CHP Feasibility Study: Technical and Financial Framework

A CHP feasibility study should establish whether combined heat and power can create durable value for a site—not simply whether an engine can produce electricity and useful heat. A credible assessment tests the technical fit, commercial case, operating model and long-term strategic relevance before an owner commits capital.

Executive Summary

CHP can remain a strong option for commercial, industrial and district-energy sites with sustained heat demand and a favourable relationship between electricity and fuel costs. It is not a default answer. Annual energy totals alone can make an unsuitable project appear attractive, while realistic hourly modelling often reveals heat rejection, part-load operation, maintenance exposure or future electrification risk.

Altair’s approach is independent of equipment supply. We assess the opportunity through four connected lenses: technical, financial, operational and strategic. The objective is a decision that can be defended to management, investors and lenders.

The Central Question

Does CHP create robust value across the site’s real operating conditions, or only under a narrow set of assumptions? The answer depends on when heat and electricity are required, how the plant will be controlled, what alternatives are available and how energy markets may change during the asset’s useful life.

CHP Feasibility Study Framework

1. Technical fit

The first task is to reconstruct the site’s energy demand at an appropriate time resolution. Monthly invoices are rarely sufficient. We examine interval electricity consumption, heat demand, seasonal variation, operating hours and the relationship between the two loads.

The assessment should also cover connection capacity, plant-room constraints, hydraulic integration, electrical protection, ventilation, noise, emissions, metering and maintenance access. Performance must be modelled at realistic part load, including start-stop behaviour and periods when useful heat cannot be absorbed.

2. Financial resilience

A sound business case compares the full delivered cost of fuel with the electricity genuinely displaced by the CHP unit. It includes capital expenditure, routine maintenance, major overhaul reserves, downtime, auxiliary consumption, financing costs and eventual replacement.

The analysis should not rely on a single forecast. Sensitivities for fuel prices, electricity prices, operating hours, efficiency and maintenance costs show whether the project remains investable when conditions move away from the central case. This is where an independent financial assessment adds value.

3. Operational reality

A technically efficient scheme can still disappoint if it does not match how the site is operated. Control philosophy, staffing, maintenance response and the interaction with boilers, chillers, heat pumps, solar PV, batteries or an energy management system all influence actual performance.

Responsibilities should be clear: who dispatches the unit, who monitors efficiency, who authorises maintenance and how poor performance is identified. These questions belong in the feasibility stage rather than after commissioning.

4. Strategic relevance

CHP decisions now sit within a wider transition towards electrification, flexibility and lower-carbon heat. A project may offer an attractive short-term spark spread yet become constrained by emissions costs, fuel policy, network changes or a planned move to heat pumps. The European Commission’s cogeneration overview provides useful policy context for combined heat and power in the European energy system.

The assessment should therefore compare CHP with realistic alternatives and test how the proposed asset fits the owner’s five- to fifteen-year energy strategy. For acquisition, refinancing or major reinvestment, Altair can combine this work with technical due diligence.

Key Information Required

• Half-hourly or hourly electricity data for a representative period.
• Heat demand, boiler fuel use and seasonal operating profiles.
• Current and forecast utility tariffs, taxes and network charges.
• Existing plant schedules, efficiencies, condition and remaining life.
• Site constraints, grid connection information and planned developments.
• Capital-cost estimates, maintenance proposals and overhaul assumptions.
• The owner’s investment criteria, financing structure and risk requirements.

Common CHP Assessment Mistakes

• Sizing to peak demand: a large unit may operate inefficiently or reject heat for much of the year.
• Using annual averages: coincident heat and electricity demand matters more than total consumption.
• Ignoring degradation and downtime: availability and maintenance materially affect savings.
• Assuming tariffs remain constant: the economics depend on the changing spread between fuel and electricity costs.
• Reviewing CHP in isolation: batteries, demand management and electrified heat may alter the preferred solution.
• Accepting supplier assumptions without challenge: equipment proposals should be tested against independent site data and realistic operating conditions.

CHP and Battery Storage

A battery does not automatically improve a CHP project. It can increase flexibility, reduce peaks or help separate electrical generation from site demand, but it adds capital cost, degradation and control complexity. The combined system should be modelled as one operating strategy. See our battery storage decision framework for the parallel assessment principles.

What a Decision-Ready Study Should Deliver

A decision-ready CHP feasibility study should conclude with a clear recommendation, not simply a collection of calculations. It should define the preferred capacity and operating philosophy, explain the principal risks, compare credible alternatives and identify the information still required before procurement.

The result should allow the owner to decide whether to proceed, redesign, defer or reject the project—and provide a defensible basis for the next investment gate.

Request an Independent Project Review

If you are assessing a new CHP installation, an existing asset, refinancing or a major overhaul, Altair Energy Partners can provide an independent technical and financial review. Contact us to discuss the decision, available data and appropriate scope.