Energy and Power En gi neering, 2011, 3, 630-640
doi:10.4236/epe.2011.35079 Published Online November 2011 (http://www.SciRP.org/journal/epe)
A Comparative Study of the Economic Feasibility of
Employing CHP Systems in Different Industrial
Manufacturing Applications
Chad A. Wheeley, Pedro J. Mago, Rogelio Luck
Department of Mechanical Engineering, Mississippi St at e Uni versi t y, Oktibbeha County, USA
Recieved August 26, 2011; revised September 29, 2011; accepted October 5, 2011
Abstract
Extensive research work including multiple methodologies and numerous simulations have been completed
in order to determine the economic effectiveness of employing CHP at commercial and residential sites. In
contrast to the above, very few attempts have been made to develop methodologies to study the feasibility of
CHP systems at industrial manufacturing facilities. As a result, practical opportunities for CHP at industrial
sites are often not realized or even investigated. It follows that there is a need in the CHP related literature
for an analysis that is explicit and yet general enough to determine the economic viability and potential for
success of CHP systems at industrial manufacturing facilities. Therefore, the purpose of this paper is to
clearly outline a methodology to determine the economic effectiveness of installation and operation of a CHP
system at industrial facilities that have a need for space or process heating in the form of steam. The effect on
the CHP system economic performance of several parameters, such as the project payback, internal rate of
return, net present value, etc., are considered in the proposed methodology. The applicability and generality
of the methodology is illustrated by examples including four different manufacturing facilities. The effects of
the variability of factors such as annual facility operational hours during which both process heat and elec-
tricity are needed, facility average hourly thermal load, cost of utility supplied electricity, and CHP fuel type
and associated fuel cost, on the outcome of the economic analysis are also examined.
Keywords: CHP Systems, CHP for Industrial Manufacturing Facilities, Economic Feasibility Study
1. Introduction
When considering a base-load combined heat and power
(CHP) system for an industrial manufacturing facility, a
number of different parameters must be examined and
addressed before one can determine its estimated eco-
nomic viability and potential for success. The most
widely accepted parameter that is used to estimate the
feasibility of any proposed CHP project is known as
spark spread, which is essentially the difference in the
cost of utility supplied electricity and the fuel cost asso-
ciated with production of electricity on site [1]. A spark
spread of $12/MMBtu ($0.041/kWh) is typically consid-
ered to be the threshold that is representative of an eco-
nomically attractive CHP project, meaning that projects
that exhibit spark spreads in excess of $12/MMBtu
($0.041/kWh) will have a good potential for low payback
periods and overall economic success [1]. Graves et al.
[2] developed a more sophisticated method that incorpo-
rates generator heat rate, thermal recovery efficiency,
equipment cost, and acceptable payback period, allowing
for a more accurate indication of CHP viability. In a
similar manner, Smith et al. [3] developed a detailed
model, based on the spark spread, which compares the
electrical energy and heat energy produced by a CHP
system against equivalent amounts of energy produced
by a traditional, or separate heating and power (SHP),
system. In addition, they introduced an expression for the
spark spread based on the cost of the fuel and some of
the CHP system efficiencies as well as an expression for
the payback period for a given capital cost and spark
spread. However, for industrial manufacturing facilities,
in addition to the spark spread, there are other factors
that must be considered when analyzing the economic
feasibility of a CHP system, such as the type of prime
mover, the fuel availability and cost, operation hours,
among others. Typically prime movers used in manufac-
turing facilities include, but are not limited to: steam

