Economic buy-back rates for electricity from cogeneration: Case of sugar industry in Vietnam

Cogeneration of heat and power could be an attractive option for meeting electricity demand in Vietnam, which is facing acute shortage in generation capacity due to high demand growth spurred by rapid economic growth of the country. The sugar industry has significant potential for cogeneration. This paper focuses on the cogeneration potential of the sugar industry and estimates, based on avoided cost, the economic rate at which excess power could be sold to the utility. We found that cogeneration would be a financially viable option for medium and large size sugar plants. Time-of-day rates would be the most suitable form of buy-back rate and the IRR ranges between 12% and 15% in this case. The sensitivity analysis indicates that cogeneration plants would be vulnerable to changes in buy-back rates and investment costs. The internal rate of return is more sensitive to changes in buy-back rates than those in investment costs. Medium and large sized plants would be in a better position to withstand such changes in the business environment.