Business Energy Glossary
What is CHP (Combined Heat and Power)?
CHP, Combined Heat and Power (also called cogeneration), is the simultaneous generation of electricity and useful heat from a single fuel source. A CHP unit might be a gas reciprocating engine, gas turbine, or fuel cell coupled with a heat recovery system that captures the waste heat from electricity generation. By using both outputs, CHP systems typically achieve overall efficiencies of 70 to 90 per cent compared to around 50 per cent for separate heat and power generation. CHP is well suited to sites with continuous combined heat and electricity demand: hospitals, hotels, leisure centres, food processing, district heating networks, and certain manufacturing.
CHP has historically been a major part of UK industrial energy efficiency policy, with around 6 GW of installed capacity. Recent net zero policy has shifted focus toward electrification and heat pumps, but CHP remains relevant where high-grade heat or process steam is needed. Understanding CHP helps in evaluating on-site generation options.
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How CHP works
A CHP system combines:
- Prime mover. The device generating electricity (gas engine, gas turbine, fuel cell, or steam turbine).
- Heat recovery. Heat exchangers capturing waste heat from the prime mover (exhaust gases, jacket cooling, lubricant cooling).
- Heat distribution. Hot water or steam piping delivering heat to the building or process.
- Electrical connection. Synchronisation to the site electrical system, with surplus exported to the grid.
The combined output makes use of energy that would otherwise be lost as waste heat in conventional grid-supplied electricity.
CHP technologies
| Technology | Typical size | Heat output |
|---|---|---|
| Reciprocating gas engine | 50 kW to 5 MW | Hot water (80-90°C) |
| Gas turbine | 1 MW to 50 MW | High-grade steam |
| Steam turbine | 5 MW upwards | Process steam |
| Fuel cell CHP | 1 kW to 1 MW | Hot water |
| Micro-CHP | Below 50 kW | Domestic hot water |
Sites suited to CHP
CHP economics work best where the site has:
- Continuous or high heat-load duty cycle (typically more than 4,500 operating hours per year).
- Year-round heat demand (process heat, hot water, space heating).
- Reasonable match between heat and electricity demand (so both outputs are used).
- Sufficient scale to amortise capital costs.
Typical UK sectors using CHP: hospitals, hotels with leisure facilities, food and drink processing, paper manufacturing, chemicals, district heating networks, large leisure centres, and certain horticultural operations.
CHP economics
CHP economics depend on three main factors:
- Spark spread. The difference between the price of grid electricity (avoided imports) and the cost of gas (CHP fuel). A wider spread improves CHP economics.
- Heat utilisation. The proportion of CHP heat output actually used. Higher utilisation drives better economics.
- Operating hours. Continuous operation amortises capital costs over more delivered units.
UK CHP economics were strong from 2010 to 2020 with stable gas prices and high electricity prices. The 2021-22 gas price spike compressed CHP economics significantly. Current economics depend on the prevailing spark spread.
CHP Quality Assurance
The CHP Quality Assurance (CHPQA) programme is a UK government scheme certifying CHP systems that meet defined efficiency and environmental standards. Benefits of CHPQA accreditation include:
- Climate Change Levy exemption on natural gas used for qualifying CHP.
- Reduced Carbon Price Support liability.
- Enhanced Capital Allowance eligibility (where the scheme remains active).
- Recognition under reporting frameworks (SECR, ETS, etc.).
CHPQA requires annual self-assessment and submission of operational data. Schemes can be Good Quality CHP (full benefits) or partial.
CHP in net zero context
CHP fuelled by natural gas produces direct (Scope 1) CO2 emissions, complicating its role in net zero strategies. Pathways:
- Hydrogen-ready CHP. Engines that can switch to hydrogen as the fuel supply develops.
- Biogas / biomethane CHP. Lower-carbon fuel with biogenic CO2.
- Fuel cell CHP on hydrogen. Zero direct emissions if hydrogen is green.
- Heat pump replacement. Replacing CHP heat output with electric heat pumps as the grid decarbonises.
The role of CHP in long-term net zero strategies depends on fuel availability and the relative carbon intensity of the grid vs gas.
CHP (Combined Heat and Power) FAQs
What is CHP?
Combined Heat and Power (also called cogeneration). The simultaneous generation of electricity and useful heat from a single fuel source. Typical overall efficiencies are 70 to 90 per cent compared to around 50 per cent for separate heat and power.
How efficient is CHP?
Overall efficiency (combined electricity and heat output) is typically 70 to 90 per cent. Separate generation of heat (efficient boiler at 90 per cent) and electricity (grid at 40 per cent) achieves around 50 per cent combined efficiency.
What sites suit CHP?
Sites with continuous high heat demand: hospitals, hotels with leisure facilities, food and drink processing, paper manufacturing, chemicals, district heating networks, and large leisure centres. Sites with intermittent heat demand are poorly suited.
What is the spark spread?
The difference between the price of grid electricity (which CHP displaces) and the cost of CHP fuel (typically gas). A wider spark spread improves CHP economics.
What is CHPQA accreditation?
The UK government quality assurance scheme certifying CHP systems that meet defined efficiency and environmental standards. CHPQA-accredited Good Quality CHP qualifies for Climate Change Levy exemption on the gas used.
What size CHP systems are common?
Reciprocating gas engines range from 50 kW to 5 MW; gas turbines from 1 MW to 50 MW. Micro-CHP units below 50 kW are used in larger homes and small commercial sites. Industrial CHP can be hundreds of megawatts.
Is CHP compatible with net zero?
Gas CHP produces direct CO2 emissions, complicating its role in net zero strategies. Pathways include hydrogen-ready CHP, biogas/biomethane CHP, fuel cell CHP on green hydrogen, or replacing CHP heat output with electric heat pumps.
How does CHP affect my electricity bill?
CHP generates electricity on-site, reducing grid imports. Avoided imports are valued at the full unit rate (often 20 to 30 p/kWh for business). Surplus electricity can be exported to the grid via supply or PPA arrangements.