Combined heat and power (CHP) can offer a variety of economic benefits for large energy users. The economic benefits of CHP can include:
* Reduced energy costs: The high efficiency of CHP technology can result in energy savings when compared to conventional, separately purchased power and onsite thermal energy systems. To determine if CHP is likely to offer a compelling return on investment at a particular site, the costs of the CHP system (capital, fuel, and maintenance) should be compared to the costs of purchased power and thermal energy (hot water, steam, or chilled water) that would otherwise be needed for the site.
* Offset capital costs: CHP can be installed in place of boilers or chillers in new construction projects, or when major heating, ventilation, and air conditioning (HVAC) equipment needs to be replaced or updated.
* Protection of revenue streams: Through onsite generation and improved reliability, CHP can allow ...view middle of the document...
Analyzing Economic Feasibility
The economic benefits of any CHP project are dependent on efficient design, fuel and offset electricity costs, and capital costs. The value of these benefits will depend on the needs and goals of the investor. A feasibility analysis to determine the technical and economic viability of a project is typically performed in stages in order to minimize costs and expenses from nonviable projects.
Use our easy questionnaire as a preliminary assessment of whether your facility might be a good candidate for CHP. Visit the Project Development section of this Web site to learn about the steps required to consider and install a CHP system, along with the tools and technical assistance the CHP Partnership provides to help along the way.
In addition, funding incentives for CHP systems are available in the form of direct financial grants, tax incentives, low-interest loans, or utility and environmental policies that increase the financial prospects for a project.
An Example of Preliminary Economics
In the example below, the cost to produce power is calculated assuming relatively high fuel costs ($8.30/million British thermal units [MMBtu]), a highly efficient CHP system that uses almost all available thermal energy (95 percent), average capital costs ($1,200/kilowatt [kW] turnkey), and an average interest rate (8 percent). The example also assumes that the CHP system is being installed as a retrofit; therefore, no capital cost offset was taken for a displaced boiler or other equipment. No backup power capability is included; therefore, no costs or benefits for this system capability are included. Given these assumptions, the energy savings for this CHP system would be the difference between the purchased price of electricity for the site and the $0.0618/kilowatt-hour (kWh) to produce electricity with the CHP system.
Economic analyses, such as those shown in the example below, have led to substantial new CHP deployment in areas with electricity prices exceeding $0.07/kWh. However, many other fuel types, system configurations, and deal structures can overcome seemingly marginal economics if there is a strong technical fit and high efficiency.