C. A. WHEELEY ET AL.631
turbines, combustion turbines and internal combustion
engines. Reciprocating engine and fuel cell CHP systems
are other options that could possibly be considered for
industrial manufacturing facilities. However, these tech-
nologies are often expensive and have somewhat limited
operating ranges. Micro-turbines are a good choice for
smaller commercial and residential buildings, but they
typically do not have the capacity to offset an adequate
amount of an industrial manufacturing facility’s base
electrical load. Ellis and Gunes [4] presented a compari-
son of different generating system characteristics, which
addressed the use of fuel cells. Steam turbines are fre-
quently employed due to their fuel flexibility as well as
their ability to provide an extensively wide range of
process steam supply flow rates when compared to
combustion turbines. For example, combustion turbine
CHP units are typically rated to supply a certain amount
of steam, with one or two increased steam flow rate op-
tions available if duct burners are added. However, steam
turbines, on the other hand, allow for multiple variations
in process steam flow rates [5]. Thus, the desired process
steam flow rate can be attained by a number of different
methods, such as utilization of extraction steam turbines
instead of backpressure steam turbines or by optimiza-
tion of the backpressure turbine boiler system, which can
be easily modeled by making use of the US Department
of Energy’s Steam System Assessment Tool (SSAT) [6]
or any other appropriate turbine modeling software.
Combustion turbines, on the other hand, are often
more easily integrated into an industrial facility’s oper-
ating scheme. Also, as will be seen in one of the cases
presented in the comparative analysis section of this pa-
per, a combustion turbine CHP system can often allow
for positive electrical cost savings, which is seldom the
case for steam turbine CHP systems. In addition, the use
of renewable fuels is on the rise due to the price surge
and volatility of traditional fuels, as well as a general
desire to decrease on site emissions and use more envi-
ronmentally friendly fuel sources. For example, biomass,
such as waste materials from agricultural or industrial
processes that are available at or close to the CHP site
and sometimes free of charge can be a cost effective
CHP fuel source which can be used to generate heat and
power for a manufacturing facility [7].
Modeling of CHP system has been extensively inves-
tigated for commercial buildings [8-16]. However, very
little research has been performed on CHP for the indus-
trial sector and very few and methodologies have been
developed to evaluate the performance of these types of
systems at industrial manufacturing facilities [17].
Therefore, this paper presents a detailed model which
can be used to evaluate the economic performance of a
CHP system at an industrial manufacturing facility. The
model presented in this paper calculates the cost savings,
if any, associated with the particular system used, pay-
back period, internal rate of return, and net present value,
of the proposed CHP project. The proposed model can be
applied to any manufacturing facility and allows for
analysis of different CHP prime movers and system con-
figurations. In order to illustrate how the proposed model
can be applied to any manufacturing facility, four differ-
ent industrial sites were selected as case studies.
In general, there are a number of parameters that play
a vital role in the outcome of the economic analysis of a
CHP system. Therefore, these factors can often be used
to gauge the economic attractiveness of any such CHP
system. However, since each of these parameters can
vary greatly from one facility to the next, the model de-
veloped in this paper was applied to multiple cases in
order to illustrate not only how each of these factors can
provide insight to economic considerations of any such
CHP system but also how the model assesses variations
in these parameters. The factors which are analyzed in
this paper are the annual operating hours of the facility
during which both electricity and process heat are re-
quired (equivalent to the annual operating hours of the
CHP system), the usage rate of conventionally supplied
electricity, the average hourly thermal load of the facility,
and finally the CHP system fuel type and its associated
fuel cost.
2. Analysis
The following section presents a methodology that can
be used to conduct an economic analysis and feasibility
study for a CHP system to be installed at an industrial
manufacturing facility. It is important to note that the
methodology developed in this section is only to be ap-
plied for CHP systems considered at industrial facilities
that have a need for space or process heating in the form
of steam. If thermal energy is to be supplied in another
form, the methodology must be modified.
Step 1: Estimate the size of the CHP power generation
unit (PGU) using information from the monthly utility
bills and/or information regarding the steam require-
ments of the facility. It is recommended to initially size
the system based on the minimum monthly demand and
then modify the PGU size to obtain the best economic
performance. Another option is to select a PGU to supply
all the steam requirements of the facility. However, siz-
ing the PGU to supply the facility’s entire steam load can
result in the production of excess electricity. This out-
come is not preferable for regions that have an unfavor-
able net metering incentive, which is the case for many
of the southeastern United States. Therefore, the capacity
of the system can be expressed as:
s
ys e
Cap L (1)

C. A. WHEELEY ET AL. 632
or

-
sys
s
team req
Cap PGU (2)
where Le initially is the PGU size based on the minimum
monthly demand, which is then modified to obtain the
best economic performance, and

-
s
team req is the
PGU size obtained after supplying the optimum amount
of the facility’s steam requirement.
PGU
Step 2: Determine the installation cost. In this step, it
is important to note that some of the equipment needed
to convert to CHP may already be in place and thus will
only need to be retrofitted. The installation cost (IC) can
be determined as:



s
ys
I
CCRCap (3)
where CR is the cost rating which can be obtained from
the EPA Catalog of CHP Technologies [18].
Step 3: Determine the system’s annual electrical pro-
duction as follows:


 
sys
P
rodCapHr AF (4)
where Hr is the CHP unit’s annual operating hours,
which is equivalent to the operating hours of the facility
during which electricity and process heat are both re-
quired, and AF represents the estimated availability fac-
tor of the CHP unit. The AF is included in order to ac-
count for the fact that the proposed system will most
likely experience periodic downtime either due to trips or
for scheduled maintenance. This value can be easily var-
ied and modified as desired.
Step 4: Determine the operation and maintenance cost
associated with running the CHP unit. The EPA CHP
Catalog recommends an operation and maintenance
(O&M) rating of $0.005/kWh for steam turbine CHP
units. However in order to account for any maintenance
fees that result from the additional CHP equipment (i.e.
boiler, ductwork, etc.) an O&M rating of $0.008/kWh
will be used for the steam turbine cases considered in
this analysis. Therefore, the annual O&M cost can be
obtained using the annual production and the operational
and maintenance cost rating, O&Mrating:



