonly found in banking options
for projects in US dollars. A further analysis considering the influence of
different interest rate values is presented in subsection 4.4. Regarding
the indexation of electricity, fuel, and O&M cost, an assumption has
been made about the independence from oil prices. Instead, these values
have been attached to the inflation of each country, which represent a
reasonable way to model their behavior. Lastly, the depreciation period
has been taken as 10 years for all countries in order to have a common
evaluation base. It is clear that the particular period and method of
depreciation depends on the specific regulation at each country.
Fig. 5. Monthly project income and energy costs. Self-consumption scenario.
9
Energy Policy 142 (2020) 111466
However, the considered value represents a reasonable condition that
may be found in any of them.
Two financial indicators, the Internal Rate of Return (IRR) and the
Return of Investment (ROI), are calculated for each country, both sce­
narios, and the considered incentive situations. The use of these in­
dicators and the fact that all financial evaluations are performed in US
dollars, enables a direct comparison of the results for all countries. The
chosen financial indicators are typically used in project evaluations and
complement each other. The ROI allows a fast and simple assessment of
the project feasibility, but does not include effects of macroeconomic
and other variables such as inflation, depreciation, loan interest rates,
price indexation, etc. The IRR, in turn, allows a more precise evaluation
including the effect of all these variables, but requires a more detailed
calculation of the cash flow for the project through the whole evaluation
period.
4.2. Self-consumption scenario
Figure 5 presents the monthly project income and costs per country
for the self-consumption scenario. The electricity savings, cogeneration
fuel savings, and fuel consumption values are calculated from the cor­
responding values in Tables 2 and 3 times the unitary electricity and fuel
prices for each country in Table 4. The O&M values are obtained from
the monthly electricity generation in Table 2 times the unitary OPEX
value in Table 6.
As can be seen in Fig. 5, the net income value of the project varies
from country to country depending on electricity and fuel prices. Greater
advantage is appreciated for countries on which the electricity genera­
tion is costlier, and where the electricity-to-fuel ratio is larger. The
greatest net monthly income is presented in Bolivia with over 150.000
USD/month due to its large electricity to fuel cost ratio of 65.68 MMBtu/
MWh, followed by Mexico, Peru, and Chile with values between 30.000
and 50.000 USD/month, Argentina and Colombia over 10.000 USD/
month and Uruguay with almost zero net value. In contrast, Brazil
present a negative net income value below 30.000 USD/month given its
low electricity-to-fuel cost ratio of 6.45 MMBtu/MWh, just about ten
times lower than the corresponding value for Bolivia.
The environmental impacts of the cogeneration project can be
appreciated by calculating the net CO2 emissions. Figure 6 presents the
CO2 emissions saved due to the corresponding electricity and fuel sav­
ings, together with the extra emission caused by the fuel consumption by
the cogeneration plant. These values are calculated from the respective
monthly values in Tables 2 and 3 times the emission factors in Table 4.
According to the values presented in Fig. 6, the net emission savings
mainly depends on the emission factor of the power grid. For Brazil and
Colombia, the cogeneration project does not imply savings in CO2, but
Fig. 6. CO2 emissions for the project. Self-consumption scenario.
A. Rivera-Alvarez et al.
Fig. 7. Financial evaluation for the project. Self-consumption scenario.
generates additional emissions. However, it is important to point out
that this depends on the efficiency of the cogeneration plant and should
not be taken as a general criterion for any cogeneration project in the
studied countries. For the other countries instead, the cogeneration
project produces significant emission savings between 132.2 and 258.7
Ton CO2,eq/month.
Figure 7 presents the results of the evaluation by country for the
three incentive situations considered. The financial evaluation is per­
formed under the conditions presented in section 4.1. The initial outlay
of the project is the aggregated value of CAPEX (Table 6), VAT, and
tariffs according to the country and incentive situation considered. The
ROI results from comparing this initial outlay with the net income re­
ported in Fig. 5. For the IRR calculation, the net income value is
inflation-indexed and the effect of the assumed equity, depreciation, and
corresponding income tax for each incentive situation is considered.
As can be observed in Fig. 7, with the assumed evaluation conditions,
the project is financially feasible with varying degrees for Bolivia,
Mexico, Peru, Chile, Colombia (not viable without incentives), and
Argentina. For Uruguay and Brazil, the project is not feasible due to the
almost null or negative net income value reported in Fig. 5. In the cases
of project feasibility, the difference in results between the situations
without incentives and maximum incentives is significant. The ROI is
reduced in 11.5% for Bolivia, about 16.0% for Colombia, Mexico, and
Peru, while it is reduced in 19.0% and 24.1% for Chile and Argentina,
respectively. The ROI reduction reflects the combined effect of the
country-dependent VAT and Tariffs. Consequently, the IRR is increased
Fig. 8. Monthly project income and energy costs. Power surplus sale scenario.
