# Combined heat and power: Economics and contracts

The spark spread that decides whether CHP pays

Source page: https://www.materialinsights.org/energy/e_chp/rc-econ/

What this tab covers Economics and commercial structures: levelised cost of the recovered energy against the fuel it avoids, host-site risk, and service models such as heat-as-a-service.

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
Mixed

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.^[1](https://betterbuildingssolutioncenter.energy.gov/sites/default/files/attachments/CHP_Reciprocating_Engines.pdf)^[2](https://www.energy.gov/sites/default/files/2017/06/f35/CHP-Absorption%20Chiller-compliant.pdf)^[4](https://iac.university/file/general/CHP%20TAP%20Training%20for%20IACs%20-%20February%2011%202021.pdf)
 Engine CHP installed cost USD 2,000-4,250/kW^[1](https://betterbuildingssolutioncenter.energy.gov/sites/default/files/attachments/CHP_Reciprocating_Engines.pdf) Non-fuel O&M 1.3-3.0 US cents/kWh^[1](https://betterbuildingssolutioncenter.energy.gov/sites/default/files/attachments/CHP_Reciprocating_Engines.pdf) DOE screening payback 5.3 years^[4](https://iac.university/file/general/CHP%20TAP%20Training%20for%20IACs%20-%20February%2011%202021.pdf) Sizing-case paybacks 7.9-9.5 years^[4](https://iac.university/file/general/CHP%20TAP%20Training%20for%20IACs%20-%20February%2011%202021.pdf)

#### Host factory credit risk
Mixed

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](https://iac.university/file/general/CHP%20TAP%20Training%20for%20IACs%20-%20February%2011%202021.pdf)
 US installed CHP (end 2019) 80.7 GW at 4,608 sites^[4](https://iac.university/file/general/CHP%20TAP%20Training%20for%20IACs%20-%20February%2011%202021.pdf)

#### Heat-as-a-service and ESCO models
Favourable

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](https://iac.university/file/general/CHP%20TAP%20Training%20for%20IACs%20-%20February%2011%202021.pdf)
 Solvay/DTE third-party CHP 8 MW gas turbine, build-own-operate, 2015^[4](https://iac.university/file/general/CHP%20TAP%20Training%20for%20IACs%20-%20February%2011%202021.pdf)

#### Sources

1. [Reciprocating Engines, CHP Technology Fact Sheet Series (DOE/EE-2764)](https://betterbuildingssolutioncenter.energy.gov/sites/default/files/attachments/CHP_Reciprocating_Engines.pdf) US Department of Energy, 2023
2. [Absorption Chillers for CHP Systems, CHP Technology Fact Sheet Series (DOE/EE-1608)](https://www.energy.gov/sites/default/files/2017/06/f35/CHP-Absorption%20Chiller-compliant.pdf) US Department of Energy, 2017
3. [CHP TAP training for Industrial Assessment Centers](https://iac.university/file/general/CHP%20TAP%20Training%20for%20IACs%20-%20February%2011%202021.pdf) US DOE CHP Technical Assistance Partnerships, 2021

## Other sections

- [Summary](https://www.materialinsights.org/energy/e_chp/index.md)
- [Overview](https://www.materialinsights.org/energy/e_chp/overview/index.md)
- [Correlation](https://www.materialinsights.org/energy/e_chp/correlation/index.md)
- [Science and thermodynamics](https://www.materialinsights.org/energy/e_chp/rc-sci/index.md)
- [Engineering and integration](https://www.materialinsights.org/energy/e_chp/rc-eng/index.md)
- [Impact and additionality](https://www.materialinsights.org/energy/e_chp/rc-impact/index.md)
- [What to track](https://www.materialinsights.org/energy/e_chp/tracking/index.md)
- [Relationships](https://www.materialinsights.org/energy/e_chp/links/index.md)