One Twelfth of Global Electricity Comes from Combined Heat and Power Systems

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Just over 8 percent of world electricity generating capacity uses cogeneration, also known as combined heat and power (CHP)-an integrated energy system that produces both electricity and heat.1 Cogeneration plants have a total global installed electricity capacity of some 325,000 megawatts (MW).2

Combined heat and power captures waste heat as electricity is produced and recycles it to provide another energy service, unlike conventional systems in which heat is simply exhausted into the environment and additional fuel must be used to provide the same amount of heat to industry or buildings. Another form of cogeneration captures waste energy from industrial processes and recycles it into useful electricity and thermal power.

The advantage of combined heat and power over separate generation is efficiency. An average coal-fueled power plant converts 33 percent of its fuel to usable energy services.3 The most efficient, natural gas-fueled plant has a conversion efficiency of 60-64 percent.4 In contrast, CHP systems have efficiency ratings of 75-90 percent, with lower losses from transmission and distribution of electricity due to the close proximity of the generator and consumer and with fewer condensation losses in boilers.5

CHP uses waste heat to produce electricity or useful heat for industrial processes, district heating and cooling systems, and residential and commercial buildings.6 District heating and cooling either heats buildings through steam in well-insulated pipe networks or cools them by funneling the steam through absorption chillers that distribute cool water.7 In addition to these large-scale applications, cogeneration can be used to supply electricity and heat to individual or dense groups of residential and commercial buildings. In North America, this application is most often found in universities and hospitals.8

Because a good deal of thermal heat is lost when it is transported, CHP plants must be located near the point of use to be most effective. The ideal site is near consumers who need power and heat for more than 5,000 hours throughout the year.9 Industrial plants have been ideal locations for these facilities, as they demand a constant supply of electricity and heat, which minimizes the ramping up and down of CHP systems. District heating and cooling systems using cogeneration are most valuable in regions with cold climates, like Finland, or high population densities.10

Although combined heat and power was used before 1900, it fell out of favor in the twentieth century as power production became more centralized and as coal power plants were linked to poor air quality. As electricity generators were forced to move away from population centers, CHP became uneconomical.11 But after the oil shocks of the 1970s, its efficiency advantages persuaded many countries to take another look at this technology.

Most CHP systems are found in energy-intensive sectors, including paper and printing, chemicals, metal and oil refining, and food processing, which together account for 80 percent of world installed capacity.12 Because CHP relies on diverse technologies that use a variety of fuels, including renewables, it can be a climate-friendly way of producing power. Recent data indicate that natural gas accounts for 53 percent of world CHP capacity, with coal at 36 percent, and oil at 5 percent.13 Renewable fuels like biomass and high-temperature geothermal supply 6 percent but, along with municipal solid waste and landfill gas, are starting to get more attention.14

The regions that rely the most on cogeneration are Western and Eastern Europe. More than half of Western Europe's CHP-generated electricity is produced in publicly owned facilities connected to district heating and cooling systems.15 Denmark is the global leader, with CHP meeting 52 percent of its electricity needs (5,690 MW) in 2003 (see Figure 1), over six times the world share, and with most of that capacity tied into district heating systems.16

Almost 13 percent of Germany's electricity (21,203 MW) was generated from CHP in 2005, and the government projects that figure could eventually reach 57 percent.17 The vast majority of CHP there is found in industry. Germany is well positioned to become the world leader in both biogas CHP and micro-CHP for smaller-scale commercial and residential installations.18

In Eastern Europe, CHP accounts for almost 19 percent of total power production, with an installed CHP capacity of approximately 35,000 MW (based on national data for 2001 through 2004), the result of Soviet-era centralized planning, which called for widespread use of cogeneration technology.19 The systems need to be modernized, however, and European governments and CHP companies are becoming interested in such projects in Russia.20

CHP in the United States accounts for a relatively modest 8 percent of power production, although the nation is the world leader in total installed capacity, with 84,707 MW operating in 2003.21 (See Figure 2.) As in Germany, most of U.S. CHP capacity is in industry. More than 85 percent of U.S. capacity is large-scale-over 50 MW-and almost 65 percent is over 100 MW.22 The United States has the potential to produce between 110,000 and 150,000 MW of electricity with CHP systems.23

In China, almost 13 percent of the nation's electricity (28,153 MW) and 60 percent of urban central heating is generated with CHP.24 Still, China is estimated to have tapped into less than 20 percent of its industrial potential, and the National Development and Reform Commission has set a goal of 200,000 MW of CHP by 2020-which would be 22 percent of the installed power capacity expected that year.25

Although countries with little or no demand for district heating or cooling are not expected to shift to cogeneration for that purpose, industrial CHP still has great potential in these nations. Brazil is a hydropower-based economy with little demand for another form of power generation. Yet CHP fueled by biomass is entering the industrial sector, particularly the sugar sector, and could produce 17 percent of Brazil's electricity by 2030.26

A few countries, like Finland, need little government incentive to implement CHP; elsewhere a wide variety of policy measures are used to stimulate CHP growth.27 Denmark and Germany give distributed generators access to the electricity grid through standardized technology and give CHP and renewable generators higher priority when grid operators are deciding which power plant to run. Germany requires utilities to purchase CHP-generated electricity at the higher cost of average alternative generators rather than the actual generation cost (feed-in tariffs).28 Denmark removed its purchase obligations in 2005 but still has a feed-in tariff in place and is promoting biomass fuels through a pricing premium.29 The Danish government incorporates heating provision into city planning and gives investment subsidies for CHP retrofitting, while German authorities exempt buildings with CHP-based district heating and cooling from renewable energy requirements in building codes.30

Climate-related legislation, such as a carbon tax in Finland and Denmark and allocation of emissions rights in the Netherlands and Germany, promotes CHP and acknowledges its efficiency advantages.31 The United States promotes CHP technology through eight CHP Regional Application Centers and the Combined Heat and Power Partnership.32

Due to its higher efficiency, CHP can help countries not only reduce fuel demand but also meet greenhouse gas emissions reduction targets. The United States could expand its CHP capacity to displace 11 quadrillion BTUs of fuel a year-about 11 percent of total U.S. energy consumption.33 In addition, fewer new power plants would be needed. And renewable fuels could be used in cogeneration plants instead of fossil fuels, yielding further climate benefits. Biomass gas, landfill gas, wood waste, and anaerobic digester gas show the most promise in the United States.34

According to the International Energy Agency, CHP could reduce global greenhouse emissions by at least 4 percent in 2015 and 10 percent in 2030.35 This translates into a 7-percent overall cost reduction in the power sector, or $795 billion.36

CHP expansion faces similar regulatory barriers worldwide: obstructive regulations and laws, financial incentives favoring established technologies, and a lack of awareness about the technology.37 Recent developments, however, signal heightened interest in CHP. A 2004 European Union directive charged its member states to look at their potentials for CHP and address barriers to its wider use.38 And in 2007 the G8 industrial nations made a commitment to take action to increase energy efficiency and CHP use in electricity generation.39 With momentum building toward the 2009 post-Kyoto climate negotiations, combined heat and power is becoming an energy efficiency tool of choice to tackle the climate change crisis.