&&
rating
OM ProdOM (5)
Step 5: Estimate the annual CHP system operational
cost , resulting from the CHP unit’s fuel con-
sumption. The CHP system operational cost can be
evaluated as:

op
Cost

   

&
opFR f
rev
CostfuelcostHr AF
OM lost

 (6)
where
F
R
f
uel is the CHP unit fuel feed rate,
f
cost is
the fuel cost, and is any revenue that might be
lost due to operation of the CHP system. For instance,
facilities that produce waste streams which can be util-
ized as a fuel source often sell this waste to fuel suppliers.
If this waste stream is considered as the CHP system fuel,
it can no longer be sold for profit and the loss in revenue
due to this action must be accounted for.
rev
lost
The loss in revenue can be calculated as

 
rev cons
lostfuel SR (7)
where cons
f
uel is the annual CHP unit waste fuel con-
sumption and SR is the sale rate, which is the rate at
which waste was sold by the facility. If there is no loss in
revenue, then rev should be set to $0.00. The lost
F
R
f
uel
can be obtained in different ways: 1) from the manufac-
turer; 2) using the information of the PGU efficiency, or
c. using SSAT software [6] to model the selected PGU.
Step 6: Determine the usage rate of electricity pro-
duced by the CHP unit (URCHP) as follows:
CHP op
URCost Prod

(8)
Step 7: Estimate the potential electrical cost savings
resulting from operating the CHP system , which
is based on the difference between and the cost
of utility supplied electricity .

ele
CS
P

CH
UR

conv
UR

 
eleconv CHP
CSProd URUR (9)
In Equation (9), a negative ele value implies that
the CHP system does not provide any cost savings based
on electricity alone.
CS
Step 8: Estimate the thermal energy cost savings asso-
ciated with offsetting a portion or the facility’s entire
process heating load. First it is necessary to determine
the thermal energy savings resulting from operation of
the CHP system (ESst)


6
Btu
33,479
29.9 hr
lb
1000 hr
MMBtu
10 Btu
st stboiler hp
ES Ldboiler hp
steam
Hr AF













(10)
where
s
t is the portion of the facility’s process heat-
ing load (portion of the steam flow rate) that is to be off-
set by steam produced from waste heat recovered by the
CHP system and the other values used in the above equa-
tion are typical conversion constants.
Ld
The thermal energy (steam) cost savings


s
t
CS is
then the product of the thermal energy savings and the
usage rate of conventionally supplied thermal energy


th
UR , taking into account any associated boiler effi-
ciency


boiler
 values.

 
s
tst boilerth
CS ESUR   (11)

C. A. WHEELEY ET AL. 633
Step 9: Estimate the total annual project cost savings
(CStot) as
the best economic outcome.
3. Results and Discussions
totele stgen
CSCSCS Rev (12)
where
g
en accounts for any additional revenue that
might be generated by the sale of a waste fuel source that
is now unused due to operation of the CHP system. For
instance, if an industrial facility is utilizing a waste
stream as a fuel source for process heat and the proposed
CHP system offsets a portion of this waste fuel, the por-
tion which is now unused could be sold to fuel suppliers
or other facilities that utilize that particular type of fuel.
Any additional revenue generated by the sale of a waste
fuel source that is now unused due to operation of the
CHP system can be calculated as:
Rev In order to illustrate how the methodology presented in
Section 2 may be used to determine the economic viabil-
ity of installing a CHP system at a particular industrial
manufacturing facility, a number of economic analyses
for CHP units at different manufacturing plants are con-
sidered. The proposed industrial facility CHP projects
considered in this section were chosen to illustrate a wide
range in facility operational inputs used in each eco-
nomic analysis and all of the facilities considered have a
need for both electricity, which is currently provided by
local utilities, and thermal energy in the form of process
steam. Each of the facilities considered manufacture dif-
ferent products, have significantly different electrical and
thermal loads, have different annual operating hours, and
some even have available on-site fuel sources. The fa-
cilities considered in each case were chosen based on
these variations in order to add robustness to the analysis
as well as to illustrate how the methodology can be ap-
plied to a number of different industrial facilities which
differ from one another. Table 1 presents the base elec-
trical and thermal loads (before considering CHP), the
power to heat ratio (ratio of the electric to the thermal
load), and also the annual operating hours for each of the
selected facilities.
 
