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Executive Summary

Combined Heat and Power (CHP) solutions represent a proven and effective near-term energy option to help the United States enhance energy efficiency, ensure environmental quality, promote economic growth, and foster a robust energy infrastructure. Using CHP today, the United States already avoids more than 1.9 Quadrillion British thermal units (Quads) of fuel consumption and 248 million metric tons of carbon dioxide (CO2) emissions annually compared to traditional separate production of electricity and thermal energy. This CO2 reduction is the equivalent of removing more than 45 million cars from the road. In addition, CHP is one of the few options in the portfolio of energy alternatives that combines environmental effectiveness with economic viability and improved competitiveness.

This report describes in detail the four key areas where CHP has proven its effectiveness and holds promise for the future—as an:

• Environmental Solution: Significantly reducing CO2 emissions through greater energy efficiency
• Competitive Business Solution: Increasing efficiency, reducing business costs, and creating green-collar jobs
• Local Energy Solution: Deployable throughout the US
• Infrastructure Modernization Solution: Relieving grid congestion and improving energy security

As an efficiency technology, CHP lowers demand on the electricity delivery system, frequently reduces reliance on traditional energy supplies, makes businesses more competitive by lowering their costs, reduces greenhouse gas and criteria pollutant emissions, and refocuses infrastructure investments towards a next-generation energy system. Already used by many large industrial, commercial, and institutional facilities, CHP is a proven and effective energy resource, deployable in the near term, that can help address current and future US energy needs. Incorporating commercially available technology, CHP can provide an immediate solution to pressing energy problems.

CHP is one of the most promising options in the US energy efficiency portfolio. It is not a single technology but a group of technologies that can use a variety of fuels to provide reliable electricity, mechanical power, or thermal energy at a factory, university campus, hospital, or commercial building—wherever the power is needed. CHP’s efficiency comes from recovering the heat that would normally be wasted while generating power to supply the heating or cooling needs of the user. By capturing and utilizing waste heat, CHP requires less fuel than equivalent separate heat and power systems to produce the same amount of energy services. Because CHP is located at or near the point of use, it also eliminates the losses that normally occur in the transmission and distribution of electricity from a power plant to the user.

CHP, or cogeneration, has been around in one form or another for more than 100 years; it is proven, not speculative. Despite this proven track record, CHP remains underutilized and is one of the most compelling sources of energy efficiency that could, with even modest investments, move the Nation strongly toward greater energy security and a cleaner environment. Indeed, ramping up CHP to account for 20 percent of US electricity capacity—several European countries have already exceeded this level—would be equivalent to the CO2 savings of taking 154 million cars off the road.

The generating capacity of the more than 3,300 US CHP sites now stands at 85 gigawatts (GW)—almost 9 percent of total US capacity. In 2006 CHP produced 506 billion Kilowatt Hour (kWh) of electricity—more than 12 percent of total US power generation for that year.

If the United States adopted high-deployment policies to achieve 20 percent of generation capacity from CHP by 2030, it could save an estimated 5.3 quadrillion Btu (Quads) of fuel annually, the equivalent of nearly half the total energy currently consumed by US households. Cumulatively through 2030, such policies could also generate $234 billion in new investments and create nearly 1 million new highly-skilled, technical jobs throughout the United States. CO2 emissions could be reduced by more than 800 million metric tons (MMT) per year, the equivalent of taking more than half of the current passenger vehicles in the US off the road.5 In this 20 percent scenario, over 60 percent of the projected increase in CO2 emissions between now and 2030 could be avoided.

While the benefits of added CHP capacity are promising, current market conditions and technical barriers continue to impede full realization of CHP’s potential. Challenges include unfamiliarity with CHP, technology limitations, utility business practices, regulatory ambiguity, environmental permitting approaches that do not acknowledge and reward the energy efficiency and emissions benefits, uneven tax treatment, and interconnection requirements, processes, and enforcement. Addressing these challenges will require a holistic approach involving policy, regulatory, and technical solutions. Improving the fuel efficiency and fuel flexibility of CHP and developing optimized, integrated packaged systems can also lower costs and expand the application of cost-effective CHP.

Increasing worldwide energy demand, rising energy prices, and concerns about climate change are driving interest in energy efficiency and renewable energy. There is growing recognition that energy efficiency must be part of any realistic strategy to ease short-term US energy prices and stabilize the long-term energy future. Energy efficiency and renewable energy are key components of a portfolio of promising supply- and demand-side resources that can provide the Nation with clean, affordable energy and support continued economic prosperity. CHP is first and foremost an energy efficiency resource.

The cost-effectiveness and near-term viability of CHP development establishes this exciting technology as a leader among other clean energy technologies such as wind, solar, clean coal, biofuels, and nuclear power. As the United States continues to transform the way it produces, transports, and uses energy, it should capitalize on the vast and valuable benefits of CHP. A strategic approach is needed to encourage CHP where it can be applied today and address the challenges discouraging its deployment. A history of success here and abroad proves that a balanced set of policies, incentives, and technology investments can bring sustained CHP growth and realize its enormous potential.