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What incentives and technology are needed to make refinery-based cogeneration of electricity and steam profitable?

Apr-2025

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Joe Jacobs, Becht, jjacobs@becht.com

Refiners face competitive market pressures to lower production costs. Coproducing electricity and steam is a proven way to improve cycle efficiency for a refinery site. Improved energy efficiency will mean lower costs for the refiner. Electricity producers also face demand issues for the grid, with alternative energy sources having cyclical production and needing a swing supply. Building new power plants is one option to stabilise the grid; however, cost pressures are not unique to petroleum refiners.

Currently, refiners nominally receive some cost incentives to produce electricity. These agreements have elements for the refinery site to maintain electrical production at peak times as well as during electrical infrastructure maintenance periods. These agreements have traditionally been from opposite sides of the table where the participation is based on the transaction: electricity bought and sold.

Perhaps the time is coming for more integrated arrangements like partnerships that allow the replacement of antiquated fired boiler technology in a refinery for a baseload of cogenerated steam for nominal steam production. The refinery of the future would have a swing boiler with full standalone cold restart capability to maximise coproduction potential for the refinery and the grid. The digital transformation allows real-time integration between the refinery and the electricity producer. Energy efficiency equals lower greenhouse gas emissions.

Apr-2025
Mark Heigold, Burns & McDonnell, mlheigold@burnsmcd.com

The decision to install a cogeneration (cogen) system in a refinery is primarily driven by economics. The key question is whether it is more cost-effective to generate both power and steam on-site or to purchase electricity from the grid while producing steam separately. A refinery investing in a cogen must account for the capital expenditure as well as increased fuel and maintenance costs. However, this is offset by lower direct electricity costs, potential tax credits, and increased efficiency.

In North America, government financial incentives are usually linked to achieving a certain level of cogen efficiency. If the efficiency criteria can be met, associated credits can improve project economics. In the US, available investment tax credits (ITC) and Canada’s Class 43.1 heat rate categories encourage cogen adoption. Carbon penalties and fuel market incentives also play a role. Refineries in Canada can avoid carbon taxes through cogen efficiency, while California’s Low Carbon Fuel Standard (LCFS) offers credits for integrating low-carbon fuels like renewable natural gas, hydrogen, or ammonia. These financial mechanisms impact feasibility, making cogen systems more attractive.

Energy efficiency is the ultimate goal. Cogen systems recover waste heat that would otherwise be lost, reducing overall energy consumption. This leads to lower carbon emissions and offers additional benefits such as improved energy security and, in some cases, surplus electricity that can be sold to the grid.

The choice of technology for power generation depends on the refinery’s energy demand and fuel availability. Gas turbines with heat recovery steam generators (HRSGs) capture exhaust heat to produce steam, improving fuel utilisation. Steam turbines can be added to utilise high- pressure steam for additional power generation while supplying lower-pressure process steam to the facility. An integrated gasification combined cycle (IGCC) facility gasifies refinery residues to produce syngas, which fuels a gas turbine combined-cycle system for electricity and steam production. Each option must be evaluated based on fuel costs, efficiency, and integration with existing refinery operations.

Installing a cogen system will impact existing infrastructure. With a gas turbine-based system, fuel consumption will increase since a portion of the turbine fuel is used for power generation, with the remainder credited to steam production. The electrical system must also be able to handle ‘behind-the-fence’ self-generation as well as switch back to grid supply when the turbine(s) are down for maintenance. Refineries with existing infrastructure that can handle these requirements will find installation more economical than those requiring significant updates.

A full lifecycle analysis will help determine whether a cogen provides a financial advantage over grid electricity and separate steam production. While project justification is primarily financial, regulatory benefits, reduced emissions, and the ability to incorporate low-carbon fuels further strengthen the case. If a cogen system can produce electricity and steam at a lower cost than grid power and standalone boilers, and incentives improve ROI, it presents a compelling economic option.

Apr-2025