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2nd WSEAS/IASME International Conference on PLANNING, ENERGY SAVING, ENVIRONMENTAL EDUCATION (EPESE'08) Corfu, Greece, October 26-28, 2008

A model for internalization of environmental effects for different cogeneration technologies

ROXANA PATRASCU AND EDUARD MINCIUC Faculty of University Politehnica of Bucharest Splaiul Independentei 313, Bucharest, Postal Code 060032 ROMANIA

Abstract: - Economic quantification of environmental effects should be found in the energy price. European research studies underline the main characteristics of environmental taxes, which comparing to other taxes, lead to improved energy and economic efficiencies. This is due to that fact that environmental taxes stimulate utilization of clean and sources as well as clean energy production technologies. The article presents a model for internalization of environmental aspects for different cogeneration technologies: , and internal combustion engine. The model is validated using a cogeneration plant at an industrial company. A special importance for establishing the model has been paid to the hypotheses needed to economically quantify the environmental effects. Using the proposed model there has been established that environmental taxes has great influence on energy prices and on establishing the optimal technical solution for cogeneration plant.

Key-Words: - energy, environment, cogeneration, eco-taxes, pollutants

1 Introduction Presently, there are the following types of taxes that The technical and economic efficiency of are used: cogeneration technologies that use fossil ƒ Energy tax – a quantitative tax applied to should include the effects of environmental taxes. ; The environmental impact of different cogeneration ƒ Different pollutant tax (CO2, SO2, NOx, etc.) technologies using fossil fuels are quantified by – qualitative tax, that can really lead to some different criteria that cannot be used in an economic changes. The most used is the carbon tax; analysis. Therefore, there is a need for ƒ Mixed tax (pollutant / energy) – includes internalization of environmental effects into a the quantitative and qualitative aspects. complex technical and economic model. In order to internalize different environmental In the energy production sector the externalizations effects and introduce them into energy price it is are the indirect effects on the environment, such as: important to establish all economic and mine, well and buildings construction needed for environmental hypotheses. cogeneration plant, losses during its The energy production cost includes annual transportation and processing, etc. expenses with fuel. This costs component is affected Generally, the method of introducing the by environmental externalizations directly and environmental costs for analyzing different indirectly. The direct effect is quantified through cogeneration technologies is called internalization quantity of emissions and through carbon tax. The and can be performed using direct or indirect indirect effect is quantified through fuel methods. consumption and through energy tax. The analysis of environmental impact of different Utilization of the mixed tax (carbon / energy) allows cogeneration technologies is very useful as well for including in the energy costs as well quantitative as new plants as for already existing ones in order to qualitative aspects. maximize the pollutant emissions. Presently, the most used eco-tax is the carbon tax. It Eco-taxes are the most adequate solutions for varies from state to state and is now between 3 and internalization of externalizations of environmental 40 €/tCO2. It is estimated that in 2020 this tax will effects. The difficulty of using eco-taxes consists in be around 80 €/tCO2. establishing the bound between the environmental In Europe the following countries have encouraged effects and taxes. utilization of eco-taxes: Norway, Sweden, ,

ISSN: 1790-5095 25 ISBN: 978-960-474-016-1 2nd WSEAS/IASME International Conference on ENERGY PLANNING, ENERGY SAVING, ENVIRONMENTAL EDUCATION (EPESE'08) Corfu, Greece, October 26-28, 2008

