Pros and cons of selling surplus electricity from cogeneration to the grid

Combined heat and power (CHP), or cogeneration, is a high efficiency on-site generation process that produces power and heat/cooling simultaneously to achieve lower energy bills.  

Cost savings from CHP can be further improved by energy optimisation. Any electricity that’s not required on-site can be exported to the grid. By using self-generated power flexibly, you can take advantage of pricing peaks and troughs on the electricity grid and earn revenue from power network balancing markets.  

We answer your questions about selling surplus energy back to the grid to take advantage of power flexibility opportunities. We also examine the benefits and what needs to be considered before making the decision to export and optimise your energy.

What are the benefits of CHP?

Typically, CHP plants achieve an efficiency rating in excess of 80%, which is much more efficient  than centralised, unabated electricity power generation, where waste heat is released to the atmosphere and further energy losses occur when  distributing power over long distances to the end user. Cogeneration produces electricity locally at the point of use and the waste heat that's created as a by-product of power generation is captured and recycled to provide 'free' heating/cooling.

Due to its exceptional efficiency and flexibility,  CHP can cut site energy costs by as much as 40% –to deliver a return on investment within 2-3 years. CHP works best when meeting a constant demand and owing to fluctuations in electricity consumption through the day, systems are usually sized to meet the base level heating needs of the site, with any top up power supplied from the grid. When electricity demand is low, rather than letting this surplus energy go to waste, it can be exported to the grid to open up an additional revenue stream.

The rapid replacement of traditional power stations with intermittent renewable power is increasing volatility of electricity grids. Network operators are addressing these operational challenges and power resilience issues by incentivising flexibility via Demand Side Response (DSR), thus, opening up fast growing demand for energy optimisation.  

What opportunities exist to monetise surplus energy?

Organisations can take advantage of opportunities to use self-generated CHP power when network electricity prices are highest and where the financial rewards for exporting electricity are also greatest.

This may mean shifting loads to avoid consuming power from the grid at the most expensive peak-time power periods, especially during Triads. At these peak times, organisations can instead maximise their financial returns from using their electricity flexibly via demand side optimisation.

There are two key energy optimisation opportunities are for businesses to utilise either in conjunction with, or even independent of having a CHP. Both can further reduce your energy costs as well as generate a steady stream of revenue for your organisation.

Demand Side Management (DSM)

Using energy insights technology to help identify, plan and act on demand curtailment opportunities; Demand Side Management (DSM) puts you in control of your energy spend. In this way, you can unlock extra value from your CHP engine to reduce costs by avoiding peak prices and limiting non-commodity supply charges.

Demand Side Response (DSR)

CHP plants are widely used to help keep the power network safely balanced and to support a smarter grid. DSR enables businesses to tap into their spare CHP power capacity to access financial incentives and create a guaranteed revenue stream.  This works by either reducing, shifting, or sometimes increasing overall energy consumption to align with network requirements.

By using digital technology to monitor and manage energy usage in real time and automate the DSR process, you can leverage attractive financial opportunities from your CHP unit. This can be managed within strict boundaries to securely monetise flexibility, without disrupting operations or compromising power resilience on site.

DSR partners, such as Centrica Business Solutions, can manage and automate flexibility to earn a guaranteed revenue return – using secure software connections that are ISO270001 compliant.

What are the benefits and risks of Demand Side Response (DSR)?

Are there other benefits?

As well as any revenue received from selling electricity, 'good quality' CHP qualifies for government incentives, including Climate Change Levy (CCL) exemptions on the gas used for power generation and CHP-generated power used on-site. Additional benefits include preferential business rates and taxation benefits under the Annual Investment Allowance.  

By participating in DSR, you are also supporting the growth of renewables by balancing the grid. DSR allows sustainable energy sources to grow by balancing them with traditional resources so that there is always adequate energy available.

Centrica Business Solutions can support customers in managing the CHPQA compliance process.

Are there any risks?

The impact of changes to energy prices needs some analysis when considering the sale of surplus power to  the grid. Prices paid for exports vary, so it is important to optimise energy flexibility to maximise returns. Currently, the 'spark spread' advantage of using natural gas as an input fuel to generate power is very advantageous as wholesale gas costs are much lower than network electricity costs and that has been the case for many years.  However, if if gas prices rise dramatically in future, revenues from exporting electricity could narrow.

The impact of the withdrawal of government incentives at some future point should also be considered. For marginal cases, loss of these benefits could undermine the economic argument for installing CHP, but high efficiency cogeneration systems should be viable.

It is possible that the surplus electricity available is insufficient to justify the expense and effort required to arrange for exporting. It is also possible that site power demand may increase in the future, therefore consuming any surplus electricity and making the export connection obsolete. Costs may be incurred for supporting infrastructure, such as additional equipment and for the maintenance of export hardware. These factors should be carefully considered in relation to the site demand profile and any planned growth before committing.

Installing the equipment required for exporting electricity can cause disruption, but with detailed planning, the impact can be minimised. Any short term disruption should be weighed against the longer-term benefits.

Takeaways

• CHP is an efficient, low-carbon technology that can reduce energy costs.
• Surplus electricity can be exported, creating an additional revenue stream.
• Installation will involve some disruption, but the benefits can be significant.
• The impact of future growth should be considered.
• Risks must be evaluated when determining economic viability.
• CHP can qualify for government incentives, such as CCL exemption.