Cost-Competitive CO2 Mitigation with Combined Heat and Power Systems in Calgary

Cost-Competitive CO2 Mitigation with Combined Heat and Power Systems in Calgary

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Cost-Competitive CO2 Mitigation with Combined Heat and Power Systems in Calgary

Nicolas Choquette-Levy, University of Calgary, (403) 220-8872,

Rahul Nakhasi, University of Calgary, (403) 220-8872,

Geoff Holmes, University of Calgary, (403) 220-8872,

Marc Beaudin, University of Calgary, (403) 220-8872,


Combined Heat and Power (CHP) systems are a potentially attractive alternative to centralized electricity generation and on-site heat production, offering benefits e.g. high operating reliability, reduced overall CO2-intensity of the produced electricity and heat, and differed electricity transmission and distribution infrastructure costs. Precedent has shown that if sited properly, CHP systems can offer cost-competitive means to reduce the emissions of greenhouse gases (GHG) associated with energy production, but that certain social and institutional barriers must be overcome for their successful deployment.

This paper presents a triple-bottom line analysis – i.e. the economic, environmental, and social impacts – of the use of CHP systems in the City of Calgary. We begin with a quantitative analysis of the costs and CO2 reductions associated with the use of a 10 MW natural gas-fired CHP system, relative to three future grid electricity scenarios over a 30-year time period. We construct a spreadsheet model to calculate the abatement cost of a CHP system using key variables e.g. residential density, natural gas price, and capital expenses. Sensitivity analyses were conducted on these variables to determine scenarios in which CHP would be cost-effective.


Scenario analysis incorporating a spreadsheet model. Sensitivity analyses are conducted on key input parameters.


We find that CHP systems are cost-competitive means to reduce CO2 emissions under certain settings. Specifically, a 10 MW CHP system in either an existing commercial area or a new residential development could abate as much as 800,000 tonnes CO2 over a 30-year lifespan, relative to a “probable” grid mix scenario where natural gas becomes the prominent source of electricity generation. However, CHP system competitiveness depends strongly on where the system is located, due to the high cost of retro-fitting existing developed areas with heat-piping infrastructure. Areas that minimize the need for this kind of retro-fitting are therefore more cost-competitive. These areas include commercial and industrial zones where heat demand is concentrated, and future planned residential developments, where CHP system infrastructure can be pre-installed with other required infrastructure. In existing developed areas, we find the abatement cost to be on the order of $280/tonne CO2, whereas in a greenfield project, the abatement cost is around -$30/tonne CO2 (i.e. there is a net savings of $30 per tonne of CO2 abated with a CHP system).

We review the literature on CHP systems to identify barriers to their implementation. Social barriers to CHP implementation include public perceptions about environmental issues, such as noise and pollution levels. As well, inconsistencies in how CHP is treated under electricity regulatory regimes can prevent municipalities from implementing CHP systems.


The potential of different policies to incent the implementation of CHP is assessed. Regulations, e.g. mandating that all future planned residential developments include a CHP system, hold the most promise for immediate adoption of CHP in the City of Calgary. Subsidy-based and tax-based policies hold promise for increased CHP adoption, but come with greater economic, political, and administrative costs.

Based on our study, the City of Calgary may reduce its GHG emissions associated with Calgary’s growth in the next 30 years by implementing CHP systems. Also, the City of Calgary can benefit by developing policies to encourage the competition of CHP systems with other energy generation choices.


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Sundberg, G. and D. Henning (2002). Investments in combined heat and power plants: Influence of fuel price on cost minimised operation. Energy Conversion and Management, Vol. 43, pp. 639-650.