gen avail
Revfuel SR (13)
where avail
f
uel is the fuel that could be sold as a result
of operating the CHP system. If there is no revenue gen-
erated by the sale of a waste fuel then
g
en
Rev should be
set to $0.00.
The project simple payback (SP) is then calculated as
tot
SPIC CS (14)
The internal rate of return (IRR) is obtained by apply-
ing a numeric solver to the following implicit equation

11
n lc year
tot
n
ICCS IRR


 
0 (15)
where lc-year represents the number of year life cycle.
The solution to the above equation, i.e., IRR, is usually
available in spreadsheet software applications.
In all the calculations a 10-year life cycle and 15% in-
terest rate that the facility in question could receive had it
invested the capital in another venture rather than using it
to fund the CHP project were considered. In addition, an
estimated AF of 0.8 is used for all of the analysis in-
cluded in this paper. While this value may seem high, it
helps to ensure that any conclusions made remain con-
servative.
The net present value (NPV) is calculated as
 
1
1% 1
n lc year
tot
n
NPV ICITCCSir


 
 (16)
where ITC% is the percentage of the implementation cost
that is covered by the Investment Tax Credit and ir is the
interest rate that the facility in question could receive had
it invested the capital in another venture rather than using
it to fund the CHP project.
3.1. Economic Performance of the Evaluated
Cases
Step 10: After obtaining an initial economic perform-
ance, different PGU types and sizes can be evaluated to
determine the optimum size and technology that provides
The first three cases presented in this section were ana-
lyzed using a steam turbine, while the last case was ana-
Table 1. Energy load and operational data for the selected facilities.
facility base electric load
(kw) thermal load (mmbtu/hr) power to heat rati o annual operating hours* (hr/yr)
Case 1: Food Products Rendering Plant 4600 213.8 0.074 6864
Case 2: Lumber Mill 3200 27.3 0.401 2750
Case 3: Plastics Manufacturing Plant 15,000 29.8 1.717 7008
Case 4: Chemical Plant 10,000 18.5 1.842 8760
*Represents annual operating hours during which both electricity and process heat are required.

C. A. WHEELEY ET AL. 634
lyzed using a combustion turbine in an effort to establish
the differences between these two types prime movers.
Case 1: The first case presented analyzes a backpres-
sure steam turbine CHP system proposed for a food
products rendering plant located in central Mississippi.
The facility considered in Case 1 operates for 6864 pro-
ductions hours per year during which both electricity and
process heat are required. The most economical CHP
option considered for the facility was a backpressure
steam turbine CHP unit fueled by biomass. The PGU
was selected to supply all the steam required by the facil-
ity (156,200 lb/h), which resulted in a 3.46 MW electric-
ity capacity
Case 2: This case analyzes a backpressure steam tur-
bine CHP system proposed for a lumber facility located
in northern Mississippi. The facility considered in this
case operated for 2750 production hours per year during
which both electricity and process heat were required.
The most economical CHP option considered for this
facility was a backpressure steam turbine CHP unit,
which was sized using the SSAT software [6] and the
facility’s average base electric load (3200 MW). How-
ever, for this case, the facility generated a large amount
of wood waste on-site and sold it to local biomass sup-
pliers in order to generate additional revenue. The most
economical CHP system for the facility required that a
large portion of this wood waste no longer be sold but
rather be utilized as fuel for the CHP unit. Therefore,
there is lost revenue associated with this case. The facil-
ity considered in this case also used a large portion of
another waste stream, planar wood shavings, as a fuel
source for wood fired boilers which supplied process
heat in the form of steam to the wood drying kilns. The
CHP system considered provided the facility with the
capability to offset a portion of this steam. As a result, a
portion of the wood fuel that was supplied to the existing
boilers was no longer used and could then be sold to the
same local biomass fuel suppliers, resulting in an addi-
tional generated revenue source.
Case 3: Case 3 analyzes an extraction steam turbine
CHP system that was proposed for a plastic products
manufacturing facility located on the Mississippi Gulf
Coast. For this case, a natural gas fueled boiler/steam
turbine CHP unit was considered which was also sized
using the SSAT software [6] and the facility’s base elec-
tric load. The facility analyzed in this case operates for
7008 hours during the year.
Case 4: As mentioned before, to establish a contrast
between steam turbines and combustion turbines in CHP
applications, another case that utilizes a combustion tur-
bine is included in this paper. Case 4 presented a CHP
system proposed for a chemical manufacturing facility
on the Mississippi Gulf Coast. The most economical op-
tion considered for this facility was a 5.7 MW combus-
tion turbine CHP system. The facility’s annual base elec-
tric load was used to determine which combustion tur-
bines would supply an adequate amount of electricity as
well as process heat. Based on the facility’s needs, three
different sizes of combustion turbines were considered
and analyzed using equipment specifications provided by
the combustion turbine manufacturer and the most eco-
nomically viable option was chosen. The facility consid-
ered in Case 4 operates for 8760 production hours annu-
ally. The O&M cost for this case was zero since a com-
bustion turbine CHP unit was utilized and the equipment
manufacturer provided a system warranty which covered
maintenance fees.
The methodology was applied to each of the four cases
described in Table 1 and the results obtained in each step
are presented in Table 2. From Table 2, it can be ob-
served that Case 1 exhibits a favorable CHP system eco-
nomic performance. The facility considered in Case 1
has a very large process heating load and a low PHR
(0.074). In addition, it also has a relatively large amount
of annual operating hours (≈78% of the time during a
year), which allowed for longer CHP system operation.
The annual electrical consumption which was to be off-
set by the CHP system considered for this case was
somewhat large and the associated CHP electrical pro-
duction rate was relatively high. Therefore, the cost of
producing only electricity from the CHP system was
more expensive than purchasing conventional electricity
from the grid. However, the thermal load which was to
be offset by the CHP system for this case was relatively
high, resulting in high thermal energy cost savings. This
was able to adequately counter the increase of the elec-
trical cost from operation of the CHP unit, which re-
sulted in an economically attractive project. Therefore,
this case illustrates how a low PHR combined with a
large amount of annual operating hours yields good an-
nual cost savings and therefore a good payback period.
Case 3 on the other hand had a somewhat large electrical
base load but a relatively small process heating load,
which yielded a high PHR (1.717). Table 2 illustrates
that even though the annual facility operational hours
during which the CHP system was to be utilized were
high for this case (≈80% of the time during a year), there
were no cost savings and therefore the use of a CHP sys-
tem was not economically feasible. This was mostly due
to the combination of the high electrical usage and low
thermal usage which were to be offset by the CHP unit.
As a result, the low thermal energy cost savings were
incapable of countering the increase in electrical cost
from CHP.
Case 3 is a good example that a high PHR is a pa-
ameter that may indicate that a CHP system may not be r

