Fact Sheet: CHP as a Boiler Replacement Opportunity
I. Introduction
The purpose of this paper is to present combined heat and power (CHP) as a viable boiler
replacement alternative. To illustrate the potential economic, operational, and environmental
benefits of replacing a boiler system with a CHP system, the paper presents a representative
analysis that compares a natural gas CHP system to natural gas boilers.
With nearly one-half of the U .S. boiler
population with a capacity greater than 10
MMBtu/hr at least 40 years old1, many
facilities with boilers are confronting a
number of issues leading them to consider
boiler replacement:
•	Increased maintenance costs for units
nearing the end of their useful lives.
•	New regulations that may require
investments in existing boilers (e.g., the
Industrial/Commercial/lnstitutional Boiler
•	Current and future corporate or
institutional sustainability objectives.
•	Steam demands that are increasing
beyond current boiler capacity.
Facilities considering boiler replacement
have a number of potential options:
•	Install emissions control systems on
existing boilers2.
• Install new natural gas boilers.
•	Install a natural gas combined heat and power (CHP) system.
•	Cease operations3.
1http://www1 .eere.enerav.gov/manufacturinq/distributederierqv/pdfs/characterization industrial commeric
al boiler population.pdf
2 This option also requires continued maintenance of the existing boilers. Control systems include
scrubbers, precipitators, and fabric filters.
Industrial/Commercial/lnstitutional Boiler MACT
The National Emissions Standards for Hazardous
Air Pollutants for Major Sources: Industrial,
Commercial, and Institutional Boilers and Process
Heaters (commonly known as the Boiler MACT)
will affect approximately 14,000 boilers located at
large industrial sources of air pollutants in the
United States. Finalized on March 21, 2011, and
amended on December 20, 2012, the rule limits
emissions of toxic air pollutants from new and
existing boilers and process heaters at major
source facilities. Rule requirements include
emissions limits for some coal, oil, and biomass
boilers (the highest emitting 12 percent) and
annual tune-ups for all boilers. EPA estimates that
the capital costs for compliance for coal boilers will
be $2.7 billion (an average cost of $4.4 million per
boiler) and $1.7 billion for oil boilers (an average
cost of $1.9 million per boiler).
More information on the Boiler MACT rule can be
found at:
The Department of Energy is offering a technical
support program for facilities facing MACT
compliance that are interested in CHP:
http://www1 .eere.energy.gov/manufacturing/distrib

CHP, a proven technology that has been used for decades, can replace on-site boiler use and
grid-supplied electricity, often referred to as separate heat and power (SHP). CHP is used in
every state and in the District of Columbia at over 4,100 facilities including factories, commercial
buildings, hospitals, and universities.4 Approximately 12 percent of the total electricity generated
in the United States comes from CHP.5
Natural gas-fired CHP can be a particularly attractive option for facilities. It can meet all of a
facility's steam needs, reduce net steam costs6, and produce an attractive return on investment
while creating a number of other economic, operational, and environmental benefits:
•	Economic and operational benefits
o CHP designed to operate during grid outages can enable continued operations during
power disruptions and avoid the costs of facility shutdowns.
o CHP can significantly reduce operating costs, including net steam costs, by efficiently
producing steam and electricity on site and reducing the amount of purchased
o CHP can provide a hedge against rising electricity costs.
o CHP can avoid costs associated with complying with new regulations on coal- and oil-
fired boilers. These regulations may require subject facilities to install emissions control
equipment. Investments in control equipment may require scarce capital and do not
typically lower operating costs or provide a financial return on investment. This capital
could be invested more productively in energy production infrastructure, especially
highly efficient CHP, which can produce attractive rates of return while meeting
regulatory requirements.
•	Environmental benefits
o Switching to natural gas reduces emissions of greenhouse gases and other air pollutants
compared to coal or oil boilers,
o Because CHP consumes less fuel to produce each unit of energy output, CHP further
reduces emissions.
II. Comparison of Natural Gas Boilers and CHP
Table 1 presents an illustrative financial comparison of a natural gas CHP system (a combustion
turbine and a heat recovery steam generator) to two natural gas boilers7. The CHP system and
the boilers have the same steam output. The comparison is based on a CHP system sized
appropriately to meet the steam needs of a small industrial or medium-sized institutional facility.
This specific comparison was selected as the focus of the paper because if a decision is being
made to replace a coal-fired or other boiler system, often a natural gas boiler would be a logical
3	http://www.cibo.org/newsletters/ian2013.pdf. Certain industry groups have suggested that some facilities
may make this choice.
4	https://www1 .eere.enerqv.qov/manufacturinq/distributedenerqv/pdfs/chp clean energy solution.pdf
5	http://www.eea-inc.com/chpdata/index.html
6	Net steam costs are defined as total CHP operating costs minus the value of the electricity generated.
7	Two boilers are used in this analysis consistent with industry practice.

