Economics & Finance

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Economics & Finance
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Economics & Finance

There are a number of economic and financial issues that are important for evaluating the commercial viability of CHP systems for buildings. This section discusses these issues and provides general guidelines when considering the installation of CHP systems. The publications below cover a wide range of economic and financial analyses from the impacts of distributed generation on electricity prices to investor returns and federal tax issues. This section will be updated as more information is obtained.

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Key Factors for CHP Financial Attractiveness

Coincidence of Need for Electric Power and Thermal Energy
The more a facility needs electricity at the same time its needs thermal energy (for heating, cooling and/or dehumidification), the more attractive the savings and payback associated with CHP become since coincidence contributes to the fuel use efficiency of the system.
- Rule of Thumb: If >50% of the available thermal energy from the prime mover can be used on an annual basis, the more sense CHP makes.
"Spark Spread"
The higher the differential between the cost of buying electric power from the grid and the cost of natural gas, the more attractive the savings and payback associated with CHP become.
- Rule of Thumb: If the "spark spread" is greater than $12/MMBtu, than CHP has the potential for favorable payback.
Installed Cost Differential
The lower the differential between the installed costs of a CHP system and that of a conventional system, the more attractive the savings and payback associated with CHP become.
Long Operating Hours
The longer the operating hours of a facility (generally >3,000 hours annually), the more attractive the savings and payback associated with CHP become. Less than 3,000 hours annually will normally not generate enough energy cost savings unless other factors are taken into consideration.
Building Size
The larger the building/facility, the more attractive the savings and payback associated with CHP become since size contributes to initial cost and annual savings. Note: Most CHP technologies decrease on a "cost per kW" basis, as they get larger.