C. A. WHEELEY ET AL. 635
Table 2. Methodology results for the four evaluated cases.
Methodology Case 1 Case 2 Case 3 Case 4
Step 1
Capsys [MW] 3.463 0.63 15.45 5.7
CR [$/kW] 2900 2900 1100 1313
Step 2
IC [$] 10,042,700 2,661,820 16,997,200 7,484,100
HR (hours) 6864 2750 7008 8760
AF 0.8 0.8 0.8 0.8
Step 3
Prod [MWh/yr] 19,016 1386 86,630 39,945
Step 4
O&M [$/yr] 152,128 11,088 693,040 0
Lostrev [$/yr] 0 118,800 0 0
costf $21.00/ton $0.00/ton $4.510/MMBtu $4.421/MMBtu
fuelFR 25.8 tons/hr 4.5 tons/hr 312.7 MMBtu/hr 61.0 MMBtu/hr
Step 5
Costop [$/yr] 3,127,260 129,888 8,599,617 1,889,924
Step 6
URCHP [$/kWh] 0.16445 0.09371 0.09927 0.047312
URconv [$/kWh] 0.0825888 0.05497 0.0732886 0.061793
Step 7
CSele [$/yr] –1,556,674 –53,693 –2,250,771 578,434
Ldst [lb/hr] 156,200 27,222 22,000 18,500
Step 8
ESst [MMBtu/yr] 858,602 59,949 123,467 129,780
CSst [$/yr] 4,007,096 106,531 556,835 675,011
Revgen [$/yr] 0 97,092 0 0
Step 9
CStot [$/yr] 2,450,421 149,929 -1,693,935 1,253,445
lc-year [yr] 10 10 10 10
ITC% 10% 10% 10% 10%
SP [yr] 3.69 15.98 N/A 5.37
IRR 23.94% N/A N/A 13.24%
NPV [$] 3,259,668 –1,643,176 N/A –444,937
economically feasible for that particular facility despite
the fact that the CHP system could be utilized for a high
amount of annual operating hours and the system in-
stalled cost rating ($/kW) was the lowest for all of the
cases considered.
Case 2 differed from all of the other cases considered
in that the fuel needed to operate the proposed CHP sys-
tem was generated on site as a waste stream. However,
this waste fuel was sold by the facility to local biomass
fuel suppliers, so any amount that was to be utilized as a
CHP system fuel source resulted in a loss in revenue for
the facility. The thermal load for this case was also rela-

