Small-scale Combined Heat and power

Small scale Combined Heat and power (CHP)
Opportunities enabled
Technology group

Co-generation is the combined production of useful thermal energy and electricity (Combined Heat and Power, CHP) from the same primary fuel. CHP can take on many forms and encompasses a range of technologies, but will always be based upon an efficient, integrated system that combines electricity production and heat recovery. By using the heat output from the electricity production for heating or industrial applications, CHP plants generally convert 75-80% of the fuel source into useful energy, while the most modern CHP plants reach efficiencies of 90% or more (IPCC, 2007). CHP plants also reduce network losses because they are sited near the end user.

Small CHP will be defined here as power plants not using steam turbines as a driver technology. This technology description focuses on power plants using internal combustion engines with typically less than 1MW of technical capacity and will also briefly discuss emerging technologies as fuel cells, micro-turbines and Stirling engines. Small CHPs are often used in smaller industrial sites and in the residential and service sector. 


In the operation of a conventional power plant or generator, large quantities of heat are wasted in the cooling circuits and in the exhaust gases (Figure 1). Using this waste heat for industrial processes or space heating increases the overall efficiency of the process.


Figure 1: The principle of Combined Heat and Power (IEA, 2008)

Small CHPs are ideally built in the place where the heat is needed and are built to meet the heat demand if the optimal use of the power plant is to be achieved. If also the electricity is used locally, transmission and distribution losses are smaller.

By utilising the heat, the fuel-efficiency of a CHP plant can reach 90% or more. CHP therefore offers energy savings of 15 - 40% when compared to the separate production and supply of electricity and heat from conventional power stations and boilers, depending on the type of system it replaces (IEA, 2008).

Other CHP research aims to produce modular and smaller units, which can be installed and relocated easily. Such systems lend themselves for small-scale application in places with limited technical support, and are therefore good options for technology transfer.

CHP technologies and systems

A CHP site consists of four basic elements (Figure 3):

  • Turbine or engine (prime mover)
  • Electric generator
  • Heat recovery system (in case of cooling, an absorption cool unit)
  • Control system


Figure 2: Elements of a CHP plant

The fuel combustion either creates mechanical energy directly, or first produces steam, which is subsequently converted to mechanical energy. The mechanical energy is used to spin a generator producing electricity.


Figure 3: Typical data for small-scale cogeneration systems

Small CHP systems

Small CHPs typically use an internal combustion engine (ICE) as a technology which can run on different fuels, such as oil, (bio-) diesel or gas. Gas engines are the technology of choice for CHP plants below 1 MWe. The systems are similar to car engines, but operate on natural gas, biogas or oil. Solid biomass therefore needs to be processed into gas or oil before it can be used in an ICE system.

Several emerging technologies have been entering the market in recent years - including micro-turbines, Stirling engines, and fuel cells - as there are improvements in, lifetimes and cost-competitiveness. These have advantages over ICEs in some niche applications. Micro-turbines, for instance, are less sensitive to gas quality, and can therefore be attractive when using biogas. Stirling engines can use solid biomass directly, making costly processing unnecessary. Fuel cells (FC) used for stationary use are SOFC (solid-oxide FC), MCFC (molten-carbonate FC) and PEMFC (polymer electrolyte FC); the first two have the advantage of being able to burn natural gas directly instead of using hydrogen that still has a more complex production chain. However, all are still more expensive than ICEs, and therefore have yet been unable to threaten its dominant market position.

Figure 4: schematic drawing of a fuel cell and a Stirling engine

Other CHP research aims to produce modular and smaller units, which can be installed and relocated easily. Such systems lend themselves for small-scale application in places with limited technical support, and are therefore good options for technology transfer.

Typical applications of CHP technologies

Commercial, Institutional and Residential CHP

In recent years, the use of CHP in commercial buildings and multi-residential complexes has increased steadily. This is due largely to technical improvements and cost-reductions in smaller-scale, often pre-packaged, systems that match thermal and electrical requirements. The size of these CHP typically varies between 1kWe and 10MWe.

Examples of commercial and institutional CHP users include hotels, offices, and hospitals, which tend to have significant energy costs as a percentage of total operating costs, as well as balanced and constant electric and thermal loads.

District Heating and Cooling and CHP

District heating primarily focuses on supplying low- and medium-temperature heat demands (i.e. space heating and hot tap water preparation), by “recycling” upgraded waste heat from CHP plants, industrial processes and waste incineration.  This heat can drive absorption chillers for cooling and air conditioning purposes.

Feasibility of technology and operational necessities

Sufficiently large heat demand (or cooling demand)

The size of a CHP demand is determined by the demand for the most important product. Heat-driven CHP systems are most efficient as any excess electricity produced can be fed into the grid, whereas heat cannot easily be transported over great distances. Therefore, in most cases, the heat demand determines the size of the CHP plant.

The on-site heat load must be large enough to justify the investment in a CHP system. The heat load also needs to remain sufficiently constant during the day and between seasons to ensure that the system can operate at full load most of the time. Many systems can be operated at partial load, but this reduces their efficiency. 

Characteristics of the heat demand

The type of system most suitable for a specific application depends on the characteristics of the heat demand:

  • The ratio between the heat and power demand should be similar to that of the turbine. For example, ICEs (power-to-heat ratio of the output of roughly 1:1) are suitable for buildings requiring roughly the same amount of electricity as heat.
  • The technology chosen should be able to generate heat at the temperature and pressure required. ICEs are better suited for generating hot water (up to 100°C) for space heating or drying purposes.