10
Energy Policy 142 (2020) 111466
in almost 15 percentage points for Chile, 20 for Argentina, 25 for Peru,
almost 30 points for Mexico and Colombia, and 41 points for Bolivia.
The differential increase in IRR by country is driven by a combination of
ROI reduction plus the corresponding income tax, inflation, and the
parameters considered in Table 7. It is important to highlight that among
the countries where the project is feasible, only Colombia presents in­
centives for cogeneration. The results for current incentives in Colombia
are framed between the situation without incentives and maximum in­
centives. For the other countries where the project is feasible, the situ­
ation without incentives is equal to the situation with current incentives.
4.3. Power surplus sale scenario
Similarly, to the Self-consumption scenario, Fig. 8 presents the
monthly project income and costs per country for the surplus power sale
scenario. The electricity savings, cogeneration fuel savings, fuel con­
sumption, and power surplus sale values are calculated from the corre­
sponding values in Tables 2 and 3 times the unitary electricity, fuel, and
surplus prices for each country in Table 4. The O&M values are obtained
from the monthly electricity generation in Table 2 times the unitary
OPEX value in Table 6. For the situation without incentives, the unitary
surplus price can be found in Table 4, while for the current incentive
situation in the case of Brazil and the situation with maximum incentives
is calculated as follows:
ð0:95*EC SPno incent Þ
SPincent ¼ SPno incent þ (8)
2
where SPincent , SPno incent , and EC are the unitary surplus power price with
incentives, the unitary surplus power price without incentives, and the
electricity cost, respectively. Equation (8) reflects the 50% reduction in
the cost usage for transmission and distribution systems found in the
Brazilian regulation and assumes a 5% of the cost for commercialization.
As can be seen in Fig. 8, greater advantage is appreciated for coun­
tries on which the electricity generation is costlier, and where the
electricity-to-fuel ratio is larger. The greatest net monthly income is
presented in Bolivia with over 200.000 and 300.000 USD/month for the
case without and with incentives, respectively, followed by Mexico,
Argentina, Peru, and Chile with values ranging between 44.000 and
89.000 USD/month and between 78.000 and 118.000 USD/month for
the situation without and with incentives, respectively. In contrast, for
Brazil, Colombia, and Uruguay negative net income values are obtained
ranging between 73.000 and 58.000 USD/month for the situation
without incentives. If incentives are considered, the range of those
values change from 58.000 to 6.300 USD/month. In general, the sit­
uations when incentives are coming into play have larger net income
values when compared with the situation without incentives (this is not
Fig. 9. CO2 emissions for the project. Power surplus sale scenario.
A. Rivera-Alvarez et al.
valid for Argentina where both cases present the same net income value
due to the no application of the incentive as the surplus price is larger
than the electricity cost). Applying incentives lead to an improvement in
the net income values of about 51% for Bolivia, 20% for Brazil, 86% for
Chile, 111% for Colombia, 34% for Mexico, 43% for Peru, and 87% for
Uruguay. Comparing net income values for both self-consumption and
power surplus sale scenarios (Figs. 5 and 8) without incentives, an in­
crease between 12.000 and 66.000 USD/month is observed, in
increasing order, for Chile, Peru, Mexico, Bolivia, and Argentina.
Conversely, for Brazil, Colombia, and Uruguay, the net income values
decrease in about 40.000, 71.000, and 74.000, respectively. In these
cases, the extra cost of fuel to produce surplus power exceeds the extra
income for selling it.
The environmental impacts of the cogeneration project with power
surplus sale can be quantified by calculating the net CO2 emissions.
Figure 9 presents the CO2 emissions saved due to the corresponding
electricity and fuel savings, together with the extra emission caused by
the fuel consumption of the cogeneration plant. These values are
calculated from the respective monthly values in Tables 2 and 3 times
the emission factors in Table 4. As can be seen in Fig. 9, the net emission
savings mainly depend on the emission factor of the power grid, as the
emissions due to fuel consumption and cogeneration fuel savings are
constant for all countries. For Brazil and Colombia this cogeneration
project implies extra CO2 emissions (with respect to the situation if all
electricity is taken from the grid), which are in fact, respectively, 1.7 and
1.4 times larger than those registered for the self-consumption scenario.