Table 1: Financial Comparison of Natural Gas Boilers and CHP

Natural Gas
Natural Gas
Impact of CHP
Increase /
Peak Boiler Capacity, MMBtu/hr input

Peak Steam Capacity, MMBtu/hr

Average Steam Production, MMBtu/hr

Boiler Efficiency

Electric Generating Capacity, MW

CHP Electric Efficiency

CHP Total Efficiency

Steam Production, MMBtu/year
Steam Production, MMIbs/year
Power Generation, kWh/year
Fuel Use, MMBtu/year
Annual Fuel Cost
Annual O&M Cost
Annual Electric Savings

Net Annual Operating Costs
Net Steam Costs, $/1 OOOIbs
Capital Costs

10 Year Net Cash Outlays
Payback - CHP vs. Gas Boilers
6.9 years
10 Year IRR - CHP vs. Gas Boilers
10 Year NPV - CHP vs. Gas Boilers
Source: ICF International
Notes: Based on 8,000 hours facility operation, 7 cents per kWh electricity price, and $6/MMBtu natural
gas price. Natural gas boiler estimated capital cost of $35/MBtu/hour input and O&M cost of
$0.95/MMBtu input were provided by Worley Parsons. CHP capital cost of $1,500/kW, turbine/generator
and heat recovery steam generator O&M costs of $0.009/kWh and 31 percent electrical efficiency are
taken from a California Energy Commission Report, "Combined Heat and Power: Policy Analysis and
2011 - 2030 Market Assessment", 2012. Annual CHP O&M cost includes an amount to maintain the
steam system, which is approximated by the O&M cost of the boilers, which produce the same steam
output. CHP availability of 95 percent and portion of electric price avoided by on-site generation of 90
percent are values based on typical CHP feasibility analyses. 10 year net cash outlays are the sum of 10
year's operating costs escalated at 3 percent annually. NPV determined using a 7% discount rate. All
efficiency values and natural gas prices are expressed as higher heating values.
III. Economic and operational advantages of CHP compared to natural gas boilers
For facilities considering boiler replacement, CHP can offer several distinct economic and
operational advantages:
Reduced Operating Costs. Table 1 demonstrates the lower steam and operating costs that
can be achieved with CHP:
• The CHP system achieves net annual operating cost savings of more than $2.4 million.

•	The value of the electricity produced by the CHP system is greater than the additional fuel
and O&M costs associated with the CHP system.
•	Net steam costs for the CHP system are $4.38/MMBtu less than for the gas boilers.
•	The CHP system requires a capital expenditure of $16.8 million more than the gas boilers;
however, this investment provides a net present value of nearly $2.6 million, an internal rate
of return of 10 percent, and a payback period of less than seven years.
A Hedge against Future Electricity Prices. Since 2003, the U.S. average retail price of
electricity has increased approximately 30 percent to more than 10 cents per kWh for
commercial customers and more than 6.5 cents per kWh for industrial customers.8 During the
same time period, natural gas prices have declined 12 percent for commercial customers and
33 percent for industrial customers.9 Through the highly efficient production of steam and
electricity on site using natural gas as a fuel, CHP can provide a hedge against increasing
electricity costs by reducing electricity purchases from the grid.
Mitigating the Impacts of Electric Supply Disruption. CHP can provide enhanced power
supply reliability, mitigating or eliminating the potential costs associated with electricity supply
disruption. Data from various studies estimate the costs from power-related outages to the U.S.
economy to be between $104 billion and $164 billion annually.10 CHP systems can be designed
to operate independently of the grid and provide the host facility with the ability to maintain
operations—partially or completely, depending on design—during grid outages.
External events, such as storms or failed substation transformers, can shut down the electric
grid for extended periods of time and disrupt operations of customers. Facilities dependent on a
stable electric supply may incur costs due to loss of production, compensation to customers,
and equipment damage. Biotechnology research facilities risk the destruction of irreplaceable
research materials when refrigeration or climate control systems fail. Medical centers and
nursing homes may be unable to continue to provide essential patient care. Many CHP systems
at hospitals, universities, and other facilities operated continuously during major storms like
Hurricanes Katrina and Sandy as nearby buildings lost power for several days.11
IV. Environmental Benefits of CHP
Through the recovery and use of otherwise wasted energy and the elimination of transmission
and distribution (T&D) losses12, CHP systems require less fuel than SHP systems (i.e., grid
electricity and on-site boilers) to produce the same amount of useful energy. These fuel savings
result in a significant reduction in the total emissions of greenhouse gases and other air
8	http://www.eia.gov/electricitv/data.cfm. Depending on the amount of electricity purchased, institutional
customers pay commercial or industrial prices.
9	http://www.eia.gOv/totalenerqy/data/annual/#naturalqas. Depending on the amount of gas purchased,
institutional customers pay commercial or industrial prices.
10	http://www.fas.org/sqp/crs/misc/R42696.pdf
11	http://www.gulfcoastcleanenergy.org/Portals/24/Downloads misc/CHP-Sandv-media-coverage.pdf
12	T&D losses refer to the electricity lost by transmitting and distributing power from the point of
generation to the point of consumption. Nationally, these losses average about 7 percent. Source:

