Buildings or industrial facilities with both heating loads and electricity demand can typically benefit from combined heat and power (CHP) generation. This technology allows both heat and electricity to be produced at a marginal cost less than that of both produced separately.
Most commercial and industrial buildings have both electricity and heating loads. And through the use of absorption chillers, which use process heat and an absorption cycle in place of the electric compressor in a typical air conditioner, buildings can use heat to meet cooling loads. In standard practice, facilities buy electricity from the grid for their electricity needs and then buy additional electricity or natural gas to generate heat via a boiler or heat pump. In this example, a 33% efficient coal-fired power plant and an 80% efficient boiler mean that 150 BTUs of heat energy are required to deliver 78 BTUs of energy (both electricity and heat) to the facility.
But with a gas-fired combined heat and power (CHP) system, the facility buys only gas and uses it to generate electricity onsite, capturing the waste heat to meet heating demand (or do absorption cooling) with no additional energy. In this example, this facility needs only 100 BTUs of heat energy input to deliver the same amount of electricity and heat as before. The overall facility energy system is more efficient and, depending on the relative prices of electricity and natural gas, is often cheaper as well.
Based on example in:
Masters, Gilbert. 2004. Renewable and Efficient Electric Power Systems. Hoboken, New Jersey: John Wiley and Sons, Inc.