Combined Heat and Power

Combined heat and power (CHP) can be an efficient and clean method of generating electric power and useful thermal energy from a single fuel source at the point of use. Instead of purchasing electricity from the local utility and burning fuel in an on-site furnace or boiler to produce needed thermal energy, an industrial or commercial user can use CHP to provide both energy services in one energy-efficient step.

CHP can provide significant energy efficiency and environmental advantages over separate heat and power. By being more efficient, less fuel is consumed and greenhouse gases (GHGs) and other emissions are reduced. Properly designed CHP can also bolster the grid, provide security benefits, and potentially support intermittent renewable energy sources.

Key Focus Areas

Combined heat and power (CHP) is a proven commercial technology that has been used for more than a century. Currently, 82 gigawatts (GW) of CHP capacity are in use at more than 4,100 sites in the United States. Although 87% of CHP is in manufacturing plants around the country, a growing number of facilities from other sectors are considering its use^[1]. Estimates indicate the technical potential for additional CHP at existing industrial and commercial/institutional facilities is more than 130 GW^[2]. A 2009 study by McKinsey and Company estimated that 50 GW of CHP in industrial and large commercial/institutional applications could be deployable at reasonable returns with then-current equipment and energy prices.

Today’s economic and technical potential likely exceeds these estimates given the improving outlook in natural gas supply and prices^[3]. The importance of CHP to the United States was highlighted in President Obama’s Executive Order of August 30, 2012, which calls for deployment of 40 GW of new, cost-effective CHP by 2020^[4].

SEE Action has identified six key focus areas for CHP:

Design of standby rates: encourage customer-generators to use electric service most efficiently and minimize costs they impose on the electric system.
Interconnection standards for CHP with no electricity export: effective standardized interconnection rules governing how on-site generators connect to the grid can help overcome barriers to customer-sited generation.
Excess power sales: where markets for it exist, additional revenue streams from excess power sales can help CHP projects move forward.
Clean energy portfolio standards (CEPS): CHP can help states meet energy efficiency or renewable portfolio standards, when it is explicitly included as an eligible resource.
CHP in critical infrastructure: CHP offers the opportunity to improve critical infrastructure resiliency, mitigating the impacts of an emergency by keeping critical facilities running without any interruption in service.
Utility participation in CHP markets: CHP installations can be increased by allowing utilities to participate in CHP markets, either by owning CHP facilities directly, or by providing packages of services to customers who own their own CHP

Key Initiatives

SEE Action is currently working to provide state utility regulators and other state policymakers with actionable information to assist them in implementing key state policies that address barriers to, and promote opportunities for, CHP development. This includes:

Providing detailed information on key CHP policies, plus examples of successful state regulatory implementation strategies, which meet one of more of the following criteria: they achieve the intent of state policy; they send clear market signals; and where applicable, they adhere to the principle of ratepayer benefits or neutrality.

[1] U.S. Department of Energy (DOE), U.S. Environmental Protection Agency (EPA). Combined Heat and Power: A Clean Energy Solution. August 2012.

[2] Based on ICF International internal estimates as detailed in “Effect of a 30 Percent Investment Tax Credit on the Economic Market Potential for Combined Heat and Power,” report prepared for WADE and USCHPA, October 2010

[3] McKinsey Global Energy and Materials. (2009). Unlocking Energy Efficiency in the U.S. Economy.

[4] The White House. August 30, 2012. Executive Order─Accelerating Investment in Industrial Energy Efficiency. www.whitehouse.gov/the-press-office/2012/08/30/executive-order-accelerating-investment-industrial-energy-efficiency.

Connect with Us about Combined Heat and Power

Contact our Experts

Neeharika Naik-Dhungel, U.S. Environmental Protection Agency,

Industrial Energy Efficiency and Combined Heat and Power Working Group, Staff Lead
Jay Wrobel, U.S. Department of Energy,

Industrial Energy Efficiency and Combined Heat and Power Working Group, Staff Lead

Guidance Documents from the Network

Guide to the Successful Implementation of State Combined Heat and Power Policies

The Guide to Successful Implementation of State Combined Heat and Power Policies informs state utility regulators and other state policymakers with actionable information to assist them in implementing key state policies that impact combined heat and power.

The challenge for all affected parties using combined heat and power (CHP)—which can provide significant energy, energy system, and environmental benefits— is to identify the most equitable arrangement that encourages adoption of CHP while ensuring that inequitable costs are not transferred to those not participating in CHP. This document clearly and accurately describes the policy issues all parties must address when evaluating CHP.

- Joshua Epel, Colorado Public Utilities Commission

Sustained Energy Savings Achieved through Successful Industrial Customer Interaction with Ratepayer Programs: Case Studies

This paper provides four detailed case studies of companies that benefited from participation in their utility’s energy efficiency program offerings and highlights the business value brought to them by participation in these programs.

State Approaches to Demand Reduction Induced Price Effects: Examining How Energy Efficiency Can Lower Prices for All

This paper reviews the existing knowledge and experience from select U.S. states regarding Demand Reduction Induced Price Effects (DRIPE), including New York and Ohio, and the potential for expanded application of the concept of DRIPE by regulators. Policymakers and public utility commissions have a critical role to play in setting the methodology for determining DRIPE, encouraging its capture by utilities, and allocating DRIPE benefits among utilities, various groups of customers, and/or society at large.

Guide for States: Energy Efficiency as a Least-Cost Strategy to Reduce Greenhouse Gases and Air Pollution, and Meet Energy Needs in the Power Sector

A practical document that presents established policy and program “pathways” to advance demand-side energy efficiency, including:

Ratepayer-funded energy efficiency
Building energy codes
Local government-led efforts, such as building performance policies
State-led efforts, such as energy savings performance contracting
Commercial and industrial private sector approaches, such as strategic energy management and combined heat and power.

The guide presents case studies of successful regional, state, and local approaches to energy efficiency with sources for more information, resources to understand the range of expected savings from energy efficiency, and common protocols for documenting savings.

State and local air pollution control agencies will find SEE Action's Guide for States: Energy Efficiency as a Least-Cost Strategy to Reduce Greenhouse Gases and Air Pollution, and Meet Energy Needs in the Power Sector to be a very helpful resource. The guide provides a clear and credible overview of how states and localities are putting energy efficiency to work for them, and what they are getting out of their investment. These approaches give air agencies a broader set of tools to meet air quality standards, protect public health, and achieve multipollutant emission reductions at a low cost.

- Bill Becker, National Association of Clean Air Agencies

Recent State and Local Energy Efficiency Actions

Illinois to Begin Public Sector Combined Heat and Power Pilot Program

On January 28, 2014, the Illinois Commerce Commission approved the implementation of a pilot program to encourage investment in combined heat and power in the public sector. The program will provide financial assistance in the form of performance-based incentives at various stages of projects that reduce the total British thermal units of electricity and natural gas required to meet the end use requirements of the public facility. Read the news release.

Texas Advances CHP

On June 14, 2013, Governor Rick Perry signed into law legislation that provides support for CHP in Texas. HB 1846 calls on the State Energy Conservation Office to develop guidelines for evaluating whether installing CHP in certain government facilities would result in expected energy savings that would exceed the expected costs over a 20-year period. Read HB 1864.

More Recent Actions