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Busting 5 Combined Heat and Power (CHP) myths

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

Combined Heat and Power (CHP) can provide the simple and affordable answer to volatile, spiralling energy costs. It can improve energy resilience and provide a more affordable, secure and sustainable energy supply.

Benefits of Combined Heat and Power

Given rising electricity costs, payback on some CHP systems can now potentially be achieved in 1-3 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 over 80%. 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 7.7% of all electricity generated in the UK was supplied by CHP in 2021, but its potential is underexploited.

Combined Heat and Power is a versatile technology that can be deployed in new buildings, in retrofit projects, or when replacing an 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, proven technology that continues to help organisations implement affordable and sustainable energy strategies. Over the years many myths and misunderstandings have arisen about CHP specification, finance and operation, as well as its future contribution to the sustainable energy mix. Here, we address the top five misconceptions.

Myth #1: The capital costs of CHP are too high

Investment in any quality energy infrastructure doesn't come cheap – but depending on specific circumstances, CHP can yield a potential payback on investment of 1-3 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 Combined Heat and Power projects and unlock immediate benefits.

  • Our Discount Energy Purchase (DEP) 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.
  • Additionally, our Energy Services Agreement (ESA) can help customers to install or upgrade CHP without the need for capital outlay. With a savings or availability guarantee as standard – depending on the type of solution deployed – customers pay a fixed unit rate or tariff across the asset lifetime, resulting in a holistic package that includes maintenance and support.
  • Our Optional Ownership Agreement (OOA) also offers opportunity to invest in CHP, with energy savings delivered by our standard DEP solution. A fixed rate of payment is combined with a single monthly operation and maintenance charge, and customers benefit from an availability guarantee as standard. Furthermore, on day one or every three years after installation, they can re-assess their level of ownership to increase CAPEX investment and further reduce OPEX expenditure.

Offset expenditure with Demand Side Response

There is also an opportunity to offset the cost of CHP and 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 #2: 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:

  • Potential payback within 1-3 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. Combined Heat and Power 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 tested the use of blockchain, flexible demand and efficient decentralised generation; and connected technologies such as CHP, solar and battery storage to energise the local community, with almost 10,000 tonnes of greenhouse gas savings every year.

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 #3: 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 UK government’s 2021 Digest of UK Energy Statistics reports that cogeneration, when compared to separate generation of heat and electricity and compared against all fossil fuels, saved 9.66 million tonnes in emissions in 2020.

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 according to the National Grid over 6% of electricity in the transmission process and distribution networks is lost.

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 in 2020, 15% of UK CHP capacity was renewable – using fuels such as biomass, biogas/syngas, waste, and bioliquids.

Furthermore, the introduction of hydrogen is bolstering sustainable Combined Heat and Power. Blended hydrogen and 100% hydrogen-fuelled engines will help customers on their journey to a low-carbon future, and we’re working with our partners MTU and MAN to enable this through minor software and parts changes across a large range of engines.

We’re already driving change with 20% blended hydrogen CHP solutions – and to ensure that our units are ready for the potential adoption of national blended hydrogen infrastructure, additional tests are being carried out in the 20-40% range. With MTU, we’re also in single cylinder trials with 100% hydrogen-fuelled CHPs – with an anticipated engine electrical efficiency of over 40%.

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.

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

Combined Heat and Power units are critical assets for energy resilience. 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
  • 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 CHP assets 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.

We also offer Operations and Maintenance options for a range of energy solutions, whether installed by us or a third party. Through an ongoing, preventative O&M package, we provide remote monitoring, reactive maintenance and regular inspection to optimise asset performance, lifetime and efficiency.


CHP expertise from Centrica Business Solutions

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 of experience as both a manufacturer and supplier of world class Combined Heat and Power systems.

  • Over 700MW of CHP worldwide 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

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