by Tracey Colley

What contribution can cogeneration, and other distributed generation technologies using renewable fuels, make to meeting Australia’s greenhouse gas emissions targets? Tracey Colley investigates the current and developing regulatory regimes and reports on why they are largely failing.

Although cogeneration is consistently mentioned as a key technology for meeting Australia’s greenhouse challenge, a lack of specific policy measures targeting cogeneration mean that it has never realised its potential. As the saying goes: ‘Failing to plan is planning to fail’, and the history of cogeneration in Australia is testament to this. If Australia is to meets its greenhouse reduction targets, it will need to develop and implement specific policies targeting cogeneration.


After a change in Federal Government at the end of 2007, Australia ratified the Kyoto protocol in December 2007 and it came into force in March 2008. Australia’s Kyoto target for 2008—2012 was to maintain emissions at 109% of 1990’s emissions.

As Table 1 indicates, Australia is on target to meet its Kyoto commitment, thanks largely due to the reduction in land clearing. Preliminary 2007 data has total emissions at585 Mt CO2-e, which equates to a 5.9% change compared to 1990 levels (or 105.9% of 1990 levels), which is beneath the required 109%. At an annual growth rate of 1.6%, Australia will probably exceed its Kyoto target during 2010. If land use change was not included, Australia’s emissions would have increased 31% on 1990 levels, due largely to the growth in the electricity generation and stationary energy sectors.

Figure 1. Australia’s estimated greenhouse gas emissions by sector, in 2006
Click here to enlarge image

The Australian Federal Government has announced an even more ambitious target, the exact details of which are currently being finaliszed in conjunction with the Carbon Pollution Reduction Scheme (CPRS). There is significant debate about this target and how achievable it is, with the original target of a 60% reduction now looking as though it may be revised downward. By the end of 2008 the Australia Federal Government will provide a firm indication of the target and a timeframe for the reductions, as part of the draft legislation for the CPRS. As this trading scheme currently does not allow for free allocation of permits (except under certain limited circumstances), in effect, it will act like a carbon tax. Although Australia is not expected to be as adversely affected by the current world economic downturn as some other countries, a slowing in the rate of growth will effectively depress emissions growth in the short term.

Click here to enlarge image

As of 31 December 2006, the total installed power generating capacity in Australia was 51,000 MW, of which 21,159 MW was ‘sustainable power’ — meaning that the power they produce has substantially lower greenhouse emissions for unit of power than the market average of about 1kg CO2-e/kWh. ‘Sustainable power’ therefore includes renewables (8381 MW installed capacity including 525.4 MW of cogeneration), fossil fuel cogeneration (2142 MW) and fossil fuel generation with lower emissions intensity than the market average (14,919.5 MW).

Click here to enlarge image

Although renewable power accounts for 16% of installed capacity, it accounts for about 7% of electricity generated, mostly due to the lower load factor of wind (8% of total renewables) and hydro (84% of renewables). In 2001 the Australian Federal Government introduced a Mandatory Renewable Energy Target, which in 2007 was increased to 20% of electricity supply by 2020. Several state governments have complementary schemes which are additional to the Federal requirement. The Australian Bureau of Agricultural and Resource Economics (ABARE) has predicted that ‘wind and biomass (mainly bagasse, wood waste and bagasse co-fired with wood waste) will provide most of the increase in electricity generated from renewable sources over the project period’ (2007 to 2029—2030, ABARE, 2007).

Table 2 provides an overview of cogeneration in Australia. Cogeneration using renewable fuel makes up about 20% of the total installed capacity, and over 80% of this is in the sugar industry in Queensland and northern New South Wales. Historically, each sugar mill used its waste material during the crushing season, and as mills could not export excess electricity to the grid, efficiency was not a priority. Although the average project size in the sugar industry is 15 MW, newer projects (post 2000) have tended to be larger, around 30 MW in size and use other sugarcane industry wastes (such as cane trash which would previously have been burnt) and generate all year round.

Click here to enlarge image

Natural gas projects account for the majority of the fossil fuel cogeneration projects in terms of installed capacity and number of projects. Of the cogeneration capacity currently installed, a little under half was installed prior to 1990.

The average MW per project column in Table 2 is interesting, in that there is a gap between larger projects and small projects, with not much in between. Similarly, the last column indicates what percentage of installed capacity by fuel is contributed by cogeneration. This indicates that sugar industry bagasse cogeneration accounts for all bagasse use, whereas landfill gas and food waste projects to date are mostly not cogeneration, due to the difficulty in finding a suitable nearby thermal host. Sewage gas projects mostly use the thermal heat from cogeneration within their own plants.

