When Does Combined Heat and Power Make Sense?

Combined heat and power, also known as cogeneration, is the simultaneous production of electricity and heat from a single fuel source, such as natural gas, biomass, biogas, coal, waste heat or oil. It is not defined by a single energy source—it’s an integrated energy system that can be modified depending upon the needs of the energy end user. When you install a combined heat and power system designed to meet the thermal and electrical base loads of a facility, you can greatly increase the facility’s operational efficiency and decrease energy costs. In addition, combined heat and power’s fuel economy can help an organization’s compliance with air pollution and greenhouse gas emissions standards.

Combined heat and power has a number of benefits, but it’s not always a good fit; only certain conditions make it viable. Combined heat and power is ideally suited for applications that have coincident thermal and power loads. Equally important, but with a broader range of responses, are the questions of economic suitability. This set of variables includes current and future fuel costs and utility rates, planned new construction or HVAC replacement, and the need for power reliability onsite. Combined heat and power viability is also heavily influenced by the utility policies at the local, state and federal level.

According to the EPA, combined heat and power is most economical in applications that have high thermal loads and in areas where electricity costs more than $0.07/kilowatt-hour on average. According to EPA’s Combined Heat and Power Partnership website, the wide variety of industries that best support combined heat and power technology include:

  • Industrial manufacturers—chemical, refining, ethanol, pulp and paper, food processing, glass manufacturing
  • Institutions—colleges and universities, hospitals, prisons, military bases
  • Commercial buildings—hotels and casinos, airports, high-tech campuses, large office buildings, nursing homes
  • Municipal—district energy systems, wastewater treatment facilities, K–12 schools
  • Residential—multi-family housing, planned communities

The EPA website has an extremely useful set of questions you can use to determine if your facility meets the basic requirements for combined heat and power:*

  • Do you pay more than $.07/ kilowatt-hour on average for electricity (including generation, transmission and distribution)?
  • Are you concerned about the impact of current or future energy costs on your business?
  • Is your facility located in a deregulated electricity market?
  • Are you concerned about power reliability? Is there a substantial financial impact to your business if the power goes out for 1 hour? For 5 minutes?
  • Does your facility operate for more than 5,000 hours/year?
  • Do you have thermal loads throughout the year (including steam, hot water, chilled water, hot air, etc.)?
  • Does your facility have an existing central plant?
  • Do you expect to replace, upgrade or retrofit central plant equipment within the next 3 to 5 years?
  • Do you anticipate a facility expansion or new construction project within the next 3 to 5 years?
  • Have you already implemented energy efficiency measures and still have high energy costs?
  • Are you interested in reducing your facility’s impact on the environment?

*Reprinted with permission from EPA’s Combined Heat and Power Partnership

If you answer yes to three or more questions, you have passed the initial barriers to installing a combined heat and power system. But marginally passing won’t cut it, given the costs involved. You need to conduct a rigorous examination to see if you will get an acceptable return on your investment. Continuous thermal and electrical loads are the key, such as with facilities that operate 24/7. A successful combined heat and power application hinges on supply equaling demand. Fully making use of what combined heat and power offers allows a return on the combined heat and power capital investment within a reasonable amount of time. What follows is a more in-depth checklist of financial considerations to weigh:**

  • The upfront capital investment required to install combined heat and power or replace an existing boiler (may also include the additional features that enable islanding and black start capability)
  • Anticipated operations and maintenance cost
  • The monetary savings that result from not paying for grid-provided electricity and separate thermal energy
  • The monetary and other benefits that result from maintaining critical operations during grid disruptions (e.g., data servers, research and development activities, caring for hospital patients, waste water treatment)
  • Meeting organizational financial targets (e.g., rate of return, return on investment)
  • Availability of state, local, utility or federal financial incentives for combined heat and power
  • State policies and requirements governing utility actions that impact combined heat and power system operation (e.g., interconnection standards, standby charges)

**Reprinted with permission from the EPA and DOE’s “Guide to Using Combined Heat and Power for Enhancing Reliability and Resiliency in Buildings”

If after weighing all the considerations, combined heat and power seems like it could be a good fit for your organization, it’s worth researching the numerous private, public, and public-private financing options available to help spread risk and overcome capital constraints. An energy systems optimization firm can help with all elements of the project.

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