Combined Heat & Power (CHP) Market

Combined Heat & Power (CHP) Market Outlook

The Combined Heat & Power (CHP) Market is valued at USD 24.1 Bn in 2026 and is projected to reach USD 40.5 Bn, growing at a CAGR of 8% by 2033. In terms of capacity, the market is expected to add 181 GW from 2020-2026.

Combined heat & power (CHP), also known as cogeneration, produces electricity and usable heat in a single and highly efficient process. Installation of CHP allows the efficient utilization of primary fuel for the generation of heat and power. CHP generates heat and power more efficiently than conventional methods such as on-site boilers and power stations. Cogeneration is a highly suitable alternative as it reduces stress on the grids and allows industries to have an uninterruptible power supply while improving grid distributed generation.

Government Subsidies and Long-term Emission Reduction Targets to Boost Growth

Governments across the globe have implemented policies and introduced programs and subsidies to promote the use of cogeneration. Combined heat & power systems help in the saving energy that is typically wasted in other thermal power processes. The wasted heat recovered in a cogeneration plant can be utilized for other purposes such as district heating and other cooling applications.  An increasing number of industries are considering CHP system an option for electricity generation due to the option of using both natural gas and biomass as a fuel. CHP power plants are equipped with latest technologies that are designed to improve efficiency and adhere to the emission control standards.

Key restraints to combined heat & power market include high CAPEX, operational costs and, recently, the uncertainty of business due to COVID-19 outbreak. CHP installation is highly cost-sensitive due to the high installation cost of the cogeneration system and solutions. The installation cost of a CHP system is twice of conventional system and payback may require several years. This poses a challenge to the suppliers to reduce the installation cost further. The operating cost of a CHP system depends on the type of fuel used, efficiency of the system and the amount of electricity it is able to generate. Thus, the massive lead time and financial investment is expected to be a hurdle to the market.

Uncertainty in business is another factor that prevents firms from investing in cogeneration systems. If a firm is not confident about its long-term operations at a particular facility, it may not install a cogeneration system. The economic viability of a CHP power plant depends on the demand for heat and electricity, and based on these factors, the size of the plant can be determined. If the size of the plant is not correctly determined, the heat may not be effectively utilized and thus the CHP system may not be economically viable.

Natural Gas-fuelled CHP to Lead the Combined Heat & Power Market

Currently, natural gas segment dominates the global combined heat & power (CHP) market. In term of fuel type, the natural gas segment constituted more than 45% share in 2020. Most of the residential and commercial combined heat & power applications presently use natural gas as a fuel due to its low price and lower environmental impact as compared to coal. Furthermore, usage of natural gas is on the rise due to its easy availability. On contrary to coal-fuelled plants, natural gas-based plants are available for longer durations and require lower investments, provide greater flexibility and it is easier to increase the generation capacity of such plants.

Countries such as the U.S., China and Russia are dominant users of combined heat & power and prefer natural gas-fuelled combined heat & power systems. Year-on-year increase in combined heat & power installation in these countries, is likely to enhance the demand for natural gas-fuelled combined heat & power market in the near future. High efficiency, affordable cost and low emissions are the key drivers for the growth in deployment of natural gas fuelled combined heat & power.

Europe to Lead Combined Heat & Power Market While Asia Pacific to Witness Higher Growth Rate

In terms of installed combined heat & power capacity, Europe dominates the global combined heat & power market. The European region constituted 39% share of the global combined heat & power market in 2020. However, the combined heat & power market in Asia Pacific is anticipated to expand significantly during the forecast period. Increase in industrial activities and government initiatives for infrastructural development are estimated to drive the market during the forecast period. Government in Denmark and Germany offer tax incentives and subsidies to companies and organizations using cogeneration equipment.

Cold weather conditions in Finland and the U.K. are expected to fuel the demand for cogeneration equipment, as it can be used for both electrical and thermal applications. In August 2020, the Romanian-Kazakh Energy Investment Fund signed a US$148 million engineering, procurement and construction contract with Turkey's Calik Enerji for the construction of a cogeneration plant. The new plant would be commissioned in the first half of 2023.

In North America, the U.S. is expected to be the most attractive nation for CHP installations. In the U.S., the current grid is around 30-40 years old. Grid stability is of prime importance. The Government of U.S. is investing heavily into smart grids and micro grids in order to improve the distributed generation. Also, regulators of several states in the U.S. have implemented policies and programs to create a positive atmosphere through different financial incentive schemes to increase the usage of CHP technologies.

Latin America and the Middle East & Africa is expected to register significant growth. Growth in industrial, commercial & residential sectors is one of the key factors boosting the CHP market in these regions. Government of UAE, Saudi Arabia and Brazil provide subsidies to yield better and higher output from combined cycle combined heat & power installation in order to meet the needs of the growing population. Also, the industrial sector in Brazil and Mexico is estimated to continue to expand due to the increase in demand for real estate and infrastructure projects in these countries. This is expected to boost the demand for CHP in Latin America and the Middle East & Africa.

Global Combined Heat & Power (CHP) Market: Competitive Landscape 

The combined heat & power market is characterized by new product developments, with improvements and acquisitions of smaller players in the market by global conglomerates. The combined heat & power market is fragmented. Market leaders benefit from their experience and have developed technical expertise over the years. Major manufacturers in the combined heat & power market include:

• Siemens AG
• Veolia
• 2G Energy AG
• GE
• Cummins Inc.
• Tecogen Inc.
• MAN Energy Solutions SE
• Clarke Energy
• Generac Power Systems, Inc
• Capstone Green Energy Corporation
• Wartsile

The Global Combined Heat & Power (CHP) Market is Segmented as Below:

By Fuel Type Coverage

• Coal
• Natural Gas
• Biomass
• Others

By Technology Coverage

• Steam Turbine
• Combined Cycle
• Gas Turbine
• Reciprocating Engine
• Others

By Geographical Coverage

• North America
• Europe
• Asia Pacific
• Rest of the World