Environmental guidance for your business in Northern Ireland & Scotland

Combined Heat and Power (CHP) benefits and opportunities for business

Combined Heat and Power (CHP) is a highly fuel-efficient means of generating electricity and useful heat in the same process. It is one of the most common forms of energy recovery.

High fuel efficiency means lower fuel bills and carbon savings compared to the separate generation of heat and power, eg within a boiler and central power station.

This guide outlines the main benefits of CHP, and describes the opportunities available to businesses that choose to adopt a CHP scheme.

Video Case Study: Celtic Renewables

Additional resources


What is a chp system?

Combined Heat and Power (CHP) is the generation of usable heat and power - usually electricity - simultaneously in a single process. It utilises the heat which would otherwise be wasted when generating electrical or mechanical power. CHP is technologically proven and reliable and plays a key role in helping to reduce the UK's carbon emissions.

It is a highly flexible way of providing the energy requirements for businesses, as it can be used on any scale - from a micro-CHP unit of several kilowatts suitable for small businesses, up to a medium-sized power station servicing a whole industrial complex.

It can also run on a range of fuels, including gas, waste and biomass.

How it works

CHP systems supply heat where additional fuel would ordinarily need to be burned to get the same output - for example, by a conventional boiler.

A gas or steam turbine or an engine is used to drive an alternator, with the electricity produced either used on-site or exported to the grid.

The heat produced can then be used for a number of applications, including steam for industrial processes and hot water for space heating and for cooling via a technology known as 'absorption chillers'.

Further information

Department of Energy and Climate Change: CHP explained

What are the benefits of chp

Schemes that have been certified under the UK Combined Heat and Power (CHP) Quality Assurance programme as being highly efficient are termed 'Good Quality CHP schemes'. In recognition of the reduced carbon emissions such schemes provide, Good Quality CHP schemes are eligible for a number of incentives from the government. For more information, see the page in this guideline: The Combined Heat and Power Quality Assurance Scheme

There are several other benefits to using CHP to supply the energy for your business. For example, CHP can help you to:

  • reduce your energy bills by up to 30 per cent
  • reduce your carbon emissions by up to 30 per cent
  • increase the security of your energy supply - as your power will be generated independently of the grid.

CHP is also not restricted to new builds, as it can be installed on existing sites - eg during boiler room refurbishments.

One of the major benefits of using CHP systems can be a significant reduction in your business' energy bill. The amount you can save will depend on whether the CHP is custom-built or a packaged unit. For more information see the page in this guideline on different types of CHP systems for business.

The diagram below illustrates how you can reduce your energy bill by using a combined heat and power system. In this example the conventional system uses 34% more fuel to produce the same amount of heat and power.

Further information

Department of Energy and Climate Change: CHP guidance and support

CHP Focus: UK Heat map

Who can benefit from a chp system

If your business works with a demand for electricity and a similar demand for heat in the same or in nearby buildings, you should consider using a Combined Heat and Power (CHP) system.

Businesses that will benefit the most from using a CHP system are usually those with a constant heat demand, whether the heat is used as steam for industrial processes, hot water and space heating or used to supply cooling through absorption chillers. Examples might include:

  • the industrial sector - such as paper, chemical and food and drink businesses
  • hospitals
  • residential homes
  • office and tower blocks
  • leisure centres
  • universities
  • retail establishments
  • hotels
  • commercial greenhouses.

Individual businesses that do not have a constant heat demand may find that in periods of low demand they are able to export excess heat through a district heating network. As an added benefit, the business may be able to generate revenue from heat sales.

Further information

Department of Energy and Climate Change: CHP guidance and support

CHP Focus: UK Heat map

Different types of CHP system

Before deciding which kind of Combined Heat and Power (CHP) system will be best for your business, you should consider the options available. You could either use a packaged or a custom CHP system.  Each has different benefits and costs for your business.

Packaged CHP systems

Packaged CHP is designed and supplied as complete units that are either connected to or added to a building's existing electrical and heating system. They will often be installed, operated and maintained by an energy services company (ESCO) specialising in CHP. A standard ESCO will usually involve the sale of heat and electricity to your site at lower prices than those offered by utilities.

