Combined heat and power, economies of scale and option appraisal

The basis for deciding upon the size of CHP system to install may be baseload electricity demand, baseload heat demand or the economic optimum size. The existence of economies of scale for CHP units is considered over the full range of outputs encountered in commercial and industrial situations. Capital costs per kWe of output are minimized at about 1 MWe. Maintenance costs may also form a minimum depending upon the maintenance package agreed. An alternative decision-making approach (option appraisal) that incorporates costs and benefits that may not have direct monetary value is described. In the application studied by the authors, the optimum choice using option appraisal was found to be the best solution for four of the six desiderata considered, but was not the largest CHP unit nor the lowest capital cost per output option.