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Small Scale Combined Heat and Power (CHP, or Cogen)

The New Technical and Financial Realities

Fig 1_Ontario Electricity Mix
Figure 1: Ontario Electricity Mix

Traditional Electricity and Natural Gas Supply

Most buildings in Ontario are supplied with both Electricity and Natural Gas.  Typically, the electricity supplied to a building is produced from varous sources, including hydro, natural gas, coal, nuclear and renewables.  In most instances, fossil fuels (natural gas and coal) are used as flexible sources to top up the grid, and any consumption efforts directly reduce fossil fuel consumptions
Because of the laws of thermodynamics, the efficiency of a fossil fuel fired plant (including line losses) is around 40%. Therefore, for the given mix of electricity and natural gas shown in Figure 2, the overall efficiency is 55%.

Fig 2_Typical Building Supply
Figure 2: Typical Building Supply

Combined Heat and Power (CHP, Cogen)

Since much of the efficiency loss in the traditional energy supply is in the combined 60% generation and transmission losses, it makes sense to look at ways of reducing these losses.  CHP does this by eliminating the line losses (power is used where it is produced) and by utilizing the waste heat that is a necessary byproduct of electricity production.

Fig 3_CHP Building Supply
Figure 3: CHP Building Suppy

As you can see, from Figure 3, the overall efficiency for the given supply mix jumps from 55% to 80%.  Of course, it is impossible to have this exact electricity and heating mix for a building for the course of a day and the year, so it is necessary to properly size the CHP to maximize the return on investment (ROI).  This typically means undersizing the CHP and adding both natural gas fired heat and electricity to top up the heat and electricity supplied by the CHP to meet actual building requirements.

CHP Economics

From the above, we know that CHP makes sense from a thermodynamic and efficiency perspective.  So why is small scale CHP not more common.  The main reason for this is that the price difference between electricity and natural gas hasn’t been great enough to justify the initial cost.  This has changed, however.  Electricity prices have continued to outpace inflation, by a considerable margin, and natural gas prices have plummeted.

Historical Energy Costs

Fig 4_Historical Energy Costs in Ontario
Figure r: Historical Energy Costs in Ontario

Figure 4 shows that in the past 8 years, the annual average cost of electricity for a given amount of energy (82 GJ, or about 23,000 kWh) has gone up from $2,400 to $3,100.  In the same period, natural gas costs have gone from $1,250 to $900 for the equivalent amount of energy.

It is this price difference, or “spark spread” that has created the economics that make small scale CHP make economic sense.

But what if this trend reverses?

Projected Energy Costs

No one can see the future, but we can give our best guess.  For this, we look to the experts.  The National Energy Board is projecting that natural gas prices will outpace inflation, but will remain below 2005 levels.

Electricity, on the other hand, is expected to increase 42% by 2018 and 68% by 2032, as projected by the Province of Ontario’s Long-Term Energy Plan.  (Industrial electricity costs are expected to rise a more modest 33% and 55% in the same time periods.)

To further reduce risks of fluctuating energy costs, it often makes sense to lock in your energy costs with long-term contracts.

Does CHP Make Sense for You?

CHP is not something that you want to invest in on a whim.  The capital expense is significant, and it does not make sense for everyone.  At the very least, you need to ask yourself these questions:

  1. Does your facility have a large base natural gas consumption?
    • For multi-residential and commercial buildings, is your natural gas consumption in the summer greater than 1,000 m3/month?  If not, is there any electric domestic water heating that could easily be offset?
    • For industrial buildings, do you have process heating (natural gas or electric) that could easily be converted to hydronic heating from a genset (with a maximum temperature of about 180˚F)?  If your plant heating requirements is big enough, other options such as gas turbines feeding directly into your process or steam turbines using heat from the process may make sense.
  2. Is your natural gas fired equipment fairly centralized, or is it spread out throughout the building?
    • Tieing into a boiler plant is relatively easy.  Running piping to individual residences to offset gas fired furnaces is cost prohibitive.
  3. Is your building fed by a single electricity meter, or a meter that makes up most of the electricity for the building?  (Current programs make it difficult for the CHP to feed multiple meters.)
  4. Are tenants submetered for electricity?  Current regulations do not allow for the reselling of self-generated power.  If tenants are submetered, there still might be a large enough electrical load if there is underground parking, laundry facilies, pool, etc.
  5. Do you have adequate space in your mechanical room or on your roof?  The smallest CHP is quite small at about 2 ½’ x 4’ x 4’ high.  For connections and room to work around the CHP, however, the space should be about 7’x7’x7’ high.
Fig 5_Typical CHP Cash Flow Balance
Figure 5: Tyipical CHP Cash Flow Balance

If your answers to these questions are favourable, the next step is to hire a consulting firm to perform a study.  In Ontario, the IESO (Independent Electricity System Operator) and your local electricity distribution company (LDC) have programs that help pay for these studies.  In many instances, the study is 100% paid for by the LDC.  The study must meet the requirements as outlined in the IESO’s saveONenergy Process & Systems program.  This includes a detailed analysis of both electricity and natural gas savings, and detailed costing.  The study should also include all costs such as regular maintenance, engine rebuild, utility cost escalations, incentives, etc.

One last point.  Make sure your consultant understands both the saveONenergy programs and the CHP requirements of these programs.  Here’s a hint (shameless plug?):  No one has performed more small scale CHP studies in Ontario than Efficiency Engineering…by a large margin.


  1. Post comment

    “Are tenants submetered for electricity? Current regulations do not allow for the reselling of self-generated power.”

    We have suite metering by Toronto Hydro, rather than submetering. Is this subject to the same restriction?

    1. Post comment

      Currently buildings that are submetered cannot resell any of the electricity produced. Any CHP would be limited to only producing electricity for non-metered tenants and for common areas.

      If buildings have suite metering directly from the local distribution company (Toronto Hydro), the CHP would be installed behind the common area meter.

  2. Post comment

    We are a condo in Toronto with high Hydro costs and heat water with natural gas. We are sub metered but the contract ends very soon plus we have a buy out clause that may be beneficial if we move to CHP. Our intention if we move to CHP is to drop the sub metering.

    If I understand you correctly if we drop the sub metering we can sell excess hydro to the grid (Toronto Hydro)?

    1. Post comment

      Good news. There is a relatively easy way to have CHP and submetering. There are some regulatory loopholes that you have to jump through, but our business partner RHSA has streamlined the process so that it isn’t overly complex. We can put you in touch with them if you’d like.

      Regarding selling back to the grid, unfortunately this is not allowed. You would offset your own electricity use as much as possible, but not feed back to the grid. For example, if you had a 100kW generator and your nighttime load was 80kW, the machine would throttle back so that no electricity fed back to the grid. During the day, if your load is 140kW, the CHP would supply 100kW and you would draw 40kW from Toronto Hydro.

      We have a very sophisticated analysis tool that will tell us very accurately what the annual savings will be for a building based on your electricity and natural gas bills and a detailed site investigation. Toronto Hydro may pay for part or all of the analysis.

      Under the new Long Term Energy Plan, the province has removed CHP from the saveONenergy incentive program. You would still be able to install CHP, but there wouldn’t be an incentive for it. The incentives are still available until July 2018, so if you wanted to investigate, now would be the time.

      Give me a call and we can discuss.
      Scott Martin


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