Belgium, and Holland and in the past years 2.2 Hypotheses and phases of the model and Germany have also promoted and supported this There have been considered the following concept of using eco-taxes. In these countries, hypotheses: besides the CO2 tax, there are also other taxes, such ƒ There have been considered only NOx tax. environmental impact of fuel combustion and within the cogeneration plant, since the emissions for the extracting and 2 A model for internalization of transportation process can be considered as being environmental effects for different the same for all three solutions; ƒ There has been neglected the environmental cogeneration technologies impact of cogeneration plant equipment production because it is much smaller than the impact from operation of cogeneration plant during the entire 2.1 The general objective of the model lifespan; The internalization model can be used in the existing ƒ For fuel conversion there have used EU legislative framework that includes different eco- norms for specific emissions for different taxes. cogeneration technologies and different types of The model has analyzed the following cogeneration emissions; technologies: (CCG with ST), gas ƒ Efficiencies of different equipment within turbine (CCG with GT) and internal combustion the cogeneration plant have been included in the engine (CCG with ICE). For all these technologies global efficiency of the cogeneration plant; there will be analyzed the influence of eco-taxes on ƒ The environmental effects of cogeneration the energy production costs. technologies have been considered during the entire A great importance has been made to establishing lifespan, which the same as being considered in the the hypotheses that will allow economic economic analysis; quantification of environmental effects. ƒ All cogeneration technologies analyzed in There have been used the following notation in the the paper use as primary fuel for energy paper: production; Ece – annual generated in cogeneration, ƒ The amortization rates are the same for MWh/year; electricity and for all equipment for the entire Eel – annual generated electricity in non- lifespan; cogeneration, MWh/year; ƒ There has only been considered the Qcg – annual heat produced in cogeneration, qualitative CO2 eco-tax. MWh/year; The main phases of the model are the following: Bcg – annual fuel consumption of cogeneration unit, ƒ Establishing the fuel costs with electricity MWh/year; and heat generation, separately for these two types pB – fuel price, $; of energy; Et – total annual electricity produced, MWh/year; ƒ Establishing the amortization costs for Qt – total annual heat produced, MWh/year; electricity and heat, separately for these two types of Bv – fuel consumption of peak equipment, energy; MWh/year; ƒ Establishing the maintenance and operation qcg – installed heat capacity in cogeneration, MW; costs, separately for these two types of energy Pcg – installed power capacity in cogeneration, MW; electricity and heat; IB – investment in cogeneration unit, $; ƒ Establishing the electricity and heat CB – annual fuel costs, $/year; production costs without taking into account the Cmo – annual maintenance and operation costs, eco-taxes; $/year; ƒ Establishing the eco-tax costs for electricity Cmov – annual maintenance and operation costs of and heat generation, separately for these two types peak equipment, $/year; of energy; CA – annual expenses with amortization, $/year; ƒ Establishing the electricity and heat TCO2 –CO2 tax, $/tCO2; production costs including eco-taxes, separately for CEt– electricity production cost, $/MWh; these two types of energy; CQt – heat production cost, $/MWh. ƒ Establishing the relative increase of production costs due to eco-taxes, separately for these two types of energy.

ISSN: 1790-5095 26 ISBN: 978-960-474-016-1 2nd WSEAS/IASME International Conference on ENERGY PLANNING, ENERGY SAVING, ENVIRONMENTAL EDUCATION (EPESE'08) Corfu, Greece, October 26-28, 2008

In the next chapters there is presented the proposed iPcg model for calculation of electricity and heat C Ae := (7) production costs for all three cogeneration 20 ⋅ Et technologies considered in the paper.

For all three cogeneration technologies there has ⋅ + Iqi Vcg been performed the same phases for calculation. C Aq := (8) 20 ⋅Q t

2.3 Model for internalization of The specific expense for cogeneration unit: environmental effects for cogeneration plant with gas turbine Cmo cmo := (9) This section presents the steps for all calculus of the + Pq cgcg model for cogeneration plant with gas turbine. The model is similar for other technologies (steam The maintenance and operation costs for electricity turbine and internal combustion engine) with small and heat production: differences.

There is calculated the global efficiency of cogeneration plant using equation (1). ⋅ cgmo + 2⋅ Epc el Cmoe := (10) Et ( + QE cgcg ) glcg :=η (1) Bcg ⋅ cgmo + Cqc mov Cmoq := (11) Qt The specific fuel consumption in cogeneration is calculated using equation (2). The costs of eco-taxes for electricity and heat are:

1 Ecg bcg := (2) x := (12) η e glcg + QE cgcg

The specific fuel consumption in non- Qcg cogeneration is calculated by: x := (13) q + QE cgcg

Bel bel := (3) T CO2 Eel : ()BeBexC ⋅⋅+⋅⋅= (14) BCOeEe 2 cg BCO2 el E t The fuel costs for electricity and heat production are T calculated with: : ()BeBexC ⋅⋅+⋅⋅= CO2 (15) Eq BCOq 2 cg VCO2 V Qt ( ⋅⋅+⋅⋅ pEbpEb ) C := BelelBcgcg (4) Be Production costs for electricity and heat without Et eco-taxes:

