CHP: Potential Cost Savings, Reliability & Sustainability

While the hallmark of combined heat and power (generating power and thermal energy from a single fuel source, CHP for short) is exceptional efficiency, CHP projects are also expensive, labor-intensive capital investments. Initially, regardless of the size of the project, the average capital cost is anywhere from $700 to $3,000 per kW—a large investment no matter how soon the payback. Such a staggering upfront cost can be a big obstacle to CHP adoption—even if it makes sound economic sense in the long run.

However, changing economic factors, favorable energy policies and the growth of suitable markets are reducing the barriers to CHP. As implementation becomes more viable in terms of logistics, equipment and familiarity, it’s worth examining its three most attractive features: efficiency, reliability and sustainability.


According to the Environmental Protection Agency (EPA), the average efficiency of fossil-fueled power plants in the United States is 33 percent. This ratio has remained virtually unchanged for four decades. Two-thirds of the energy in the fuel is lost—vented as heat—at most power plants in the United States. CHP systems, which use waste heat recovery technology to capture a significant proportion of this vented heat, typically achieve total system efficiencies of 60 to 80 percent for producing electricity and thermal energy. The greater the efficiency, the less fuel required. And that equation has several benefits, including lower operating costs, reduced grid congestion and avoided distribution losses.

The Department of Energy (DOE) has conducted in-depth research of the effects of raising the CHP share of U.S. electricity-generating capacity by 20 percent by 2030. The annual energy savings of having 241 GW of industrial CHP would be 5,272 trillion Btu/year, and it would be the equivalent of taking 154 million cars off the road.


CHP’s critical advantage is its ability to provide electric and thermal energy to businesses and organizations on a continuous basis, resulting in daily operating cost savings. Especially for industries in which unreliable electric service represents a business, safety and health risk, CHP is well worth the initial costs of implementation. It is a more reliable option than even installing backup or emergency diesel generators to protect against the risk of power failures. The EPA’s CHP website states that during the Northeast blackout of 2003, half of New York City’s 58 hospitals suffered failures in their non-CHP backup power generators. If you are considering whether its reliability outweighs its significant investment, you can calculate the monetary value of reliability and risk of outages for your specific facility by going to the EPA’s web page Calculating Reliability Benefits.

You may be surprised to realize that CHP is not a monolithic system, but can be configured in a number of ways to meet the specific reliability needs and risk profiles for a wide array of businesses and organizations.


As mentioned earlier, in CHP less fuel is combusted, which means a reduction in emissions of greenhouse gases, such as carbon dioxide (CO2), as well as criteria air pollutants like nitrogen oxides (NOx) and sulfur dioxide (SO2). It can make a meaningful contribution toward the emissions stabilization necessary to avoid major climate disruption. While the cost of implementation makes it unlikely that many of today’s businesses would install CHP solely on its environmental benefit, potential future regulations may make CHP an even more attractive alternative to fossil fuel.

SmartWatt’s design build energy systems optimization capabilities include CHP. Recent experience includes a system fueled by natural gas, where waste heat was used to pre-heat a domestic hot water system for a nursing home. In the economic analysis used to make the case for CHP, we not only looked at fuel costs and potential for heat recovery, but also on-going O&M costs and the potential impact to existing utility rate tariffs including stand-by charges.

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