Cogeneration is defined as the simultaneous production of electricity and useful thermal energy. This production of electricity and thermal energy from the common source is more efficient than separate production of thermal energy and electrical energy. Because of the need for both thermal and electrical energy, cogeneration systems have been a part of industrial energy systems since early in this century. In fact, until the early 1950s, over half of industrial electrical energy use was produced from cogeneration systems. A favorable balance between thermal energy needs and electrical needs exists in many industries, and this balance serves as the driving force for the use of cogeneration systems.

Several things led to the change of balance between the thermal and electrical requirements of industry which led to a general decline in the use of cogeneration over the next thirty years. The increase in the amount of electrical energy in the energy equation and the development of industry without associated thermal requirements were major factors in the development of a market for electricity from central generating plants. These large special-purpose generating plants could approach the efficiency and cost of cogeneration plants because of economies of scale and the variety of fuels acceptable in these plants. The availability of electricity from utilities at a reasonable price, combined with low fuel prices, allowed efficient plant operation independent of a balance between thermal and electrical energy. This reduction in the use of cogeneration systems in industrial plants continued into the early 1970s when the Arab oil embargo caused a precipitous rise in the cost of fuel and reduced growth of electrical use, new environmental restrictions and inflation began to eat into the economies of scale that had been realized with the construction of larger and more efficient electrical plants.

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