Investment criteria for the selection of cogeneration plants—a state of the art review

The combined production of mechanical or electrical and thermal energy using a simple energy source affords remarkable energy savings and in many cases makes it possible to operate with greater efficiency when compared to a system producing heat and power separately. The economic optimisation in the design and operation of a combined heat and power (CHP) unit is usually performed through an examination of the investment criteria. In spite of the numerous criteria available, virtually the only ones used to determine whether to reject or to accept a project have been the net present value (NPV), internal rate of return (IRR) and payback period (PP). The aim of this paper is to develop a clear description and understanding of the uses and limitations of many different project evaluation techniques and to show when these methods are connected and are applicable to cogeneration plants. With this end in mind the different techniques will be applied to the selection between two CHP units for a tyre factory in Spain.