Published by Jessica Weisman-Pitts
Posted on November 23, 2021
4 min readLast updated: January 28, 2026
The natural gas segment dominates the CHP market, offering cost-effective and sustainable energy solutions, despite high initial costs.
Combined heat and power (CHP) is the generation of heat and electricity in a single production process. CHP generates heat and power far more efficiently than traditional methods such as power stations or on-site boilers. Cogeneration reduces stress on electric grids, allowing industries to receive an uninterrupted power supply while optimizing distributed power generation.
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Industry Eyeing CHP Systems for Their Versatility in Heating and Cooling Applications
National governments have implemented subsidies and policies that encourage cogeneration of power. CHP systems play a key role in saving energy wasted in other thermal generation techniques. Wasted heat from a cogeneration plant can be used in either heating or cooling applications. Several industries are actively considering CHP systems for electricity generation as it allows them to use both biomass and natural gas as a fuel.
Environmentally-friendly and Lower Cost Characteristics Popularize Natural Gas Segment
The natural gas segment is expected to lead the combined heat & power market until 2025. Several commercial and residential CHP applications rely on natural gas because of its lower environmental impact, cost-effectiveness, and easy availability. Furthermore, natural gas plants can work for longer periods of time with lower investments, allowing companies to readily tweak their production capacity. The US, China, and Russia are the largest users of CHP units in the combined heat and power market and express a strong preference for natural gas powered ones.
High Investment Cost During a Pandemic Makes Organizations Reconsider CHP Systems
The three biggest challenges to overcome in the combined heat and power market are high operational costs, CAPEX, and the issues around COVID-19. CHP systems are expensive to install and maintain – nearly twice that of conventional systems. Thus, the payback period is often significantly longer. The operating cost of CHP systems is dependent on the efficiency of the system, the fuel used, and the total electricity generated. Business uncertainties are present in every industry, but especially so in the combined heat & power market post COVID-19. If companies are unsure about the long-term prospects of a CHP facility, they are unlikely to grant approval for installation. The economic viability and size of CHP plants is contingent on the demand for heat and electricity. If errors are made in the estimation phase, the heat is unusable and it could have a cascading effect on the CHP project.
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Climate Conditions in Europe Favour Maximum Installation of CHP Systems
Europe has the maximum installed capacity in the global combined heat and power market but APAC is predicted to record higher growth during the assessment period. Government-driven industrial ventures are anticipated to be the main drivers in both regions. For e.g. – the governments of Denmark and Germany provide tax incentives to organizations relying on cogeneration equipment. Colder weather conditions in European nations such as Finland, Sweden, and the UK are likely to fuel demand for cogeneration equipment in both thermal and electrical applications. In 2020, the Kazakh-Romanian Energy Investment Fund signed a contract with Calik Enerji to build a cogeneration plant that should commissioned in early 2023.
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The article focuses on the natural gas segment of the combined heat and power market for profitability and sustainability.
Natural gas is popular due to its lower environmental impact, cost-effectiveness, and easy availability.
High operational costs, CAPEX, and uncertainties post-COVID-19 are major challenges.
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