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Busting five 2019 CHP myths

Separating fact from fiction: The top 5 misconceptions about Combined Heat and Power (CHP)

Combined heat and power (CHP), or cogeneration, can provide the simple and affordable answer to volatile, spiralling energy costs and higher carbon taxes. It can improve energy resilience and provide a more affordable, secure and sustainable energy supply.

Benefits of cogeneration

Given rising electricity costs, pay back on a CHP system can now be achieved in 2-3 years. It can deliver cost savings of up to 40% over electricity sourced from the grid and heat generated by on-site boilers. CHP can also play an important role in avoiding the growing risk of energy supply disruption by providing a resilient off-grid power supply.

CHP integrates the production of usable heat and power (electricity), in one single, highly efficient process to reach total efficiencies of around 90%. It is a flexible technology that can work with a variety of fuel options. Growing numbers of projects are using renewable fuels, which increases its sustainable credentials, in a time of energy transition.

Government figures reveal that 6.4% of all electricity generated in the UK was supplied by CHP in 2017, but its potential is under exploited.

Cogeneration is a versatile technology that can be deployed in new buildings, in retrofit projects, or when replacing ageing boiler plant. It is best suited to organisations with sufficient heat or cooling demand, particularly if that demand is for extended periods. In these instances it provides a cost effective solution that's hard to beat.

Busting the myths about CHP

Combined heat and power (CHP) is a long established and proven technology that continues to help organisations implement affordable and sustainable energy strategies. Over the years many myths and misunderstandings have arisen about all aspects of CHP specification, finance and operation, as well as its future contribution to the sustainable energy mix. Here, we address the top 5 misconceptions.

Myth #1: CHP is yesterday's technology

Organisations have relied on CHP for decades to generate their own reliable and highly efficient supply of low cost, heat and electricity. It is a proven technology with proven benefits and remains as relevant today as it was yesterday.

It can achieve outstanding efficiency and deliver outstanding returns for customers, including:

  • Payback on investment within 2-3 years
  • In excess of 80% efficiency
  • 40% cost savings

Contributing to the energy mix

CHP may be an established technology, but it continues to make a valuable contribution to the energy mix. It can drive energy savings and the effectiveness of the wider energy system; working as a transition technology, bridging the gap between traditional generation and renewables. Cogeneration reduces energy costs; can assist in stabilising the power grid, and contributes to flexible demand, generation and energy storage.

The future of CHP

The use of CHP and other decentralised supplies is being taken to a new level via local smart grids, such as our Cornwall Local Energy Market project. This pioneering project is testing the use of blockchain, flexible demand and efficient decentralised generation; connecting technologies such as CHP, solar and battery storage to energise the local community.

The potential to cluster CHP with other assets in a decentralised smart-grid or virtual power plant also points to future uses for cogeneration.

Myth #2:  CHP doesn't have a role to play in a sustainable economy

CHP is playing an important role in supporting a sustainable energy supply. The government's 2018 Digest of UK Energy Statistics reports that CHP, when compared against power stations burning fossil fuels, saved 10.70 million tonnes of CO2 in 2017.

CHP is much cleaner and more efficient than unabated gas power stations, which are expected to continue to supply significant power demand over the next decade at least. In conventional power production the heat is wasted and around 7.5% of power is lost in the transmission and distribution process.

CHP largely only displaces higher carbon centralised gas and coal power plants and rarely displaces renewables or nuclear. This is due to a Merit Order that governs the economics of the wholesale power markets and determines the sequence in which generators are dispatched to meet demand at least operating cost.

The most widely used current assessment methodologies undervalue CHP's carbon saving benefits because they look at average carbon emissions from the grid, therefore making the false assumption that CHP is displacing renewables. This doesn't reflect the reality of market optimisation strategies, where CHP actually displaces marginal more carbon intense sources.

The growth of renewable CHP

CHP's sustainability credentials can be further enhanced by the introduction of renewable fuels, rather than natural gas. Government statistics show that 16.5% of UK CHP capacity in 2017 was renewable – using fuels such as biomass, biogas/syngas, waste, and bioliquids.

CHP also helps to improve energy sustainability due to its increasingly important role in balancing supply and demand and stabilising the grid to accommodate intermittent renewables.

Demand Side Response

CHP, in tandem with other technologies such as batteries and heat pumps, is an important Demand Side Response (DSR) solution, which is essential to keeping power demand and generation in perfect balance every second of the day. This is becoming more difficult in an increasingly variable electricity system, so CHP has an important role to play in optimising the deployment of renewables.

Myth #3: The capital costs of CHP are too high

Investment in any quality energy infrastructure doesn't come cheap, but CHP can yield a payback on investment of 2-3 years. When you consider that the lifespan of a CHP system is 10-15 years, it can deliver impressive financial returns. 

For those organisations with capital constraints or competing funding priorities, some suppliers finance the capital and complete operational and maintenance costs of CHP via energy performance contracts.

Centrica Business Solutions' flexible and transparent financing options offer a win-win for customers. We provide the upfront investment to accelerate delivery of onsite cogeneration projects and unlock immediate benefits.

Our Discount Energy Purchase option enables customers to benefit from CHP with an immediate reduction in their energy costs and carbon footprint at no upfront cost. The investment is recovered via a metered electricity charge that is guaranteed to be lower than electricity purchased from the grid. The plentiful supply of heating/cooling is supplied free.

