Co-generation

Co-generation, or Combined Heat and Power (CHP), is a technology used to produce electricity and heat from a single source. This allows for up to 90 percent total efficiency, compared with 35 percent for conventional electricity generation, generating significant energy cost-savings for end-users.

How do projects work?

-Project structures: Co-generation projects are often implemented by Energy Services Companies (ESCOs), and structured either through a Special Purpose Vehicle (SPV) setup by investors, or with individual end-users, such as industrial companies. There are two basic project schemes:

-Project finance: The sponsor establishes a SPV with the objective to own and operate a co-generation system. Assets of the company are represented by the co-generator facilities, and investment return is assured by two revenue streams: one is heat sales to end-user companies (10-20 percent) and the other is electricity sales to the grid (80-90 percent), often based on a preferential feed-in tariff established by electric utilities as an incentive. Borrower is the SPV.

-Corporate finance: The end-user company purchases, installs and operates the co-generation equipment and utilizes the generated electrical and thermal energy for its own purposes. The investment costs are entirely or partially paid back by energy cost savings accumulated by the end-user.
Borrower is the end-user.

-Collateral: Under both structures, co-generation units serve as collateral.

-Key success factors: Installation of high quality, site-tailored equipment, optimizing projects to achieve critical efficiency levels (minimum of 65-75 percent), and accurate operation and maintenance of co-generation facilities are key success factors.

-Carbon credits: Projects may qualify for carbon emissions reduction certificates, which further enhances project revenues.

For more information, contact us.