Fuel availability

CHP systems using natural gas or biomass-derived fuels are cleanest and therefore most relevant for supporting sustainable development (although even coal-fired systems can improve efficiency when displacing separate generation using the same fuel).

Natural gas is currently the most used fuel for CHP in Europe and North America, as technologies for its use are proven and reliable. However, natural gas is not always available in developing countries, and is relatively expensive when compared to other fuels, like coal. In these cases biomass or biogas can be appropriate alternatives.

Other criteria

Other conditions facilitating the use of CHP include:

  • The possibility to connect to the grid (if present) for grid supply at a reasonable price with the availability of back-up and top-up power at reasonable and predictable prices. This increases the flexibility of the system, and it enhances its economic viability as excess power can be sold to the network.
  • Availability of space for the equipment at short distance from the heat demand.

Status of the technology and its future market potential

Small CHPs are often the most efficient solution, but the upfront investment costs that are generally higher than alternatives, in particular in places where a grid connection is available, are often a limiting factor. Additionally in some countries small CHPs encounter difficulties, when connecting to the grid. For example in China, the Central Government encourages only larger CHPs to the disadvantage of smaller flexible ones (Li, 2008). In Germany on the contrary small (and large) CHPs are given financial incentives by law.

In Japan, Osaka Gas is promoting the use of residential CHPs with fuel cells. Through partnerships with various sectors of the industry the company is attempting to reduce the costs for its customers. In Germany the programme Callux is also testing the use of fuel cell CHPs in the residential sector. The first phase of the programme aims at installing and testing 800 appliances until 2012; the second phase should bring the technology to market maturity (Callux, 2009).

Several pilot projects for CHPs and CCHPs (Combined Cooling, Heating and Power) have been implemented. The CCHP project in the headquarters of Beijing Gas is a prominent example of a functioning plant for a large office building, which was built already in 2004. (IEA, 2007b)

Contribution of the technology to economic development (including energy market support)

Country perspective

Through efficient use of fuel, for instance using CHP, countries would need fewer resources to satisfy the energy needs of its population, reducing dependence on importing fuel from abroad, or increasing opportunities to export indigenous fuels. This, in turn, can improve a country’s balance of payments. (Delta Energy and Environment, 2009)

End-user perspective

Blackouts are common in many places, often because peak demand exceeds the capacity that the transmission network can handle; this can stimulate users to have their own power generation. This indirectly benefits other users as well, as it lowers the load on the network, reducing the chance that demand exceeds the capacity of the power grid.

Contribution of the technology to protection of the environment

Air pollution

As with CO2 emissions, fuel efficiency improvement through CHP can also reduce emissions of other pollutants from power generation, like NOx, SOx and particulates. However, this depends on the combustion processes used. Centralised power plants can be cleaner than small generators, as they have the economies of scale to apply effective exhaust gas cleaning systems. Furthermore, distributed generators have a more direct impact on local air quality, as they tend to be closer to centres of population. This is particularly the case with small CHP that is generally found within or close to the buildings where the heat is used.

Gas engines in particular can affect local air quality through NOx emissions, but effective cleaning systems exist. These are essential when considering sustainable development as a whole, and should therefore not be omitted for financial reasons. Other CHP technologies need less exhaust gas cleaning – fuel cells are even cleaner than more centralised power plants, for example.

The World Bank Group has developed emission standards for generators to ensure that their application does not jeopardise air quality (World Bank Group, 2008). These have become the global standard for power generation projects in developing countries, including CHP.


For CO2 savings from the increased used of CHP at a global scale, please refer to large CHP. In general it can be stated that CHPs use less primary energy compared to the separate production of electricity and heat, therefore they will also emit less CO2.

Financial requirements and costs

Where there is a more or less constant demand for heat and a demand for electricity CHPs can be considered as an option. Due to their relative high costs, in particular for micro-CHP, small CHP systems are expected at least for the moment to remain niche market applications.

Four parameters affect the economic viability of a cogeneration system: technology costs, energy prices, operating regime and policy measures.

Technology costs

For the developer of CHP, the upfront costs of installing CHP are usually higher than of heat-only boilers, the normal alternative. However, users benefit over the lifetime of the system through lower energy costs, so that CHP can save money overall.

Figure 5: Financial requirements for small-scale CHP systems

Energy costs

Energy costs determine the value of the costs savings that CHP can deliver. For a natural gas based CHP plant, the relative difference between gas and electricity prices, the so-called spark-spread, is particularly important, as a CHP plant operator has to buy natural gas and sells electricity. As a rule of thumb, developing CHP is feasible if electricity prices exceed gas prices by a factor 2.5 (IEA, 2008). The typical alternative scenario to a small CHP is electricity from the grid and a hot water boiler.  

Operating profile and on-site energy demand

The economic performance of CHP systems during their lifetime depends on the operating profile and on-site energy demand.

The number of operating hours determines the absolute energy savings that can be achieved: the longer the operating time, the higher the revenue. Typically, a CHP plant must run at least 5,000 hours per year to make to economically viable (IEA, 2008).

In most cases, the value of the electricity consumed on-site, which is equivalent to the retail electricity price, is higher than the price the CHP operator receives fro selling its electricity to the grid. This again highlights the importance of sizing a CHP system based on the on-site energy needs.

Policy measures

Government policy also affects the economic conditions for CHP plants. It can impose costs through taxes (for instance taxation of natural gas) and charges (for instance for exporting electricity to the network). At the same time, many governments provide financial incentives for CHP, including capital grants, favourable export tariffs and tax benefits.

Clean Development Mechanism market status

See information under Combined Heat and Power (CHP): large-scale


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