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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.

Related Resources

Financing Combined Heat and Power: Tools, Techniques and Strategies - Northeast-Midwest Institute (May 2000)
Energy Management & Investor Returns: The Real Estate Sector - Innovest (Oct. 2002)
Energy Efficiency & Investor Returns: The Retail Food Sector - Innovest (Sept. 2002)
Power Quality: Customer Financial Impact/Risk Assessment Tool - BC Hydro
Federal Tax Strategies to Encourage the Adoption of Combined Heat and Power - ACEEE (Nov. 2001)
Federal Tax Issues Relating to Restructuring of the Electric Power Industry - U.S. Senate Committee public hearing (Oct. 1999)
CHP Market Studies - USCHPA
Effects of a Carbon Tax on Combined Heat & Power Adoption by a Microgrid - Ernest Orlando Lawrence Berkeley National Laboratory (Oct. 2002)
An Engineering-Economic Analysis of Combined Heat and Power Technologies in a Microgrid Application - Ernest Orlando Lawrence Berkeley National Laboratory/U.S. EPA (March 2002)
Natural Gas and Energy Price Volatility - ACEEE (2003)
Natural Gas Price Effects of Energy Efficiency and Renewable Energy Practices and Policies - ACEEE (2003)
The Influence of Distributed Energy Resources on the Hourly Clearing Price of Electricity for Industry in a Restructured Market
Macroeconomic and Budgetary Effects of Hurricanes Katrina and Rita - CBO Testimony (Oct. 2005)
Economics and Environmental Impact of Biogas Production as a Manure Management Strategy - Texas A&M TAMMI
Small Is Profitable: The Hidden Economic Benefits of Making Electrical Resources the Right Size - Rocky Mountain Institute
Benefit Values in Hard Numbers - Public Utilities Fortnightly (April 2005)
Financing Strategies for Brownfield Cleanup and Redevelopment - Northeast-Midwest Institute (June 2003)
Distributed Resource Policy Series: Distribution System Cost Methodologies - Regulatory Assistance Project (Sept. 2001)
Distribution System Cost Deferral Lookup Table - Regulatory Assistance Project
Clean Distributed Generation Performance and Cost Analysis - Oak Ridge National Laboratory (2004)

U.S. Department of Energy Gulf Coast Clean Energy Application Center
4800 Research Forest Drive
The Woodlands, TX 77381

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