Table 3 provides an overview of cogeneration by host industry, with details on which industry uses a renewable fuel and an average size of a project. The mining industry accounts for just over 40% of the total installed capacity, and includes larger plant sizes. The sugar industry stands out in terms of total installed capacity and percentage renewable fuel, and the waste water industry also fares well in terms of percentage renewable fuels. Nearly half of the total projects are in host industries where the average project size is well below 10 MW.


ABARE has predicted that the share of natural gas of primary energy consumption would increase to 23% in 2009—2010 compared to the 1993—1994 share of 18%, in part due to the increased uptake of cogeneration. By comparison, in 2005—2006, gas only accounted for 19% of primary energy consumption, so the ‘shift to gas’ and resulting savings in greenhouse emissions which had been predicted never really occurred.

In its 2007 prediction, ABARE projected that ‘the share of gas … is projected to rise to 24% of primary energy consumption by 2029—2030’. This model did not include the impact of climate change or the proposed Carbon Pollution Reduction Scheme (CPRS), Australia’s national version of emissions trading.

Based on 1993—1994 data, ABARE has predicted that electricity generation would increase from 164 TWh in 1993—2004 to 216 TWh in 2005—2006 (a 32% increase), whereas the actual figure was 257 TWh, a 57% increase.

The substantial under-estimation of Australia’s national energy consumption was due to a forecast slowdown in economic growth which never happened. Instead, the boom in the mining and resource sector (fed by the growing demand for products in China and India), did just the opposite. More importantly, the ongoing availability of cheap, good-quality coal has meant that it is often the fuel of choice rather than more expensive natural gas, although the availability of coal seam methane in Queensland has assisted in reducing gas supply costs.


ABARE predicted in December 2007 that electricity generation would rise from 257 TWh in 2005—2006 to 415 TWh in 2029—2030, an increase of 62%. If Australia is ever to meet its 60% reduction of greenhouse gas emissions compared to levels in 2000 by 2050, then a combination of the following will have to occur:

  • increased uptake of renewable fuels
  • increased uptake of lower emission fuels, such as natural gas combined cycle instead of coal
  • increased efficiency in stationary energy generation, through the use of cogeneration and embedded generation
  • increased efficiency in electrical and thermal energy use.
Click here to enlarge image

There are a number of policy measures which have been implemented and these are covered in Table 4.

Recent funding grants have impacted on the uptake of cogeneration. In particular, most of the grants would provide only enough funding to make the project economic. This indicates that coal-fired electricity purchased off the grid is still cheaper than a small host site generating the electricity themselves, unless they are facing major capital expenditure such as additional substations into their site.

The first three projects listed had the added benefit for the host sites that they effectively removed a potential source of odour complaints by capturing and oxidising biogas emissions from anaerobic waste water treatment pond. The level of financial support required reflects the difficultly in getting small (less than 20 MW) cogeneration projects up and running. Historically, Government programs to support the adoption of cogeneration, such as the Victorian Hospitals Cogeneration Project, NSW Cogeneration Investment Program, Cogeneration Development Program and Treasury Funds for Energy Performance Contracts, has led to the development of small and medium-sized projects.

There have been a plethora of reports about cogeneration in Australia, the barriers it faces and how the Government needs to act to address these barriers. Most of the barriers are most keenly felt in small and medium-sized cogeneration projects (less than 30 MW); in particular those which want to export excess electricity to the grid.

The eastern states and territories (Queensland, New South Wales, Victoria, Tasmania, South Australia and the Australian Capital Territories) are part of the National Electricity Market (NEM), which started in 1998. The Council of Australian Governments, which has representatives from State and Federal Government, established a Ministerial Council of Energy in 2001, which was to be a national body for governing the Australian Energy Market, covering electricity and gas. In August 2004, a Renewables and Distributed Generation working group was set up under the Ministerial Council of Energy, but it wasn’t until February 2006 that consultation about a draft Code of Practice for Embedded Generation commenced, although a document had been produced in 2004.

After October 2006, the COP for EG was integrated into the national distribution framework, which is part of an Energy Market Reform Group. The proposal to introduce the Carbon Pollution Reduction Scheme has thrown another spanner in the works, with the MCE pausing to review the potential impact on its current work areas.

