Don’t Call It a Comeback, CHP Has Been Here for Years
Invented nearly a century and a half ago and used by Thomas Edison in the world’s first commercial power plant, combined heat and power — “cogeneration” (or, CHP) as it is often called — is on the rise globally. The extremely efficient technology simultaneously produces electrical and thermal energy from a single fuel source, such as natural gas, oil, vegetable oil or biogas, to name a few. To make it happen, the waste heat from generating electricity is captured and then used for other applications in residential, commercial, and industrial settings, including water heating, space heating, and process heat.
The benefits are fiscal and environmental as CHP increases fuel efficiency, reduces greenhouse gas emissions, and lowers energy costs. CHP can also play an invaluable role to communities and the economy as it did in the wake of Hurricane Sandy, getting hospitals and other buildings up and running again long before the electricity grid was back online.
From an investor perspective, there are different ways to approach this still fragmented industry, with several major players making their presence felt with large-scale projects. International conglomerate General Electric (NYSE:GE) and Siemens AG (NYSE:SI) are now well established in the CHP industry, but typically on the high-end industrial level. Amongst other projects, GE cogeneration units powered part of the London 2012 Olympic Games and are subsequently now powering East London businesses and residences. Siemens is commissioning a large CHP plant in Poland for energy utility PGE GiEK SA, replacing a coal-fired plant with a CHP plant that has a 138 MW electricity capacity and 90 MW thermal capacity.
On the mechanical side of things, Caterpillar (NYSE:CAT) sells a full line of turbines used in cogeneration systems through its subsidiary Solar Turbines. The spotlight was cast on Caterpillar’s offerings in 2008 when Cornell University chose two 15-megawatt, natural gas-combustion turbines made by Solar Turbines. These turbines will be used in conjunction with heat recovery steam generators made by Rentech (NASDAQ:RTK) as part of an $82 million project to shift the school away from coal-based power generation. The cutting-edge Cornell Central Energy Plant lowered Cornell’s carbon emissions by 25 percent and now provides about 180 million kilowatts annually to supply most of the campus’s electrical needs.
Focused on commercial applications, EuroSite Power (EUSP.QB) and its majority owner, American DG Energy (NYSEMKT:ADGE), are penetrating the CHP markets in Europe and the U.S. with their annuity-based business model as on-site utility providers. More on that in a moment.