Combined heat and power: Economics and contracts

The spark spread that decides whether CHP pays

CHP pays when power is dear and gas is cheap (a wide spark spread) and heat is used year-round; US screening cases show paybacks of about 5-10 years.

Levelised cost of heat or avoided cost

DOE gives engine CHP installed cost of USD 2,000-4,250 per kW and non-fuel O&M of 1.3-3.0 US cents per kWh. In a DOE screening example at USD 1,400 per kW, on-site generation cost about 4.2 US cents per kWh after a credit for boiler fuel saved, against bought-in power worth about 8 cents per kWh (calculated from the example's totals), giving a 5.3-year payback; sizing cases gave 7.9 years (3.5 MW) and 9.5 years (5.7 MW). Absorption chillers add USD 1,800-6,000 per ton (single-effect) or about USD 2,000-3,300 per ton (double-effect) installed.¹²⁴

Host factory credit risk

CHP is sized to one site's heat load, so a closure, a shift change or an efficiency project that cuts heat demand strands the asset. Hospitals, universities and campuses are lower-risk hosts than single-product factories. The US experience shows the scale: 80.7 GW at over 4,600 sites by the end of 2019, most of it owned by hosts.⁴

Heat-as-a-service and ESCO models

Third-party ownership is well established. At Solvay Specialty Polymers in Marietta, Ohio, DTE Energy Services built, owns and operates an 8 MW natural gas combustion turbine CHP plant (2015) and supplies the host. Such contracts usually include minimum-take or capacity charges so the owner is paid even if the host cuts demand, which puts host credit at the centre of the deal. Utilities and energy service companies also own CHP on hospital and district energy sites.⁴

Sources

1. Reciprocating Engines, CHP Technology Fact Sheet Series (DOE/EE-2764) US Department of Energy, 2023
2. Absorption Chillers for CHP Systems, CHP Technology Fact Sheet Series (DOE/EE-1608) US Department of Energy, 2017
3. CHP TAP training for Industrial Assessment Centers US DOE CHP Technical Assistance Partnerships, 2021