( ⋅+⋅⋅ pBpQb ) C := BvBcgcg (5) := + + CCCC (16) Bq Q EF Be Ae moe t := + + CCCC (17) The specific investment si calculated with: Qf Bq Aq moq

I Production costs for electricity and heat with i := B (6) ()+ Pq eco-taxes: cgcg := + + + CCCCC (18) The amortization expenses for electricity and heat: Et Be Ae moe Ee

ISSN: 1790-5095 27 ISBN: 978-960-474-016-1 2nd WSEAS/IASME International Conference on ENERGY PLANNING, ENERGY SAVING, ENVIRONMENTAL EDUCATION (EPESE'08) Corfu, Greece, October 26-28, 2008

ƒ Fuel cost for heat production: o CCG with GT: 12.697 $/MWh; Qt : Bq Aq moq +++= CCCCC Bq (19) o CCG with ICE: 11.569 $/MWh; o CCG with ST: 7.209 $/MWh; Relative increase of production costs for electricity ƒ The amortization expenses for electricity: and heat due to eco-taxes: o CCG with GT: 3.476 $/MWh; o CCG with ICE: 5.468 $/MWh; − CC EfEt CCG with ST: 8.991 $/MWh; C :=Δ (20) o E ƒ The amortization expenses for heat: CEf o CCG with GT: 3.938 $/MWh; o CCG with ICE: 3.559 $/MWh; − CC QfQt o CCG with ST: 3.893 $/MWh; C :=Δ (21) Q C ƒ The maintenance and operation costs for Qf electricity production:

o CCG with GT: 2.566 $/MWh;

o CCG with ICE: 7.925 $/MWh; 3 A case study for model validation o CCG with ST: 5.224 $/MWh; There will be analyzed a case when the cogeneration ƒ The maintenance and operation costs for plant has a 14 MW of installed power capacity and heat production: 80 MW of installed heat capacity. o CCG with GT: 1.505 $/MWh; Table 1 presents the energy demand characteristics o CCG with ICE: 2.558 $/MWh; for the analyzed company. o CCG with ST: 1.973 $/MWh; ƒ The costs of eco-taxes for electricity: Table 1 Energy demand characteristics o CCG with GT: 4.908 $/MWh; Unit CCG CCG CCG o CCG with ICE: 3.662 $/MWh; with GT with ICE with ST o CCG with ST: 3.868 $/MWh; Et(MWh/y) 43645.2 43645.2 43645.2 ƒ The costs of eco-taxes for heat: Qcg(MWh/y) 86982 46087.8 139934.8 o CCG with GT: 2.712 $/MWh; Qv(MWh/y) 65618 106518.2 12665.8 o CCG with ICE: 2.68 $/MWh; B(MWh/y) 291135 231667.3 225230.4 o CCG with ST: 2.077 $/MWh; ƒ Production costs for electricity without There have been calculated the main economic eco-taxes: criteria, which are presented in Table 2. o CCG with GT: 28.325 $/MWh; o CCG with ICE: 26.021 $/MWh; Table 2 The main economic criteria, $ o CCG with ST: 43.84 $/MWh; Unit CCG CCG CCG ƒ Production costs for heat without eco- with GT with ICE with ST taxes: Investment 1.97E+7 1.72E+7 1.51E+7 o CCG with GT: 18.14 $/MWh; Expenses 2.92E+6 3.05E+6 3.23E+6 o CCG with ICE: 17.687 $/MWh; Income 5.23E+6 5.23E+6 5.23E+6 o CCG with ST: 13.07 $/MWh; Brut revenue 2.31E+6 2.18E+6 2.00E+6 ƒ Production costs for electricity with eco- NPV -2.44E+6 -9.05E+5 1.03E+5 taxes: o CCG with GT: 33.26 $/MWh; Bellow, there are results of calculations using the o CCG with ICE: 29.684 $/MWh; proposed method for three cogeneration plants using o CCG with ST: 47.708 $/MWh; three different technologies. ƒ Production costs for heat with eco-taxes: ƒ The global efficiency of cogeneration plant: o CCG with GT: 20.853 $/MWh; o CCG with GT: 0.72; o CCG with ICE: 20.367 $/MWh; o CCG with ICE: 0.792; o CCG with ST: 15.152 $/MWh; o CCG with ST: 0.553; ƒ Relative increase of production costs for ƒ Fuel cost for electricity production: electricity due to eco-taxes: o CCG with GT: 22.31 $/MWh; o CCG with GT: 0.173; o CCG with ICE: 12.629 $/MWh; o CCG with ICE: 0.141; o CCG with ST: 29.625 $/MWh; o CCG with ST: 0.088;

