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Combined Heat and Power

  • [ GWh of Electricity Saved: ]

  • [ Jobs Impact: ]

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  • [ Conventional Pollutants Reduced:]

    11,497 tons
    9,491 tons
  • [ Megatons of GHG Reduced: ]



Imagine you owned a business where half of your employees’ time was wasted or a restaurant where half of the food went unused. As illogical as it seems, this type of waste is commonplace when it comes to industrial “use” of energy. On average, 49% of the energy stored in coal and natural gas is lost as “waste heat” during the electricity generation and industrial heat processes.1 Through Combined Heat and Power (CHP), operators could capture and use waste energy from electric generators to heat or cool buildings or for industrial purposes. The most efficient CHP systems turn 80% of the energy in fuel into usable heat and electricity.2 Increasing electricity generation from CHP would allow businesses to do the same amount of work with less fuel, lowering costs and pollution at the same time.


Currently, CHP accounts for about 9% of all U.S. electricity generation capacity and could expand to 20%.3 Despite being environmentally4 and financially beneficial,5 CHP generation has actually declined in recent years.6 One of the most significant barriers to CHP deployment is onerous, inconsistent, and ill-defined standards for connecting to the electric grid.7 Additionally, as competition to traditional generation, it is often difficult for CHP operators to secure an interconnection to the grid, vital for selling excess power. Finally, CHP operators often have to sell excess electricity to utilities at rates that are below true market value while being forced to pay higher rates when they need to buy electricity.8

Despite President Obama’s executive order promoting CHP, more needs to be done to encourage its deployment.9 Standardizing interconnection policies and implementing more equitable pricing would make CHP a profitable option for a greater number of businesses to generate their own energy. Even modest gains can yield significant results: if CHP generation displaced an additional 3% of total U.S. generation, it would save 747 trillion BTUs (equivalent to 218,000GWh)10 per year.11 This would decrease CO2 emissions by 127 megatons, shaving off over 2% of U.S. energy-related carbon emissions.12 As many CHP component makers are based in the U.S., new investment would also translate into new domestic jobs,13 and lower fuel costs will free up money that firms could use for other investments.


To overcome the barriers and economic disincentives for CHP. The federal government should take several actions.

Establish Model Interconnection Standards and Encourage State Adoption

In the 2005 Energy Policy Act (EPACT), Congress left implementation of interconnection standards up to each state. Many states have adopted interconnection standards since then, but some standards are limited in scope and others just rely on guidelines or have taken no action at all.14 Congress should incentivize states to adopt the Institute for Electrical and Electronics Engineers’ (IEEE) standard 1547, which was cited as the model in EPACT. It could do this by requiring states to report on their progress toward adopting a standard 1547-based model as a condition for eligibility for issuing Qualified Energy Conservation Bonds.15 This would also avoid federal preemption of a regulatory matter that has historically been handled by states.

Instruct Utilities to Compensate CHP Fairly for the Savings it Provides

The federal government has long overseen wholesale electricity pricing. To help accelerate clean energy deployment and energy efficiency, the Federal Energy Regulatory Commission (FERC) should require utilities to account for savings in line losses and congestion when they set rates for purchasing power from distributed generation, such as CHP. FERC should also set standby and backup rates that take into account the emergency back-up power that CHP operators provide to help stabilize the grid. If FERC does not act in a timely fashion on these matters, Congress should compel it to do so, consistent with Public Utilities Regulatory Policies Act.16

Reform the Investment Tax Credit to Include More CHP

Consistent with the bipartisan Expanding Industrial Energy and Water Efficiency Incentives Act,17 Congress should also expand the Investment Tax Credit (ITC) to the first 25 MW of generation capacity, add waste heat recovery, and remove the cap on the total size of the facility that qualifies.18 This could increase the expected growth of CHP by 20% over the baseline and create 17,000 new jobs.19

