Owners and managers of real property have an array of energy alternatives to consider when seeking to reduce energy costs and to become more efficient consumers of energy. Among the options available to such electricity customers are energy conservation measures (e.g., more efficient lighting), demand response programs,1 “Green” retrofitting, and on-site electric generation. This article will explore one form of on-site2 generation, namely, combined heat and power (CHP) generation, and the regulatory, contractual, and financial factors that a real property owner or manager should consider before installing a CHP system to replace all or part of the electricity purchases from the customer’s traditional supplier (utility or energy service company).

Introduction to CHP

CHP has become a leading technique for efficient on-site power generation and has produced lower energy costs for office buildings, hotels, health care and multi-family housing. CHP technology, which utilizes both electricity and heat generated from a single source (e.g., natural gas), recovers heat that normally would be wasted in an electricity generator, and utilizes it to produce one or more of the following: steam, hot water, heating or cooling.3 A typical CHP system will include power generation equipment, heat recovery and reuse facilities, control equipment, and building/utility interfaces. By recovering energy that would otherwise be wasted, real property owners and managers can lower the costs for both electricity and thermal energy, thereby deriving substantial economic benefit.

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