ISSN: 1790-5095 28 ISBN: 978-960-474-016-1 2nd WSEAS/IASME International Conference on ENERGY PLANNING, ENERGY SAVING, ENVIRONMENTAL EDUCATION (EPESE'08) Corfu, Greece, October 26-28, 2008

ƒ Relative increase of production costs for [2] Government Decision no. 47 from July 12 2001, heat due to eco-taxes: regarding approval of National Energy o CCG with GT: 0.15; Development Strategy of Romania for the long o CCG with ICE: 0.152; term – 2001 – 2004. o CCG with ST: 0.159. [3] R. Patrascu, Producerea energiei si impactul Table 3 presents the influence of eco-taxes upon the asupra mediului in contextul dezvoltarii energy production cost. durabile, POLITEHNICA PRESS, Bucharest 2006. Table 3 Influence of eco-taxes upon energy [4] Gh. Lăzăroiu, R.Patrascu s.a. – Impactul CTE production costs asupra mediului, Editura POLITEHNICA Unit CCG CCG CCG PRESS, ISBN 973-8449-88-x, Bucuresti, 2005. with GT with ICE with ST [5] Government Decision no. 541 May 17 2003 CQf($/MWh) 18.14 17.68 13.07 regarding establishment of measures for CQt($/MWh) 20.85 20.36 15.15 limitation of emissions in air from great ΔCQ(%) 15 15.2 15.9 combustion equipment. [6] UE Directive UE 77/2001. Promotion of CEf($/MWh) 26.35 26.02 43.84 electricity produced from renewable energy CEt($/MWh) 33.26 29.68 47.7 ΔC (%) 17.3 14.1 8.8 sources. E [7] for Europe, Programme 2003

– 20006, COM 2002.

[8] Hewett, C. : Policies for a Micropower Future 4 Conclusion and comments Cogeneration and On-Site Production, Based on the analysis presented above there has November-December 2001. been noticed that introduction of eco-taxes [9] Patrascu R., Situatia pe plan mondial privind influences the least the electricity production cost in evaluarea economica a impactului diferitelor a cogeneration plant with steam turbine, while heat solutii de cogenearre asupra mediului, Revista production cost is influenced almost in the same Energetica, 2001, pag. 310-315. manner for all analyzed cogeneration technologies. [10] Patrascu R., Eevaluarea economica The production cost of electricity is lower for the comparativă a impactului diferitelor solutii de case of cogeneration plant with gas turbine and with cogenearre asupra mediului, Weg Regional internal combustion engine compare to cogeneration Energy Forum, iunie 2004. plant with steam turbine. It is due to that fact that a part of costs has been assigned to heat while heat is a recovery type of energy in a cogeneration plant with gas turbine and internal combustion engine. It is also due to that fact that the investment in a cogeneration plant with steam turbine is higher than for a cogeneration plant with gas turbine or internal combustion engine. The heat production cost is the smallest for the cogeneration plant with steam turbine due to that fact that the greatest part of heat is produced in cogeneration, thus with high global energy efficiency of the plant. For all cogeneration technologies introduction of eco-taxes influences significantly the electricity and heat production costs. In these conditions, it can greatly influence the hierarchy of the analyzed solutions for a cogeneration plant.

References: [1] Législation communitaire en matière d’environnement, Volume 2, Air CCE, Bruxelles, 1998.

ISSN: 1790-5095 29 ISBN: 978-960-474-016-1