Comparing the ROI of Cogeneration, Prime and Battery-Powered Systems

Which system makes the best economic investment?
12 May, 2020 by
Comparing the ROI of Cogeneration, Prime and Battery-Powered Systems
T&T Power Group.

Over the past few years, we’ve seen a battle between several prime power and cogeneration technologies – especially regarding their economic efficiencies.

But the fact is, there’s an opportunity for each of these technologies when we allow the financial drivers to determine the best fit. Policies will change, surcharges will be renamed, but base hydro and heat costs will always be on the incline.

Cogeneration Systems

All CHP/cogeneration systems provide some type of heat source via water or forced air – and the more of it that’s used, the less costly it is to provide for a facility, or augment a process or operation that requires heat.

While the financial modeling takes place over a full year, within that timeframe some facility heat may be lost to the atmosphere in the warmer months. This does not impact the ROI, as both simple and comprehensive ROIs are calculated for the life of the system.

The average capital costs of a cogeneration system are $1000.00/kW, with maximum ROI based on the owner absorbing the capital costs.

Revenue share models and power purchase agreements are available to eliminate the capital costs and protect cash flows. These do reduce the savings by the borrowing costs in addition to a nominal mark-up.

The typical ROI with a cogeneration system is 3-6 years – eliminating GA charges and reducing peak charges through base loading or peak shaving, with the added op-ex reduction of augmenting boiler or forced air heat.

The Canada Revenue Agency allows for an accelerated depreciation rate for companies wishing to defer taxes for cogeneration or trigeneration technologies.

Prime Power Systems

With global adjustment charges increasing year after year, one solution to this would be adding generators to run during “GA Days” – thus eliminating the global adjustment charges. These systems may also be used as standby generators in the event of a power failure.

The average ROI with a prime power system is 2-5 years; eliminating GA charges and selected peak charge reduction during specific times of the day or month. The capital cost is also well under $1000.00 / kW.

The IESO is changing the GA billing model, and is still to be based on hydro usage, regular and/or peak. For large business the hydro increases will be less, as the costs are spread across many businesses and home consumers. While it’s still an increase, it is a smaller one.

Revenue share and power purchase agreements are available for prime power systems, although capital costs are typically absorbed by the customer as the ROIs are quite short.

Battery-Powered Systems

Battery systems designed around reducing GA charges and reducing peak charges do not offer any heat, and are therefore outside of the cogeneration scope.

The average capital costs of battery systems are around $2400.00/kW. Since the average system discharges in 4 hours, the goal is to reduce GA charges and by using during selected peak shaving times of the day or month. Recharging is completed off-peak when hydro costs are the lowest.

The typical ROI with a battery system is 7-11 years – making a revenue share model the only option available. All revenue share models are diluted by the borrowing costs in addition to a nominal mark-up.

Battery-powered systems have also been deployed in the Demand Response program that helps to offset the higher capital costs by as much as $100,000 per year.

Asset Valuation / Income Properties

Net operating income impacts the cap rate directly – so reducing operating expenses is advantageous not only for increased building revenues, but also for achieving more favourable cap rates.

Long-term valuation of the assets will also have an impact. Gas fired solutions include a built-in maintenance op/ex while battery systems have a built in cap-ex to meet performance metrics. As batteries degrade, additional capacity is added over the life of the system.


In every market there is a good, a better, and a best in terms of technologies based on the most efficient or effective financial model spanning the life of the system, or total cost of operation (TCO). As an overall opinion, when comparing battery, prime power and cogeneration systems:

The Good = Battery-Powered Systems
The Better = Prime Power Systems
The Best = Cogeneration/CHP Systems

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