Combined Heat and Power Plant Installation at Oil and Gas Fields: Is It Cost-Effective?

Abstract

The paper presents an economic feasibility analysis applied to assess the cost effectiveness of implementing a combined heat and power system at oil and gas fields. The purpose of this paper is to present a generic methodological framework by calculating return on investments in order to investigate the economic benefit and a payback period at the plants installed capacity. The findings of this analysis demonstrate that the mode of operation with sale of electricity at feed-in tariff and supply of excess heat to third parties is the most cost-effective because of its shortest payback period of 2.80 years. However, mode of operation with sale of electricity at free market and using heat for own consumption is the least economical, with payback period of 20.84 years. The paper provides important insights into strategic long-term and challenging decisions made by investors highlighting potential risks and providing the roadmap and appropriate price signals on critical energy projects under market conditions.