How Small and Medium Businesses Can Save Big with Combined Heat & Power

Use our Simple ROI Calculator to see how much.

Large businesses in Ontario can cut their cost of electricity in half by participating in the Industrial Conservation Initiative (ICI) to mitigate the Global Adjustment Fee. But that doesn’t help the thousands of small and medium businesses that don’t qualify for the program, or those that operate in expensive jurisdictions such as Alberta that don’t have programs like the ICI to offer relief.

For many of these smaller customers, installing a Combined Heat & Power (CHP) generator could save hundreds of thousands per year, making their businesses much more competitive with those paying considerably less for power in areas like Quebec or Michigan. As a secondary benefit, CHP generators can also power your operation during blackouts.

It comes down to the growing ‘Spark Spread’ in many jurisdictions

Spark Spread is an economic principle highlighting the difference in cost between buying electricity from your local utility company vs. generating your own from natural gas onsite. A large Spark Spread implies that the utility rates are much higher than the cost to generate your own power.

A chart showing the spark spread in Ontario, where CHP can be used to save cost

A 2019 study from the London Economics Institute found that small and medium customers in Ontario (Class B) have experienced an 86% increase in electricity prices from 2007 to 2018, and were paying more than 15¢ per kWh on average in 2018. Comparatively, the cost to generate power continuously from an efficient CHP unit is reliably less than 10¢ per kWh including maintenance and fuel, creating a Spark Spread of more than 5¢.

Based on this principle, let’s use T&T Power Group’s CHP Calculator to see how a medium sized business could save more than $250,000 per year with a CHP generator.

How Big Does a Facility Need to Be to use CHP?

In our example below we have modelled a project with a 400kW generator sizing, but that doesn't mean it won't work for smaller facilities. Many sites with a continuous demand as low as 80kW can utilize CHP to reduce cost and dependence on the grid. Each project will be different and many factors such as the thermal load, layout and existing infrastructure will have an impact. Generally speaking, as CHP projects increase in size, so do the savings.

CHP projects can also be funded through a Power Purchase Agreement (PPA), in which the customer pays zero capital or operational expenses and instead pays per kWh for a term of 5-20 years. 

Step 1: Input the Data

For a simple ROI calculation, we typically analyze 12-24 months of Natural Gas and Electricity billing records. For this demonstration, we’ll look at a customer currently paying 24¢ per cubic meter of Natural Gas, and 15¢ per kWh of electricity. They have a demand for at least 400kW of electricity most of the time, so we’ve selected a 400kW Siemens SGE-24SL CHP generator set that we expect to run at least 8,000 hours per year.

We predict that at least 75% of the waste heat captured from the generator set can be fed into their existing boiler system as pre-heated water, reducing the amount of further heating required. We’ll include 1.7¢ per kWh for maintenance on the generator set, and copy the heat rate and thermal efficiency values from the Siemens Generator spec sheet. 

For capital cost we've budgeted $2,300 per kW to cover the complete design, installation and commissioning of the CHP system. While larger multi-megawatt systems can often be delivered turnkey for much less per KW, smaller systems like the one we're modelling cost more relative to their size. These numbers are fairly representative of most CHP generator sets under 500kW.

A Combined Heat and Power (CHP) calculator, also known as cogeneration

Step 2: Calculate the ROI

With our data input, we can simply hit ‘Calculate’ and view the report:

A Combined Heat and Power (CHP) calculator, also known as cogeneration

In the first column (red) we see that the CHP generator will displace almost $500,000 worth of electricity that would otherwise have been purchased from the utility company in the first year. The operating expense (OPEX) for the CHP generator is shown on the right to be 8.1¢ per kWh including both maintenance and fuel (the blue columns). As this customer is currently paying 15¢ per kWh from the utility company, we have a Spark Spread of almost 7¢ per kWh! 

This facility can expect to save over $280k per year, with a simple Return on Investment (ROI) of just over three years. When you factor in the Full expensing for clean energy equipment incentive available from the federal government that includes CHP, the business case becomes even better.

Try it out the CHP Calculator for yourself, and adjust the values as needed to see how much you could save or have us do it for you for free.


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Posted by Tilo McAlister | Jul 9, 2020 | Categories: Power Generation