Packaged CHP units are available in sizes ranging from 50 kilowatt electrical (kWe) to over 1 megawatt electrical (MWe) generating capacity, and include a built-in remote monitoring and control system.

The advantages of using packaged CHP instead of a custom system are that:

  • they are complete standard packages ready to be connected to the site's utilities
  • they are simple to integrate into your existing utilities
  • they involve simple contracting arrangements
  • there are few maintenance or operational requirements by your own staff.

Packaged CHP will use well known technologies, such as reciprocating internal combustion engines. Fuel cells and micro gas turbines could also be used.

They are usually designed to provide low grade heat in the range of 70-90°C.

Custom CHP systems

Custom CHP is designed to be integrated into your site's utilities and services. Being larger than packaged CHP systems, they are typically between 1 MWe and hundreds of MWe of electrical generating capacity.

The advantages of using custom CHP instead of a packaged system are that:

  • they will be specifically designed for your individual business needs
  • they are more flexible in terms of fuel selection, temperature and pressure of heat than packaged systems
  • you will access the full financial benefits of running the CHP plant.

Further information

CHP Focus: Packaged CHP explained

CHP Focus: Custom CHP explained

CHP Focus: UK Heat map

Maintaining a CHP system

The economic and environmental benefits you can gain from your Combined Heat and Power (CHP) system will depend on how it is set up and maintained - as reflected in the relationship between the annual operating costs of the plant and capital outlay.

There are three different types of maintenance for CHP systems - the 'design and manage' approach, the 'turnkey' approach, and using a contract with an energy service company (ESCO).

Design and manage maintenance

With a design and manage approach:

  • you will have maximum control over the development of your CHP system - you will pay for and own the plant
  • you will fully benefit from the cost savings achieved
  • you will be involved in debt finance or a hire purchase arrangement to meet the capital costs of running the plant
  • the costs of CHP maintenance will appear on the company balance sheet.

Turnkey maintenance

If you use turnkey arrangements for your CHP system:

  • you will use a contractor for the design, procurement, installation and testing of the CHP plant
  • you will pay for the plant on completion - with or without debt financing - and you will own it once it has been completed
  • you will either take full responsibility for the operation and maintenance of the plant, or you can outsource the operation and maintenance to a contractor
  • the costs of the CHP maintenance will appear on the company balance sheet.

Using an ESCO

If you use an ESCO for the development of your CHP system:

  • the ESCO will provide the facility and designs, and they will install, own, operate and maintain the CHP plant
  • you will establish and facilitate the initial contract and receive a reduced level of cost savings
  • the costs of the CHP itself will not appear separately on the company balance sheet.

Further information

CHP Focus: CHP Schemes database

CHP quality assurance scheme

The Combined Heat and Power Quality Assurance (CHPQA) Scheme is a voluntary programme for assessing CHP schemes. The responsible person - the person in charge of managing the scheme - can register to apply for certification in accordance with the criteria for Good Quality CHP.

The CHPQA Scheme is administered by the Department of Energy and Climate Change (DECC).

You can find out what benefits you may be entitled to by submitting a self assessment and certification form.

Department of Energy and Climate Change (DECC): Application forms for the CHPQA

DECC: guidance on the CHPQA Scheme

In order to maintain certification with the CHPQA Scheme, you will need to submit information about your scheme annually to the DECC. They can assess the actual performance of your CHP scheme, as well as the expected performance of newly designed or upgraded schemes.

How assessment works

Assessment for the CHPQA Scheme is based on threshold criteria - there are indices for efficiency - which must be met or exceeded for your scheme to qualify.

In order to determine the quality of your scheme, DECC will assess data on:

  • how much fuel is used
  • how much power is generated
  • how much heat is supplied.

If your scheme qualifies for the CHPQA Scheme, you will be sent a CHPQA Certificate and a proforma letter to apply for a Secretary of State Exemption Certificate. You will need this to claim your benefits.

Further information

CHPQA Enquiry line: Tel 0870 190 6196

CHP Focus helpline: Tel 0845 365 5153

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