Combined heat and power (CHP), also known as cogeneration, converts one form of energy to two usable forms, typically heat and power. By simultaneously producing on-site electricity and heat, cogeneration systems (cogen) can provide reliable energy at reduced overall costs. Cogeneration is a very effective pathway to executing decarbonization strategies when coupled with renewable natural gas (RNG) or other low-carbon fuels.

Cogen systems are most effective in facilities with balanced electrical and thermal loads, such as those found in industries like oil, gas and chemical, education, healthcare, and heavy industrial manufacturing. Reasons for adding a cogen system to your facility include providing a stable electricity supply or looking at updating aging thermal assets. Every facility is unique and there are no cookie-cutter solutions.

While there are many forms of cogen facilities, a common way to upgrade an existing facility is to use gas-turbine based power generation as its hot exhaust is well suited for heat recovery. The heat recovered will displace existing thermal units (i.e., fired heater or boiler) but since the turbine is producing both heat and power, its fuel consumption is higher. One of the associated costs of self-generation is the supplemental increase in fuel, and there are other factors to consider.

The Economics of a Cogen System

The decision to install a cogen system is primarily driven by economics and the factors that are used to assess the benefits are complex. On one side of the coin, you must commit to a capital expenditure and your costs will increase for fuel and maintenance. On the other side, direct costs for electricity will drop, and certain tax credits may become available.

The final assessment largely depends on which is less expensive: electricity imports plus the cost of dedicated resources providing heat or the cost of the combined generation for both heat and electricity in a cogen facility.

To give an example of what a difference costs can make, a recent study in Alberta, Canada, showed the advantage of installing a cogen system at a gas processing facility. At the time of the study, taking into account market prices for natural gas and electricity, maintenance costs, and the federal carbon tax, the equivalent cost of electricity provided by cogeneration was reduced by nearly 70%.

This doesn’t tell the full story, though. Fluctuations in operating costs over time can change the viability of a project so a set of future assumptions must be made to identify worst- and best-case scenarios.

Sustainability and Incentivizing Cogen

While the decision to implement a cogen system is primarily economic, there are efficiency advantages. The utilization of waste heat as usable energy in a facility is a benefit due to reduced energy consumption.

Governments see the benefit of cogeneration, too, and provide tax incentives to help projects that may be on the edge of profitability. Focusing on efficiency, both Canada (Class 43) and the United States (Investment Tax Credits) have programs in place to encourage the installation of cogen systems.

Tax credits and other incentives — no matter where in the world an operation is located — can impact the decision to add a cogen.

Feasibility Considerations

When conducting an economic assessment, projected electric and natural gas pricing is an important factor, and the design of the cogen system itself is also very important as it determines how much capital will be spent, how much fuel will be burned and how much electricity will be produced.

Key to the design is gas turbines, which  are not customizable to the extent that the perfect power generation level can be selected with just the right amount of available waste heat. Each manufacturer has a line of turbines that produces electricity at specific levels to cover market segments. In addition, each turbine within that line has a unique efficiency level that determines how much fuel is consumed to produce its electricity and how much waste heat is available for recovery.

When the gas turbine is selected, the associated equipment required to integrate the cogen system into a facility can be determined. The trick is to pick the right turbine. Other factors that are essential for a successful gas-turbine cogen integration include: 

  • Understanding a facility’s heat and power needs.
  • Determining the size and functionality of equipment required.
  • Contemplating the number of machines installed.
  • Evaluating transition complexities between cogen and non-cogen operating modes.

Analyzing All Costs and Benefits

A full life cycle analysis will help owners understand how a project’s capital and operating expenses balance with the reduction in direct electricity costs. While a cogen project’s justification is typically financially based, there are other benefits that can be derived. Besides the reduction in overall carbon and pollutant emissions due to the efficiency of a cogen, these projects also present the opportunity to further decarbonize both electrical and thermal production through the use of a low-carbon fuel, including renewable natural gas, hydrogen, ammonia, renewable diesel or other options.

The project economics are further supported through avoidance of carbon penalties or leveraging fuel market incentives. Examples of how these help project economics can be through avoidance of the Canadian carbon tax and leveraging credits such as the Low Carbon Fuel Standard (LCFS) in California.

There is an increased interest in cogen facilities. For a variety of industries, cogen solutions are being implemented to maximize long-term operational efficiency and cost-effectiveness along with providing a valuable way to progress toward decarbonization goals.


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Mark Heigold, a department manager and associate process engineer, counsels clients in a variety of industries on the challenges and opportunities of incorporating cogeneration in facilities. He has nearly 30 years of direct experience with many aspects of cogen operations, including a number of projects built in Canada.