ico-electricity [ GWh of Electricity Saved: ] 87.7K
ico-job [ Jobs Impact: ]
  • LOW
  • HIGH
ico-cost [ Budget Impact: ]
  • LOW
  • HIGH
ico-pollution [ Conventional Pollutants Reduced: ]

SO211,497 tons
NOx9,491 tons

ico-reduced [ Megatons of GHG Reduced: ] 84.1


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