Considering than the cogeneration plant under the power surplus sale
scenario produces around 2.6 times more power than under self-
consumption, the extra emissions per unit power are, in fact, reduced
in about 35% and 49% for Brazil and Colombia, respectively. For the
other countries, the cogeneration project with surplus sales produces
significant net emissions savings between 3.2 and 3.7 times larger than
the self-consumption scenario. In terms of emissions savings per unit
power, this means an increase between 21% and 40% when compared
with the self-consumption scenario.
Figure 10 presents the results of the evaluation for the three incen­
tive situations for each country. The financial evaluation is performed
under the conditions presented in section 4.1, with the initial outlay of
the project calculated as the aggregated value of the corresponding
CAPEX (Table 6), VAT, and Tariffs. Like the self-consumption scenario,
the ROI is calculated from comparing the initial outlay with the corre­
sponding net income reported in Fig. 8. For the IRR calculation, the net
income value is inflation-indexed and the effect of the assumed equity,
depreciation, and corresponding income tax for each incentive situation
is taken into account.
As can be seen in Fig. 10, the project is financially feasible for
Fig. 10. Financial evaluation for the project. Power surplus sale scenario.
11
Energy Policy 142 (2020) 111466
Argentina, Bolivia, Chile, Mexico, and Peru. For Brazil, Colombia, and
Uruguay, the project is not feasible due to the negative or almost null net
income value presented in Fig. 8. The country ranking in terms of ROI
almost coincides with the results for the self-consumption scenario. The
only exception is Argentina, where the ROI decreases substantially for
power surplus and surpasses Colombia, Chile, and Peru. In the case of
Colombia, the project is feasible for self-consumption and becomes no
feasible with power surplus sale. In the cases of project feasibility, the
difference in results between the situations without incentives and
maximum incentives is significant. The ROI reduces in about 25.1% for
Argentina, between 38% and 41% for Mexico, Peru, and Bolivia, while it
is reduced in 56.8% for Chile. In turn, the IRR is increased in 31 per­
centage points for Argentina, between 42 and 47 percentage points for
Peru, Chile, and Mexico, and 100 percentage points for Bolivia. Again,
the difference in the increase of IRR per country is driven by the ROI
reduction plus the corresponding income tax, inflation, and the pa­
rameters considered in Table 7. It is worth noting that none of the
countries where the project is feasible presents incentives for cogene­
ration and, consequently, the situations without incentives and current
incentives are equal.
4.4. Effect of interest rate
For the IRR calculation, analyses presented in sections 4.2 and 4.3
assumed an evaluation period of 20 years, an equity of 30%, and a loan
of 70% with an annual interest rate of 10%, see Table 7. Even when these
financial conditions are typical of what an investor can currently found
in the market, the effect of a lower interest rate on the financial feasi­
bility of the project is explored in this section. Lower interest rates are
often introduced into the market through specific financial products
addressing clean energy or energy efficiency programs.
Figures 11 and 12 show the increase in IRR resulting from reducing
the interest rate for the loan from 10% to 7% and from 10% to 4% for the
self-consumption and power surplus sale scenarios. The evaluation was
performed for the situations without incentives and with maximum in­
centives. It is important to note that reducing the interest rate does not
modify the values obtained for the ROI presented in Figs. 7 and 10.
The advantage of having incentives is clearly illustrated in Figs. 11
and 12 for both scenarios, i.e. the IRR increase is larger with maximum
incentives for the same reduction in the interest rate. Increments in IRR
between 2.1 percentage points and 4.7 percentage points are obtained
when the interest rate reduces from 10% to 7% for both scenarios.
Similarly, the IRR growths in the range of 4.1 percentage points to 8.5
percentage points when interest rate is reduced from 10% to 4%, as can
be seen in Figs. 11 and 12. The observed increase in IRR could be traded
for a reduction in the evaluation time or an increase in the equity for the
project, depending on the investor priorities. It is worth noting that in
the cases of Brazil, Uruguay, and Colombia (in this country only for the
power surplus sale scenario), the project is still not feasible even with a
reduced interest rate.
5. Conclusion and policy implications
The influence of country-dependent variables and incentives on the
feasibility of natural gas cogeneration projects in Latin America was
analyzed in this work. The analysis was performed using a hypothetical
industrial plant, where the cogeneration solution consists in the recov­
ery of waste heat from the power generation equipment (internal com­
bustion engines or gas turbines) for steam production. Operation and
design parameters of the selected plant are representative of real
cogeneration systems. The analysis was conducted over eight Latin
American countries (Argentina, Bolivia, Brazil, Chile, Colombia,
Mexico, Peru, and Uruguay), where natural gas is available, considering
the particularities in their natural gas market, regulation, and macro­
economic variables.