Cost advantage and incentives

The financial attraction of natural gas fired CHP is enhanced by the likely 'spark spread' price advantage from shifting your energy demand from grid sourced electricity to cheaper gas. Over recent years, the spark spread has been widening – increasing the cost returns of CHP.

CHP is also eligible for numerous government financial incentives, including Climate Change Levy (CCL) exemption via the Combined Heat and Power Quality Assurance (CHPQA) scheme.  The substantial rise in CCL rates from 1 April 2019 has increased the value of this incentive.

Other CHP support measures include:

  • Carbon Price Support exemptions on fuel to CHP consumed for the generation of Good Quality CHP electricity which is consumed on site
  • Eligibility for Enhanced Capital Allowances for Good Quality CHP plant and machinery 
  • Business Rates exemption for CHP power generation plant and machinery

The  cost of CHP can also be offset by using the technology to avoid purchasing grid power during expensive peak time periods. There is also an opportunity to earn revenue from supply optimisation and Demand Side Response (DSR), where spare power capacity can be sold back to network operators to ensure that the grid is balanced. Combining CHP assets with battery storage provides options to participate in the most lucrative fast response DSR initiatives and real-time trading opportunities.

Myth #4: You have to run your CHP system 24/7 for commercial viability

Recent and continuing increases in electricity tariffs and comparatively lower costs for gas input fuels mean that the finances for CHP can stack up on ever lower run hours. This cost advantage is magnified by the  way that time of day usage causes wide variances in grid power costs. As such,  it is highly cost effective to run CHP during peak cost hours, which mitigates both higher commodity and non-commodity energy costs.

Due  to fluctuations in electricity consumption through the day, CHP systems are usually sized to meet the base level heating needs of the site, so that heat waste is minimised. Although a minimum heat load of 4,500 hours per year is typically recommended, it is not essential.

Cooling and heat storage

In summer, heating may not be required, but an absorption chiller connected to the system can use CHP waste heat to produce chilled water for cooling and air conditioning systems. This process is referred to as trigeneration. Alternatively, surplus heat may be stored in hot water storage tanks.

When electricity demand is low, rather than letting this surplus energy go to waste, it can be exported to the grid or traded via demand side response (DSR) to open up an additional revenue stream.

To maximise both cost and carbon savings, matching the thermal and electrical capacity of a cogeneration plant to the demands of the building is advisable. Sizing the unit requires detailed analysis of the thermal and electrical loads on the project. It is advisable to examine patterns on a half-hourly, daily, weekly and monthly basis across the year’s seasons to calculate the fluctuations of heat and electricity demand.

Myth #5: CHP is too complex and costly to maintain

CHP units are critical assets that are designed to run continuously. It is essential to keep them running in peak condition, which is why it is imperative to have a lifetime preventative monitoring and maintenance strategy. This is an investment that pays off in terms of:

  • Optimising efficiency
  • Maximising availability and output
  • Ensuring CHP runs at maximum load
  • Extending system life
  • Preventing downtime and breakdown
  • Ensuring low emissions performance
  • Demonstrating qualification with the CHPQA scheme, which ensures exemption from Climate Change Levy (CCL)
  • Delivering fast reaction to any operating issues
  • Improving energy resilience
  • Ensuring peace of mind that your asset is operating optimally
  • Scheduling major planned works for operational convenience and optimal productivity

Low-cost remote monitoring

Continuous monitoring is the backbone of any maintenance strategy and can be performed remotely at low cost. Remote monitoring will speedily highlight any performance or preventative maintenance issues, enabling quick rectification before they develop into problems.

Remote web-based platforms, such as Centrica Business Solutions' PowerRadar system, comprise an onboard communications system that feeds back live operating parameters to our 24/7 control centre and the customer's own devices. 

The data is used to make a diagnosis of any potential issues, make minor adjustments to the CHP operation, and schedule maintenance and repair visits. By taking a smart, informed approach to maintenance, major problems are avoided, system efficiency and longevity is optimised, and the lifetime costs of caring for your CHP asset are reduced.

Maintenance costs included

It is important to factor lifetime maintenance costs into the economic feasibility of the CHP to accurately calculate the project’s return on investment. Some suppliers include lifetime maintenance agreements as a fixed cost or within scheme finance – providing complete care from project inception to end of life. Leading CHP vendors with large nationwide fleets are able to pass on their economies of scale through competitive lifetime service rates.

Our Discount Energy Purchase covers supply, installation and lifetime operation and maintenance with zero capital costs to the customer. To ensure fairness, service fees for ongoing operation and maintenance are linked to power performance levels. We recover our investment via charging a discounted rate for the generated power. This tariff is always set at a lower rate than grid supplied electricity, after accounting for increased gas consumption costs. All captured heat is supplied free of charge.

CHP expertise from Centrica

The CHP specification process is complex, but expert support is available to guide you every step of the way. Centrica Business Solutions is a market leader in CHP, with deep technical knowledge of all stages of designing, delivering and operating innovative CHP projects across the globe. We have more than 30 years experience as both a manufacturer and supplier of world class cogeneration systems.

  • Over 600MW of CHP plant is maintained and operated by Centrica Business Solutions
  • We have in excess of £2M of spare parts available for next day delivery – supported by a nationwide engineering team
  • Our CHP systems contain innovative remote monitoring systems that measure and monitor more than 200 parameters