Earning Contract Capacity Payments for Cogeneration Plants

Cogeneration of electricity by plants providing process heat can provide utilities with additional capacity during periods of high system load. Utilities are employing incentive payments to encourage high availability of cogenerated power during these periods. However, the details of the incentive are important. An example from an actual negotiation shows how a poorly designed incentive can cause serious financial losses to the cogenerator and at the same time bring no benefit to the utility, and how it can be changed to make it mutually beneficial.