A Free-Market Energy Blog

‘Combined Heat and Power’ Distributed Generation: Beware of Government Mandates, Subsidies

By Donn Dears -- March 13, 2017

“In cities, piping exhaust steam to closely packed buildings can make sense. But trying to impose CHP in typical American suburbs where there are no industrial uses, or to where buildings are widely spaced, is irrational.”

“Combined Heat and Power has become a political football in the service of government energy planning to cut CO2 emissions. CHP can be used effectively in specific applications where it can be justified economically, but it shouldn’t be forced on Americans by government edict.”

Combined Heat and Power (CHP) is dragged out periodically by anthropogenic global warming (AGW) activists who want to replace central-station electricity with distributed power from wind and solar. Power Magazine recently highlighted this movement in the section, “Global Developments Giving CHP a Much Needed Boost,” with two articles devoted to CHP installations. The UNFCCC COP 21 Paris agreement to cut CO2 emissions, the feature argued, could provide the needed boost to CHP growth.

Typically, promoters of CHP start by saying that CHP improves efficiency–even to the point of 90%. Greenpeace made this claim in its plan, the “Energy [R]evolution” which is riddled with hype and misinformation.

The Basic Fallacy

CHP uses exhaust gasses, or steam from power plants that generate electricity, to provide heat to buildings or industrial processes. This results in more energy being used for work, but it doesn’t dramatically improve efficiency.

The mistake arises when people assign the same value to the heat extracted from exhaust gasses with the electricity produced by the power plant. The exhaust gasses have low heat (i.e., energy) content and therefore less value than the electricity (i.e., energy) produced by the power plant.

A good analogy is one suggested by the former editor of Power Magazine:

An automobile’s engine using gasoline has considerable horsepower and also heats water in the engine’s cooling system. The hot water is then used to heat passengers during the winter. While this takes advantage of the heat in the water, the water doesn’t have the power to drive the automobile. Gasoline has high energy density, while hot water has a low energy density.

Figure Depicting Heat Value and Uses

Obama’s CHP Push

The Obama administration promoted CHP with an executive order. The EPA, under the Obama administration, issued a 22 page report touting the benefits of CHP as a “clean energy solution”. It has also maintained a database (http://bit.ly/2jACeNT) to provide information supporting CHP. For example, CHP qualified for a 10% investment tax credit in 2016.

Historically, there has been a role for CHP in industrial complexes and refineries since the steam, or exhaust heat, could be used to heat buildings or be used in industrial processes. Europe has used exhaust steam to heat residential buildings. Consolidated Edison used CHP to heat buildings in New York City.

In cities, where buildings are closely packed, piping exhaust stem to these buildings can make sense. But trying to impose CHP in areas where there are no industrial uses, or where buildings are widely spaced, such as in typical American suburbs, is irrational.

(Suburbs with free-standing residential buildings are an anathema to city planners and to those promoting CO2 induced climate change, so CHP fits a strategy that promotes mixed use development.)

Europe’s energy efficiency directive (http://bit.ly/2jZQ0FL) requires member states to promote CHP and remove barriers to its deployment. In addition, European countries have used policy tools such as feed-in tariffs to support CHP.


Combined Heat and Power has become a political football in the service of government energy planning to cut CO2 emissions. CHP can be used effectively in specific applications where it can be justified economically, but it shouldn’t be forced on Americans by government edict.

Also see Donn Dears, “Bogus High Efficiency of Combined Heat and Power Plants” (June 22, 2012).


  1. Ed Reid  

    It is interesting that US EPA has been promoting CHP, while US DOE has been attempting to discourage it by measuring system efficiency at the site, rather than at the source. The DOE approach essentially assumes that electricity emerges from the utility meter at 100% efficiency, ignoring the significant losses upstream of the utility meter.

    CHP is best applied in new construction situations, in which the facility’s energy consuming equipment and processes can be selected to maximize the use of the thermal energy recoverable from the on-site generator. This frequently dictates the application of absorption cooling and desiccant dehumidification systems, rather than electric cooling equipment. Such installations are both difficult and expensive to retrofit into existing facilities.

    CHP might well become a more significant factor in US facilities, if the US federal government could learn to speak with one voice in its regulations and recommendations.


  2. Mark Krebs  

    I subscribe to your newsletter “Power For USA” and I appreciate your insight. However, your views about CHP are a little dated. I think the only environmental/energy efficiency advocacy organization left that still promotes CHP is ACEEE (to their credit). Everyone else is pretty much advocating all renewables all the time (to their discredit).

    Obama’s EO “promoting CHP” was just throwing a scrap to the fossil fuel/natural gas industry (if even that); probably so the Obama Administration could claim an “all the above energy policy” without meaning it.

    CHP can provide highly favorable economic benefits (and environmental benefits if that’s what floats your boat). It seems that a few electric utilities are open to CHP if they own it. Most electric utilities, however, still view it as a threat to their God-given monopoly and strongly discourage it.

    Renewables have hijacked distributed generation. CHP deserves to be a viable choice for businesses and industry and not a “political football” (as you say). The 10% ITC for CHP is a minor subsidy compared to renewables and a “lesser of two evils.”


  3. Green Energy is an Unimitigated Disaster | al fin next level  

    […] Beware government mandates and subsidies […]


  4. Donn Dears  

    Thanks for your comments.
    As mentioned in the article there are legitimate applications for CHP. What’s inappropriate is to claim excessively large efficiency improvements. Unfortunately, CHP is still being promoted to cut CO2 emissions, as referenced in Power Magazine, an industry publication.
    Those who promote mixed use development, such as in Reston, Virginia, where the original planned community had shop owners living above their stores, and where there has been a push for mixed use development around metro stations, see CHP as a way to provide heating and cooling within the mixed use development.
    This is all fairly recent, so my view of CHP is current.


Leave a Reply