Considering investment resources when assessing potential CO2 reductions of CHP – a case study

Abstract

Combined heat and power (CHP) can increase electricity production efficiency and decrease global CO2 emissions. Studies have shown large unrealised economic CHP investment potentials. An assessment of profitable CO2 reduction based solely on net present value (NPV) implicitly assumes unlimited investment resources. This study analysed the impact of the assumption of unlimited/limited investment resources on the assessment of profitable reduction potential of global CO2 emissions due to CHP investment. The correlation between changes in direct and global fossil CO2 emissions was also analysed. This was done by evaluating alternative CHP and heat-only boiler investments in a district heating system. When investment resources were unlimited, NPV was used to determine whether an investment was profitable and to rank the profitability of the investment. When investment resources were limited, equivalent annual annuity ratio (EAAR) was used to rank the investment's profitability and determine whether its level of profitability was acceptable.The results showed that the profitability ranking of an investment can change depending on whether investment resources are considered unlimited or limited. Moreover, an investment with positive NPV may be regarded as insufficiently profitable when investment resources are limited. This could have an important impact on profitable CO2 reduction potential. Furthermore, when CHP investments are considered, local views on CO2 emissions may be counterproductive for global CO2 emission reductions.