Two power generation scenarios have been independently analyzed:
A. Rivera-Alvarez et al.
Fig. 11. Effect of interest rate on the financial evaluation of the project. Self-consumption scenario.
Fig. 12. Effect of interest rate on the financial evaluation of the project. Power surplus sale scenario.
electricity production for self-consumption and electricity production
with power surplus sale. Under the self-consumption scenario, all
countries present a positive net monthly income except Uruguay and
Brazil. In general, Larger net income values are appreciated in countries
where electricity generation is costlier, and the electricity-to-fuel ratio is
higher. In the countries where the project is feasible, the effect of in­
centives is significant. Comparing with the situation without incentives,
if maximum incentives are applied, the ROI is reduced between 11.5%
and 24.1%, while the IRR is increased between 15 and 41 percentage
points. Similarly, for the power surplus sale scenario, the net monthly
income is positive, and the project is feasible in all countries (for
Colombia, it goes from a negative to a low positive value when
maximum incentives are applied) except Brazil and Uruguay. Applying
incentives lead to a significant improvement in the net income values for
all countries except for Argentina. Under this scenario, the ROI reduces
between 25.1% and 56.8% for the countries where the project is
feasible, and the IRR is increased between 31 and 100 percentage points.
Comparing both self-consumption and power surplus sale scenarios
without incentives, net income values substantially increase for Chile,
Peru, Mexico, Bolivia, and Argentina, whereas for the case of Brazil,
Colombia, and Uruguay, this value decreases because the extra cost of
fuel to produce surplus power exceeds the extra income obtained from
the surplus sale. The effect of the interest rate on the project feasibility
was also analyzed. Increments in IRR between 2.1 and 4.7 percentage
points are obtained when the interest rate reduces from 10% to 7% for
both scenarios. Similarly, the IRR grows in the range of 4.1–8.5 per­
centage points when interest rate is reduced from 10% to 4%. The
environmental impact of the cogeneration project was determined by
calculating the net CO2 emissions. For both scenarios, the cogeneration
12
Energy Policy 142 (2020) 111466
project implies extra emissions of CO2 for Brazil and Colombia. For the
other countries instead, the project leads to important emission savings.
In general, there is an interesting cogeneration potential through the
region, which could be developed in the future, as the market has not
been completely exploited. Cogeneration can play an important role in
helping countries to comply with emission reduction plans. In general
terms, incentives found in the region are very standard and similar
respect to the lowering of import, VAT, and income taxes. They are
designed to motivate capital investment instead of trying to encourage
the power production itself, and for that, do not address the specific
features of cogeneration systems. Then, it would be important to extend
this study to evaluate the incentives applied in other countries around
the world and consider them for Latin America. There is a common need
to have specific regulatory frameworks favoring the sale of surplus
power and promoting the internalization of the environmental benefits
of cogeneration. It is expected that countries create new policy in­
struments to reach their goals, which could advance the regulatory
framework for cogeneration. All analyzed countries and many more in
Latin America have incentives directed to promote renewable energy,
where biomass-based cogeneration projects can find an opportunity. In
this sense, it would be interesting to conduct future work similar to the
one presented here for biomass-based cogeneration projects.
Declaration of competing interest
The authors declare that they have no known competing financial
interests or personal relationships that could have appeared to influence
the work reported in this paper.
A. Rivera-Alvarez et al.
CRediT authorship contribution statement
Alejandro Rivera-Alvarez: Conceptualization, Funding acquisition,
Methodology, Writing - original draft, Formal analysis. Julian D.
Osorio: Conceptualization, Methodology, Writing - original draft,
Formal analysis. Laura Montoya-Duque: Conceptualization, Funding
acquisition, Formal analysis, Writing - review & editing. Jose Fontalvo:
Formal analysis. Edgar Botero: Writing - review & editing. Ana Escu­
dero-Atehortua: Writing - review & editing.
Acknowledgements
This study was part of the project “Mechanisms and technology
transfer networks related to climate change in Latin America and the
Caribbean” (in Spanish: “Mecanismos y redes de transferencia de tec­
nología relacionada con el cambio clim� atico en Am� erica Latina y el
Caribe”), prepared by the Inter-American Development Bank (IDB),
approved by the Council of the Global Environment Facility (GEF), and
managed by the Fundaci� on Bariloche.
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