C. A. WHEELEY ET AL. 636
tively small, which yielded a low PHR (0.041). However,
the thermal energy cost savings was still adequate to
counter the associated electrical cost increase from use of
the CHP system considered in this case. On the other
hand, the annual facility operating hours during which
both process heat and electricity were needed were very
low. Therefore, the proposed CHP unit only operated
2750 hours annually (31% of the time), which signify-
cantly decreased its capability to provide overall project
cost savings. The low operating hours of the proposed
CHP unit along with the associated revenue loss related
to utilization of the waste fuel ultimately resulted in a
poor economic performance and a relatively long project
payback period for this case.
In general, for the cases that employed steam turbines
(1, 2, and 3), the electricity production from the CHP
system was more expensive than the electricity produced
using conventional technologies. However, if the thermal
load which was to be offset by CHP system is relatively
high, the thermal energy cost savings can counter the
increase of the electrical cost from the CHP operation,
resulting in an economically attractive implementation.
On the other hand, if the thermal load to be offset by the
CHP unit is small, the thermal energy cost savings will
be low and will most likely result in poor overall project
cost savings. This can be clearly seen in Equation (11),
in which the cost savings associated with the thermal
load and any revenue that might be generated by the sale
of a waste fuel source that is unutilized due to operation
of the CHP system attempt to balance the negative cost
savings typically associated with generation of electricity
on site.
Comparison of steam turbine prime movers to com-
bustion turbine prime movers for industrial facility CHP
systems.
Case 4 analyzed a CHP system for a chemical manu-
facturing plant that had an average base electrical load
but a relatively small process heating load, which in turn
yielded a high PHR (1.842). However, rather than ana-
lyzing a steam turbine, a combustion turbine CHP system
was considered for this case. The facility considered in
this case operated for 8760 hours per year (non-stop) and
the resulting CHP electrical production rate was lower
than the conventional electrical purchase rate, meaning
that there were electrical cost savings resulting from use
of the CHP unit, which is seldom the case for a steam
turbine CHP system. The resulting annual electrical cost
savings was still somewhat low. The corresponding
thermal energy cost savings was also relatively low due
to the facility’s low process heating load which was to be
offset by the CHP system. However, much of the equip-
ment needed for the CHP project was already installed or
could easily be retrofitted and much of this equipment
was not being utilized to its full potential. As a result, the
CHP system installation cost was very low. Therefore the
use of a CHP system for this case exhibited good eco-
nomic considerations in spite of the fact that the annual
cost savings were lower for this case than for many of
the other cases considered.
It is important to highlight that Case 4 is the only case
in which the cost of the electricity produced by the CHP
system is lower than the conventional electrical cost.
However, when using a combustion turbine, it is impor-
tant to note that the ability to significantly vary the CHP
system steam supply rate will be greatly decreased. For
instance, the steam supply rate for a steam turbine CHP
system can be relatively easily increased or decreased
over a wide range by modifying the boiler fuel input and
boiler steam flow rate. Typically, combustion turbine
CHP systems are rated to recover a certain amount of
heat from the exhaust and utilize that heat source for
process steam production. If additional steam is required
by the facility, then the combustion turbine CHP system
can often be equipped with a duct burner, which requires
additional fuel input in order to produce excess steam.
However, duct burners that are incorporated into com-
bustion turbine CHP systems are usually only available
in two or three sizes, thus limiting the options for in-
creasing the process steam flow rate. The reduced capa-
bility to modify the CHP process steam flow rate is an
important aspect that must be thoroughly addressed when
considering a combustion turbine CHP application. For
instance, it is often the case that a facility could generate
electricity at a rate lower than the conventional utility
electrical cost if they utilize a combustion turbine as the
prime mover for a CHP system they are considering.
However, the thermal energy cost savings might be sub-
stantially less than the thermal energy cost savings asso-
ciated with a steam turbine CHP system due to the steam
supply flow rate restrictions corresponding to the com-
bustion turbine. Therefore, combustion turbines may not
always be the most economically attractive option. For
instance, in many cases, the increased thermal energy
cost savings resulting from utilizing a steam turbine CHP
application could outweigh the electrical cost savings
benefits of a combustion turbine.
Another aspect that influences the economic perform-
ance of a CHP system is the annual operating hours. In
general, it is apparent that longer system operational
hours result in better economics for the use of CHP sys-
tems. From the results presented in Table 2, it can be
concluded that some of the key parameters to be consid-
ered during a CHP project economic analysis are the
PHR (electric and thermal loads), the annual operating
hours, the electric utility rates, and of course the cost and
availability of the fuel to be used to operate the CHP sys-