  1. United States, Environmental Protection Agency, Combined Heat and Power Partnership, “CHP Catalogue of Technologies,” p. 2, December 2008. Accessed June 15, 2012. Available at:
  2. United States, Department of Energy, Oak Ridge National Laboratory, “Combined Heat and Power: Effective Energy Solutions for a Sustainable Future,” Report, p. 6, December 1, 2008, Print.
  3. Ibid, p. 4.
  4. Ibid; See also United States, Department of Transportation, Research and Innovative Technology Administration, “National Transportation Statistics,” Report, Table 1-11, 2010. Accessed July 9, 2012. Available at:
  5. “Effect of a 30 Percent Investment Tax Credit on the Economic Market Potential for Combined Heat and Power,” Study, ICF International, October 2010, p. 20. Accessed March 4, 2013. Available at:
  6. United States, Department of Energy, Energy Information Agency, “Annual Energy Review 2010,” Report, Figure 8.3, August 8, 2011. Accessed June 14, 2012. Available at:
  7. Anna Chittum, “CHP Methodology in the 2012 Scorecard,” Report, American Council for an Energy-Efficient Economy, May 2012, p. 2, Print.
  8. Policies that determine how much utilities pay for the excess power that CHP facilities feed back onto the grid vary significantly from state to state. When electricity has to be transported long distances, a portion of it is lost through the transmission and distribution system. Further, as greater amounts of electricity are forced through a transmission line, losses due to congestion can escalate significantly. The centralized nature of electricity generation in the U.S. accentuates this problem. CHP facilities are most often located closer to customers than utility power plants, reducing the need for extensive transmission to move electricity from generators to load centers. The shorter distances allow a greater amount of electricity generated by CHP facilities to reach customers compared to electricity generated at a central generating facility. Additionally, because less electricity flows over transmission lines with CHP and distributed generation, overall congestion is reduced. This allows more generation from utilities to reach their customers, improving the overall performance of the grid. See Dragoljub Kosanovic and Christopher Beebe, “System Wide Economic Benefits of Distributed Generation in the New England Energy Market,” Report, Center for Energy Efficiency and Renewable Energy, University of Massachusetts, February 2005, p. 2. Accessed July 13, 2012. Available at:
  9. United States, Executive Office of the President, Office of the Press Secretary, “Accelerating Investment in Industrial Energy Efficiency,” Executive Order, August 30, 2012. Accessed March 4, 2013. Available at:
  10. Mathematical analysis based on data from Energy Information Administration on U.S. electric power generation mix from Electric Power Annual. See United States, Energy Information Agency, “Electric Power Annual,” Table 3.1A, November 9, 2011. Accessed June 15, 2012. Available at:;See also United States, Environmental Protection Agency, Combined Heat and Power Partnership, “CHP Catalogue of Technologies,” p.2; See also United States, Environmental Protection Agency “AP-42, Compilation of Air Pollution Emissions Factors,” Report, Fifth Editions, Chapters 1.1, 1.4, and 3.1, 1995. Accessed June 14, 2012. Available at:
  11. However, business capital investments happen over long timeframes, making it likely that the full potential of this regulatory change may not be realized until after 2020. The introduction of the Public Utility Regulatory Policies Act in 1978 may serve as a useful example of the speed at which new CHP capacity will come online. PURPA required utilities to purchase electricity from independent power producers for the same amount of money that it would cost the utility to generate the electricity itself. More efficient and cost effective CHP facilities popped up around the country since they had guaranteed markets for their electricity as long as they were more efficient than the utilities. A revamped policy that creates fairer conditions for CHP is likely to have the same effect. From 1985 to 1994, cogeneration increased by 83 percent. See Stephanie Battles, United States, Department of Energy, Energy Information Agency, “Electricity Generation in the Manufacturing Sector, a Historical Perspective,” Report, Figure 2, October 1999. Accessed June 15, 2012. Available at:
  12. Calculated from 127 megatons of emissions savings compared to total U.S. energy sector CO2 emissions of 5.638 billion tons. See United States, Department of Energy, Energy Information Agency “U.S. Energy-Related Carbon Dioxide Emissions, 2010,” Report, August 8, 2011. Accessed June 14, 2012. Available at:
  13. “Effect of a 30 Percent Investment Tax Credit on the Economic Market Potential for Combined Heat and Power,” p. 1.
  14. Database of State Incentives for Renewables and Efficiency (DSIRE), “Interconnection Policies,” Map, August 2012. Accessed August 13, 2012. Available at:
  15. Qualified Energy Conservation Bonds are a type of bond that the federal government allows state, local, and tribal governments to issue for conservation programs with subsidies from the U.S. Treasury. This allows state and local governments to decrease their borrowing costs for energy conservation programs. See United States, Department of Energy, “Solution Center: Qualified Energy Conservation Bonds,” Report, March 15, 2011. Accessed June 15, 2012. Available at:
  16. 16 USC, Chapter 46, 1978. Accessed March 4, 2013. Available at:
  17. United States, Congress, Senate, “Expanding Industrial Energy and Water Efficiency Incentives Act of 2012,” 112th Congress, 2nd Session, S.3352, June 28, 2012. Accessed March 4, 2013. Available at:
  18. Currently the 10% Investment Tax Credit is limited to the first 15 MW of capacity for a CHP facility. Only facilities that are smaller than 50 MW can take advantage of the credit. See “Effect of a 30 Percent Investment Tax Credit on the Economic Market Potential for Combined Heat and Power,” p. 3. Increasing these qualification limits for the production tax credit for CHP is part of the bill mentioned above, introduced by Senators Bingaman and Snowe in the 112th Congress.
  19. “Effect of a 30 Percent Investment Tax Credit on the Economic Market Potential for Combined Heat and Power”, p. 1.