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Combined Heat and Power Ins and Outs

Combined Heat and Power Ins and Outs, Michaels Energy

Combined heat and power (CHP) is quite easy to understand from an energy efficiency perspective.  Deploying policies to encourage it is very complex due to a number of things:

  • What fuel type are we saving?
  • What is fair for the utility?
  • What are the public benefits?
  • How should any incentives be derived?
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CHP Overview

In a conventional thermal power plant fired by coal, roughly 20% of the energy is lost to the exhaust in the form of waste heat.  Roughly 45% of the thermal energy is rejected to the atmosphere or body of water – river, lake, or ocean.  This leaves 40% in the form of electricity.  A few percentage points of that get consumed to run the plant in the form of pumps, blowers, and lights, and a point or two is lost in transmission of power to the customer site.  This is depicted in the cartoon nearby.

A CHP plant captures much of the 45% of the heat that is dumped to the “surroundings” or “heat sink” as it is called in engineering class.  To the under-informed, this would seem like a slam dunk.  Why don’t we have CHP everywhere?

Supply = Demand; Capacity and Cost Effectiveness

As mentioned in previous posts, the generations of people who developed the energy supplies we have today with central power plants and natural gas lines weren’t stupid.  Central plants offer huge economies of scale, and with hundreds of thousands of customers drawing power at any given time, they have a very diversified load to serve.  Unless a CHP plant serves multiple large customers, there is very little diversity of load.

To compensate for the lack of load diversity, and to be cost effective, CHP plants must be sized to operate at full capacity all the time.  This of course means the plant will never supply all the power for the facility.  The facility will always need supplemental power from the grid.

One of the advantages sometimes noted for CHP is that it provides grid stability; not any more than a demand-side resource.  It is not cost effective for any end user to build a plant that has extra capacity in times of peak demand.

Fuel Savings

In 99% of potential CHP applications, the need for electricity is greater than the need for the waste heat. In other words, the size of the plant is dictated by the need for heat.  As alluded to, but not directly stated in the previous section, the plant is sized for the minimum need for heat, whenever that occurs throughout the year (other than maintenance shutdowns of course).

Because the CHP design is built around the need for heat, it is, in my opinion, a thermal energy source that generates electricity as a byproduct and not the other way around.  No knowledgeable person is going to declare they want to displace half their electrical demand with CHP and then start looking for heat loads to soak up the waste heat.

Combined heat and power presents a method for generating high-value electricity with extremely low incremental fuel requirements.  Virtually every additional BTU (unit of energy) required converts directly to electricity.

Is fuel price volatility (natural gas) a substantial risk as mentioned in ACEEE’s recent state scorecard?  I argue no because the design is based on the need for thermal energy, and natural gas is needed for thermal energy anyway.  Since natural gas supplies much of the power to the grid from central plants, as one example, electricity prices are also a function of natural gas prices.  In other words, customers are subject to natural gas swings in either case, and the difference in volatility and risk between the two is negligible.


Combined heat and power is not something that will soon be widely retrofitted like LED lightbulbs.  Even for customers with high constant needs for thermal and electrical energy, it is not cost effective to rip up thermal energy generators (e.g. boilers) with much useful life remaining, and install a CHP plant.  Far and away the best opportunity is new construction/expansion.  This is why a major, major blown opportunity here in the Midwest was the rapid construction of ethanol plants that were built willy nilly with hardly any CHP.  What a waste!

Electrical generation in search of thermal loads is also a big challenge.  For example, CHP for a hospital requiring replacement of electric chillers with absorption chillers that can use heat to generate chilled water (yes indeed – a miracle of engineering) is also not cost effective per most customer thresholds.


Large-user-scale CHP should be driven by market forces alone.  Consider that a small portion of customers are served by the same utility for both natural gas and electric.  If I’m the natural gas utility, I can sell more natural gas with CHP and therefore, I would promote it.  If I’m the electric utility, maybe I finance, build, and maintain the plant and sell power and heat locally (they should be given the regulatory freedom to do this, by the way).

Account management and economic development departments can drive this bus.

Jeff Ihnen

Author Jeff Ihnen

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