C. A. WHEELEY ET AL.637
tem. For this reason the following section evaluates how
varying some of these parameters will affect the eco-
nomic performance of CHP systems.
3.2. Parametric Analysis of Some of the Factors
That Affect the CHP System Performance
This section presents the effect of several parameters on
the economic performance of CHP system for the evalu-
ated cases. These parameters include: annual facility
operating hours, electric utility usage rates, the facility
electrical and thermal load (represented by the PHR), and
the fuel to be used to operate the CHP system.
3.2.1. Annual Facility Operating Hours
CHP systems are often good alternatives for industrial
manufacturing facilities that require both electrical
power and process heat. However, these projects will not
result in good economics if the CHP units are operated
during times when only electricity or only process heat
are required by the facility in question. Therefore, the
annual facility operating hours during which both elec-
tricity and process heating are required is an important
parameter that has a significant impact on the economic
success of a CHP project. To assess the effect of the op-
erating hours on CHP economic performance, the facili-
ties were evaluated using 8760 hr, 6570 hr, 4380 hr, and
2190 hr, while all of the other independent parameters,
such as their corresponding base electric loads, thermal
loads, etc. are held constant. Figure 1 shows the effect of
the operational hours on the CHP system economic per-
formance for all the evaluated cases. Figure 1(a) illus-
trates that for Cases 1, 2, and 4 increasing the hours of
operation increases the annual cost savings obtained
from the CHP system. This is due to the fact that larger
portions of the facilities electrical and thermal energy
usages are offset by their respective CHP systems as the
CHP operating hours are increased. While this does
mean that in some cases the CHP electrical energy cost
will be higher, the associated thermal energy cost savings
will also be higher, which provides a better potential for
improved overall project economics. However, for Case
3, increasing the CHP operational hours represents a de-
crease in the already poor economic performance. For
this case, the electrical cost resulting from operation of
the CHP system is higher than the conventional system
electrical cost. Also, this facility (Case 3) requires a rela-
tively low steam flow rate to offset all of the process
heating requirements. The annual thermal energy cost
savings are far too low to offset the negative electrical
savings when the normal facility operating hours (7008
hr/yr) are used in the economic analysis and even when
the facility operating hours are increased to a maximum
(8760 hr/yr), the total CHP system project cost savings
remain negative for Case 3. Figure 1(b) illustrates the
simple payback for different operating hours for the
evaluated facilities. The results presented in this figure
agree with the results obtained previously that are pre-
sented in Figure 1(a) since it is the case that greater an-
nual savings yield lower payback periods. The payback
time period was not applicable for Case 3 since the CHP
system considered for the facility in question exhibited
no cost savings.
3.2.2. Facility Electric Utility Rate
Another important parameter that strongly affects the
economic performance of a CHP system is the facility’s
local electric utility rate for purchase of conventionally
supplied electricity. To assess the effect of the facility
electric utility rate on the CHP systems’ economic per-
formance, the facilities considered in Cases 1-4 were
evaluated using assumed electric utility rates of $0.050/
kWh, $0.075/kWh, $0.100/kWh, and $0.125/kWh, while
all of the other independent parameters such as the base
electric load, thermal load, operating hours, etc. are held
constant. Figure 2(a) illustrates the concept that higher
electric utility rates result in higher annual cost savings
that are associated with operation of a CHP system. Fa-
(a)
(b)
Figure 1. Effect of the annual operating hours on (a) the
annual cost savings (b) the simple payback.

C. A. WHEELEY ET AL. 638
(a)
(b)
Figure 2. Effect of the electric utility rates on (a) the annual
cost savings (b) the simple payback.
vorable economics are obtained for Case 3 as the electric
utility rate is increased above $0.095/kWh. Figure 2(b)
shows that the payback for cases 1, 2 and 4 decreases as
the electric utility rate is increased, which is the expected
result. However, for Case 3, payback values only become
applicable after the $0.095 electric utility rate threshold
is exceeded. Even though there are some cost savings
associated with the CHP system considered for Case 3
after the $0.095 electric utility rate threshold was ex-
ceeded, the corresponding payback is still extremely high.
This is why it is significantly important to analyze both
the cost savings and the payback period for the imple-
mentation of a CHP system. Therefore, it is apparent that
the electric utility rate has a strong influence on the eco-
nomic feasibility of a CHP system.
3.2.3. Facility Thermal Load
The thermal load of facilities for which CHP systems are
proposed is another important parameter that has a sig-
nificant impact on the economic success of a CHP pro-
ject. This can also be evaluated as the effect of the
power-to-heat ratio (PHR) on the economic performance
of the CHP system. The PHR can be expressed as the
ratio of the facility’s base electric load to its hourly ther-
mal load. To evaluate the effect of the facility’s thermal
load on the economic performance of a CHP system, the
thermal loads of each of the facilities considered in Cases
1-4 were decrease by 25% and 50% and also increased
by 25%, while all of the other independent parameters,
such as the base electric load, operating hours, etc., were
held constant. Figure 3 shows the effect that varying the
thermal load has on the annual cost savings and the pay-
back period. Figure 3(a) illustrates that for cases 1, 2,
and 4, higher the thermal loads, or in other terms smaller
PHRs, will result in greater cost savings associated with
operation of the CHP systems. However, the thermal
load would have to be unrealistically increased to obtain
cost savings for Case 3 due to the extremely poor total
cost savings for this case. This can be realized by exam-
ining the trend for Case 3 in Figure 3(a) . As the thermal
load is varied from 50% to 125%, there are minimal
changes in the cost savings associated with the CHP
project considered for Case 3 and it is also apparent that
the thermal load would have to be increased greatly be-
fore positive project cost savings would be obtained.
3.2.4. Fuel Selection and Cost
The fuel selection, cost, and availability of the fuel to be
used to operate the CHP system are very important fac-
tors to consider when determining the economic per-
(a)
(b)
Figure 3. Effect of the facility thermal load on (a) the an-
nual cost savings (b) the simple payback.

