Cogeneration

At the beginning of the twentieth century, steam was the main source of mechanical power. However, as electricity became more controllable, many small "power houses" that produced steam realized they could also produce and use electricity, and they adapted their systems to cogenerate both steam and electricity. Then from 1940 to 1970, the concept developed of a centralized electric utility that delivered power to the surrounding area. Large utility companies quickly became reliable, relatively inexpensive sources of electricity, so the small power houses stopped cogenerating and bought their electricity from the utilities.

During the late 1960s and early 1970s, interest in cogeneration began to revive, and by the late 1970s the need to conserve energy resources became clear. In the United States, legislation was passed to encourage the development of cogeneration facilities. Specifically, the Public Utilities Regulatory Policies Act (PURPA) of 1978 encouraged this technology by allowing cogenerators to connect with the utility network to purchase and sell electricity. PURPA allowed cogenerators to buy electricity from utility companies at fair prices, in times of shortfall, while also allowing them to sell their electricity based on the cost the utility would have paid to produce that power, the so-called "avoided cost." These conditions have encouraged a rapid increase in cogeneration capacity in the United States.

In Europe, there has been little government support because cogeneration is not seen as new technology and therefore is not covered under "Thermie," the European Community's (EC) energy program. Under Thermie, 40% of the cost for capital projects is covered by the EC government. However, some individual European countries, like Denmark and Italy, have adopted separate energy policies. In Denmark, 27.5% of their electricity is produced by cogeneration, and all future energy projects must involve cogeneration or some form of alternative energy. In Italy, low-interest loans are provided to cover up to 30% of the cost of building new cogeneration facilities.