March 31, 2014 | By Barbara Vergetis Lundin

As electricity prices continue to rise, an increasing number of industries are considering combined heat and power (CHP) as an alternative for power generation, due to the option of using both natural gas and biomass as fuel.

In fact, Europe's CHP installed capacity will increase from an estimated 202 GW in 2014 to 245 GW by 2020, according to research and consulting firm GlobalData, driven by growing electricity demand and increasing environmental awareness.

"With its strict emission and carbon savings targets, coupled with its focus on decentralized energy, Europe is comfortably the biggest market for CHP installations. Russia alone boasts a huge CHP installed capacity and depends on this technology to meet a large share of its heat requirements," said Sowmyavadhana Srinivasan, GlobalData's senior power analyst. "The waste heat collected in CHP plants can also be used for district heating, which will lead to significant long-term cost savings."

CHP is installed in every U.S. state, primarily in areas with high concentrations of industrial and commercial activity, high electricity prices, and favorable CHP policies. By 2020, an additional 50 GW of capacity could be deployed at an annual savings of $77 billion, according to a 2009 study by McKinsey and Company.

CHP reduces the risk of electric grid disruptions and enhances reliability for mission-critical facilities like hospitals, and industrial facilities and research institutions outages can be disruptive and costly. Among its other benefits, CHP consumes essentially zero water resources in generating electricity (a typical coal-fired power plant consumes 0.2 to 0.6 gallons of water per kWh, according to EPRI) and reduces emissions of GHGs and other air pollutants by as much as 40 percent or more. Further, CHP offers a low-cost approach to adding new electricity generation capacity, and defers the need for investments in new central generating plants and new transmission and distribution infrastructure.

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