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Evaluating the Potential of Combined Heat and Power

Key Points
  • Combined heat and power offers lower emissions, energy cost savings and improved power reliability.
  • Applications must have a year-round thermal load requirement and large spark spread.
  • A screening and preliminary analysis will determine if a more in-depth feasibility analysis is needed.

6.3-MW CHP plant at Argonne National Laboratory.
CHP plant
With the abundant supply and favorable price of natural gas in North America, interest in combined heat and power (CHP) is increasing. Potential benefits include:

  • Overall efficiency gain of 40 to 90 percent
  • Lower electricity cost by as much as 6 cents per kWh
  • Emissions reduction of 47 percent for carbon dioxide
  • Emissions reduction of 93 percent for nitrogen oxides
  • Elimination of nearly all sulfur dioxide emissions
  • Reduced grid congestion and avoided distribution costs

In addition to energy cost savings, a major driver for CHP installations is the improved power reliability and quality. Companies are better prepared in case of a power outage.

A CHP system includes a prime mover—such as a reciprocating engine, combustion turbine, fuel cell or microturbine—typically fueled by natural gas. Waste heat is recovered both from the exhaust stack of generators and the generator water jacket.

Not for everyone

CHP is not the right fit for every application. Factors to consider include:

  • Coincident need for electricity and thermal load
  • Climate conditions (shoulder seasons)
  • Thermal loads, especially seasonal variability
  • Operating hours and building size
  • Reliability requirements (steam and electric)
  • Local electricity rates and natural gas prices
  • Fuel availability and selection

CHP applications must also have a year-round thermal load requirement. The use of thermal heat energy can be used for cooling in commercial applications.

Consider the costs

Although CHP systems may have high upfront capital costs, they're often more cost effective than other options when evaluated on a life cycle cost basis. Cost variables include:

  • Capacity (kilowatts)
  • Capital cost
  • Useful life (years)
  • Maintenance cost
  • Heat rate (Btu/kWh)
  • Interest rate (internal rate of return)
  • Fuel prices

Prime mover types vary in cost (from $600 to $5,000 per kilowatt), efficiency and gas pressure requirements. Smaller units usually have a higher cost per kilowatt. Gas turbines are more expensive to install but cheaper to maintain. Reciprocating engines are cheaper to install but more expensive to maintain.

Raising the spark spread 

A "must have" is a high spark spread, which compares the purchase price of electricity to the cost to generate it onsite. The spread must be based on the same unit per unit basis ($ per MWh or $ per MMBtu).

Generator heat rate is the amount of heat required to produce a kilowatt-hour (kWh) of electricity, expressed as Btu/kWh (1 kWh = 3,412 Btu). A typical coal-fired power plant has a heat rate of about 10,500 Btu/kWh compared to a high-efficiency CHP of 5,500 Btu/kWh. A lower heat rate corresponds to better plant efficiency. If a CHP system operates on waste heat, the heat rate is zero.

For a spark spread of more than $6 per MWh, electricity cost of 7 cents per kWh, a natural gas fuel cost under $10 per MMBtu and an average/peak electric or thermal load of more than 70 percent, the payback period is less than:

  • Three years for an industrial plant
  • Five years for a commercial facility
  • Seven years for a government facility

The right fit?

If you have customers with an existing central plant, and they're planning an expansion or equipment replacement over the next several years, then they may be a good candidate for CHP. To determine if a CHP system is right, perform a screening and preliminary analysis. Follow that up with a feasibility analysis to determine installation costs and savings. Because energy needs change over time, monitor the CHP system to ensure it's operating at optimal efficiency.

We can help

National Grid has tools and energy solutions to grow your business and foster strong client relationships. For more information, contact us at 844-280-4325 or

Image sources: ANL, NIH

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