Grid integration policies of gas-fired cogeneration in Peninsular Malaysia: Fallacies and counterexamples M. Shaaban a,n , A.H. Azit b , K.M. Nor a a Centre of Electrical Energy Systems, Faculty of Electrical Engineering, Universiti Teknologi Malaysia, 81310 Johor Bahru, Malaysia b Tenaga Nasional Berhad, Wisma TNB, Jalan Timur, 46200 Petaling Jaya, Selangor, Malaysia article info Article history: Received 24 August 2010 Accepted 2 June 2011 Available online 29 June 2011 Keywords: Gas-fired cogeneration Optimal sizing Economic analysis abstract Despite the abundance of natural gas reserves in Malaysia coupled with serious government thrusts to promote cogeneration, its (cogeneration) development pace lags far off expectations. There are widespread fallacies among potential cogeneration developers and concerned professionals that cogeneration is uncompetitive in Malaysia due to existing policies of subsidized gas prices and grid- connection charges. This paper exposes these fallacies through counterexamples of practical cogenera- tion system design and evaluation of some segments of the industrial and service sectors in Peninsular Malaysia. The electrical and thermal characteristics of the cogeneration were modeled based on heat rate characteristics at partial loading patterns. A hierarchical mathematical programming approach that uses mixed-integer nonlinear optimization and dynamic programming principle, if necessary, is employed to determine the optimal size of cogeneration and its related auxiliary equipment as well as the optimal operation schedule. Financial assessment is integrated at a later stage to assess the economic viability of the system. Analyses of the cogeneration potential for several facilities of miscellaneous activities were carried out using various gas and electricity prices. Results obtained consistently rebuff the perpetuated fallacies and confirm that there is no real barrier to cogeneration development in Malaysia under current policies of gas prices and electricity tariffs. & 2011 Elsevier Ltd. All rights reserved. 1. Introduction Depletion of natural energy resources as well as global warm- ing is among the most pressing issues before policymakers and public officials in many developed and fast-developing countries across the world. Cogeneration systems introduce considerable gains in terms of efficient energy production (as they can recover waste heat from electricity generation and transform it into useful thermal energy, that can be used for industrial heat processes and cooling purposes), improved operational cost and reduced pollutant emissions (to assist in combating climate change). They, therefore, provide an attractive alternative to the national aspiration of optimum energy utilization in a fast- developing economy such as Malaysia. In Peninsular Malaysia, 2007, industrial and commercial cus- tomers consumed 65,612 GWh of energy (60% for the industry and 40% for commercial customers) (Tenaga Nasional Berhad (TNB), 2007a). Total energy used for electricity generation to fuel that demand was about 156,219 GWh of which 90,607 GWh (58%) was lost (due to thermal efficiency and electrical losses). This amount of energy loss is equivalent to 59 Million barrels of oil, which costs about RM 20.7 Billion 1 (at 2008 prices). In terms of emissions, the amount of energy generated emits 90.3 Million tons of carbon dioxide (CO 2 ) into the air. Such staggering numbers have positively galvanized Malaysian government efforts to embark upon energy efficiency policies. Over three decades, the Malaysian government introduced several policies to diversify its fuel mix, foster efficient energy utilization and improve the environmental outlook (Mohamed and Lee, 2006). One approach to meet these challenges is by adopting the well proven cogeneration technology. Since cogen- eration is highly efficient in producing electricity and steam, the amount of energy loss is much reduced. Furthermore, due to its high efficiency, cogeneration reduces the amount of fuel con- sumed to supply the same load when compared to generating from conventional plant and thus effectively reducing the amount of carbon dioxide emission per unit of supplied energy. Besides, cogeneration is a form of distributed generation where the plant is sited near the load and thus removing the needs for transmis- sion line. By eliminating the use of transmission infrastructure, the amount of network investments is also reduced and electrical transmission losses are avoided. Therefore, cogeneration seems to Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/enpol Energy Policy 0301-4215/$ - see front matter & 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2011.06.007 n Corresponding author. E-mail address: m.shaaban@fke.utm.my (M. Shaaban). 1 Equivalent to US$ 6.3 Billion at the exchange rate in 2007. Energy Policy 39 (2011) 5063–5075