Click here to enlarge image

The NEM has its tenth anniversary this year, but little has been achieved to ensure that cogeneration has a ‘fair go’ when negotiating with distribution network owners/service providers (DNSP). In the meantime, there continues to be ongoing evidence from project proponents about the extra cost and time required to satisfy DNSPs. In effect, host sites will select a cogeneration plant size which avoids export to the grid because of the cost and complexity involved, rather than choosing the optimal cogeneration plant from an energy efficiency perspective.

The Australian Bioenergy Roadmap estimates that an equivalent of about 1845 MW of installed capacity can be achieved by 2020, equating to 11,000 GWh of electricity per annum. At present, the 2006 installed capacity of bioenergy is about 600 MW, of which 449 MW (75%) is cogeneration, see Figure 5.

If 100% of the installed capacity was cogeneration, this would mean a 24-fold increase in the amount of renewable cogeneration, based on the 2006 figure of 525.4 MW of renewable cogeneration, or nearly a six-fold increase in the total amount of 2006 installed cogeneration plant. If we take a more conservative approach and assume the same percentages of cogeneration of total installed capacity as is currently the case and assume 100% for urban biomass, we arrive at a figure of 5224 MW of bioenergy cogeneration — which would mean a ten-fold increase in the amount of renewable cogeneration or two-fold increase in the total amount of 2006 installed cogeneration plant. Whichever way you look at it, there is a significant bioenergy resource available to fuel sustainable cogeneration in Australia.

ABARE’s problems with forecasting energy use indicate how closely energy use is linked to the general economic climate. Although it is difficult to assess the true potential of cogeneration, evidence (such as a study in Victoria in 2001¹), shows that the potential could be more than three times the current installed capacity.


To minimize Australia’s overall greenhouse gas emissions, it will be important that electrical and thermal energy is produced as efficiently as possible through the use of cogeneration. At present, there is anecdotal evidence that under-sized cogeneration plants are being installed to avoid the difficultly of exporting excess electricity to the grid. This is not efficient from an energy or economic viewpoint and is being caused by market distortions — namely the monopoly powers of electricity distribution network owners. The following list provides an overview of same of the options that the Australian Government could choose to support the wider uptake of cogeneration. The question is: Will they continue to ignore the current barriers to cogeneration, insisting that ‘market forces’ will solve the problem, when in reality it is anything but a level playing field for potential cogeneration projects? Or will they look to the future needs of Australia and avoid repeating mistakes from the past?

Shopping list for giving cogeneration a fair chance in Australia:

  • all levels of Government should lead by example, ensuring that cogeneration is installed in hospitals, recreation centres, buildings and other facilities under their direct control, and should ensure that rental contracts specify cogeneration, through Australian Buildings Green Rating schemes or equivalent
  • accelerate market reforms through MCE, to ensure that cogeneration access to distribution networks is simple and streamlined
  • provide assistance to identifying and implementing small scale (<30 MW) cogeneration projects, through something like the UK Cogen Club which provides information and feasibility studies
  • allow for enhanced depreciation for investments in energy efficiency, such as cogeneration, as per UK Enhanced Capital Allowance program
  • provide financial assistance, such as grants and low or no-interest loans, for small (<30 MW) cogeneration
  • develop proformas for cogeneration developments, similar to those in existence for Energy Performance Contracts, covering contracts, best practice, grid connection, streamlining approvals
  • local and state Governments to streamline project approvals, to recognise the particular benefits of cogeneration, such as Sydney City Council’s ‘green transformer’ program
  • investigate feed-in tariffs for small-scale cogeneration.

Figure 2. Australia’s potential long-term bioenergy contribution to electricity generation by resource
Click here to enlarge image

Belatedly, the Australia Federal Government has made $75 million available over four years as part of its Re-Tooling for Climate Change Program, part of the larger $240 million Clean Business Australia initiative. It pales in comparison with the billions of dollars that all level of the Australian Government have pumped into the myth of ‘clean coal’, but at least it is a step in the right direction.

Tracey Colley writes on energy matters from Australia, and has a particular interest in cogeneration and sustainability.


Australian Bureau of Agricultural and Resource Economics (ABARE), 2007, Australian Energy — National and State Projections to 2029—2030, Research Report, December 2007.

1 The 2001 Redding Energy Management report for the Sustainable Energy Authority of Victoria indicated that there was 435 MW of cogeneration installed. Unrealised potential was 740 MW in manufacturing and 310 MW in the commercial sector.