C. A. WHEELEY ET AL.639
Figure 4. Effect of the CHP fuel used on the cost savings
and payback period for the facility analyzed in Case 1.
formance of a CHP system. Figure 4 shows the annual
cost savings as well as the payback period for different
CHP fuels used for the facility evaluated in Case 1. The
fuels used in this case are: typical green wood, natural
gas, number 2 fuel oil, and typical western coal. In addi-
tion, the costs of the evaluated fuels, which are obtained
from the SSAT software [6] estimates, are presented in
Figure 4. The fuel energy required in the boiler to satisfy
the steam requirements of the evaluated facility is about
271 MMBtu/h.
Therefore, the amount of fuel needed will depend on
the specific fuel’s heating value. Figure 4 illustrates that
using typical green wood and typical western coal pro-
vide annual cost savings and paybacks on the order of
$2.4 M and 3.69 yr and $3.2 M and 2.81 yr, respectively.
On the other hand, natural gas and number 2 fuel oil both
provide negative cost savings, or annual costs which ex-
ceed their respective conventional costs. The results pre-
sented in this figure show how important the fuel selec-
tion is in relation to the economic performance of a CHP
system. However, it is also important to keep in mind
that the fuel selection is often driven by the availability
of the particular type of fuel at the desired location and
that the region where the facility is located will impact
the cost of the fuel as well.
4. Conclusions
This paper presented a methodology which can be used
to conduct a feasibility study and economic analysis for a
CHP system at an industrial manufacturing facility that
has a need for space or process heating in the form of
steam. While numerous methodologies have been de-
veloped and countless simulations have been completed
for CHP systems at commercial and residential buildings,
the methodology developed in this paper is highly valu-
able as it allows for identification of favorable CHP pro-
jects at manufacturing plants. The methodology allowed
for analysis of multiple parameters that are indicative of
favorable economic performance for CHP and also ac-
counted for any variations encountered due to differing
availability of resources, energy requirements, or operat-
ing schemes of the facility considered. The effects that
variations in many of these indicative factors, such as
annual facility operational hours during which both
process heat and electricity were needed, facility average
hourly thermal load, the cost of utility supplied electric-
ity, and the CHP fuel type and associated fuel cost, have
on the outcome of the economic analysis were also ex-
amined.
Four cases studies were analyzed in order to determine
how each of the factors mentioned previously affect the
economic considerations of installing a CHP system. In
general it was observed that CHP systems that had high
annual operational hours resulted in favorable economics
and facilities that required less process heat exhibited
poor economics when compared to the other cases. Also,
it was observed that CHP economics could possibly be
improved if a facility was able to utilize a waste stream
produced on site as a fuel source for the CHP system.
However, variations in the other parameters can nega-
tively counter any of these available benefits and there-
fore all of the indicating factors must be thoroughly ana-
lyzed when conducting a CHP feasibility study.
In general, the project payback timeline was decreased
and both the internal rate of return and net present value
were increased as 1) the operational hours during which
both process heat and electricity were required by the
facility were increased; 2) the average hourly thermal
load of the facility was increased; and 3) the cost of util-
ity supplied electricity was increased. The type of fuel to
be used in the CHP unit had a significant impact on the
economic performance of the system. From the case
considered, it was observed that some of the evaluated
fuels provided favorable economic analysis results while
other fuels resulted in negative annual cost savings.
Therefore, in order to add robustness to any CHP feasi-
bility study, it is apparent that multiple fuel types should
be considered when determining the system’s economic
performance.
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