pollutants13 associated with producing electricity and steam. In this context, "total emissions"
include emissions from on-site equipment (i.e., CHP or gas boilers) and the emissions
associated with any purchased electricity generated off site.
This reduction in total emissions lowers a facility's environmental footprint, improves
organizational environmental performance, and helps meet sustainability goals. Table 2
compares the fuel consumption and C02 emissions of the CHP system and the combination of
boilers and grid electricity presented in Table 1.
Table 2: Fuel Consumption and C02 Emissi
Fuel (MMBtu/yr)
C02 (tons/yr)
Natural Gas Boilers
and Grid Electricity
Grid Electricity
Total (a)
Natural Gas CHP (b)
Change in Total Fuel Consumption and C02
Emissions (a - b)
Percent Change
The CHP and the boilers produce equal amounts of steam. Because the CHP also produces
electricity, it consumes more fuel than the boilers. The increased fuel use can lead to an
increase in emissions on site, including C02, NOx, VOCs, PM and CO.
Replacing a boiler system with a CHP system or new natural gas boilers may require an
emissions assessment and a modification to a facility's air permit. A permit modification would
need to take into account a number of different factors, including existing and planned fuel use,
combustion technology and efficiency, CHP capacity, emissions controls, and facility air
permitting status. Because these factors will be unique to each facility, it is beyond the scope of
the paper to cover the range of permitting implications for either boiler replacement option.
V. Resources and Additional Information
The U.S. Environmental Protection Agency CHP Partnership is a voluntary program that seeks
to reduce the environmental impact of power generation by promoting the use of cost-effective
CHP. The Partnership works closely with energy users, the CHP industry, state and local
governments, and other clean energy stakeholders to facilitate the development of new projects
and to promote their environmental and economic benefits. See http://www.epa.gov/chp.
The U.S. Department of Energy's (U.S. DOE) eight regional Clean Energy Application Centers
promote and assist in transforming the market for CHP and district energy throughout the United
States. See http://www1.eere.energy.gov/manufacturing/distributedenergy/ceacs.html.
13 Pollutants emitted from fuel combustion include nitrogen oxides (NOx) and sulfur dioxide (S02), which
contribute to the formation of acid rain, particulate matter (PM), volatile organic compounds (VOCs) and
carbon dioxide (C02).

The U.S. Clean Heat and Power Association (USCHPA) is a trade association that brings
together diverse market interests to promote the growth of clean, efficient local energy
generation in the United States. USCHPA's mission is to increase deployment of combined heat
and power and waste energy recovery systems to benefit the environment and the economy.
See http://www.uschpa.org.
CHP Financing
Many facilities prefer not to use limited capital resources for infrastructure like CHP and have
instead used mechanisms such as leasing, third-party financing, or build/own/operate
arrangements to finance their CHP systems. Additional information is available in the
Procurement Guide: CHP Financing, a resource available at
http://www.epa.gov/chp/documents/pquide financing options.pdf.
There are also a number of state and federal incentives for CHP including tax credits, grants,
loans, production incentives and rebates. The EPA CHP Partnership maintains a
comprehensive database of various state and federal incentives in its Database of CHP
Policies and Incentives (dCHPP) available at:
Through its Clean Energy Application Centers, the DOE also offers direct project assistance
in the form of site assessments and feasibility studies:
For more information, contact:
^ ___ | hk	Gary McNeil	•
LJ	U.S. Environmental Protection Agency	JUL \
CSSwIll	Phone:202-343-9173	I SaI71. g
AEPA powefTpartnersi-mp	email: mcneil.gary@epa.gov
Last Updated: March 11, 2013