CHEMICAL ENGINEERING TRANSACTIONS  
 

VOL. 61, 2017 

A publication of 

 

The Italian Association 
of Chemical Engineering 
Online at www.aidic.it/cet 

Guest Editors: Petar S Varbanov, Rongxin Su, Hon Loong Lam, Xia Liu, Jiří J Klemeš 
Copyright © 2017, AIDIC Servizi S.r.l. 

ISBN 978-88-95608-51-8; ISSN 2283-9216 

Carbon Emissions Efficiency and Economics of Combined 

Heat and Power in New Zealand 

Martin J. Atkinsa,*, Timothy G. Walmsleyb, Matthias Philippc, Michael R. W. 

Walmsleya, James R. Nealea 

aEnergy Research Centre, School of Engineering, University of Waikato, Private Bag 3105, Hamilton, New Zealand  
bSustainable Process Integration Laboratory – SPIL, NETME Centre, Faculty of Mechanical Engineering, Brno University of 

Technology - VUT Brno, Technická 2896/2, 616 69 Brno, Czech Republic 
cTechnische Hochschule Ingolstadt, Insitute of new Energy Systems, Esplanade 10 85049 Ingolstadt, Germany 

 martin.atkins@waikato.ac.nz 

Combined Heat and Power (CHP) or cogeneration, is a common and often cost effective method to maximise 

the efficiency and utilisation of fossil fuels. Greenhouse Gas (GHG) emissions from the electricity generated 

using CHP is also an important factor to consider, especially within the framework of emissions reduction and 

uptake of renewable generation. This paper will present a detailed analysis of the economics of industrial CHP 

within New Zealand and examine the potential of CHP to contribute to GHG emissions reduction. An emissions 

factor from electricity generation using CHP is defined based on the marginal efficiency of electricity generation. 

The economics of CHP in New Zealand can be favourable under certain conditions although the emissions of 

generation using fossil fuels in all cases was higher than grid purchased electricity, due to high levels of 

renewable generation. A reduction in emissions can occur in countries that have medium to high Grid Emissions 

Factors (GEF) such as the US, UK, Australia, India, and China. Countries with GEF less than around 

0.2 tCO2-eq/MWel would need to utilise biomass to achieve large emissions reductions using CHP. 

1. Introduction 

Decarbonising industrial energy and electricity generation systems and is an important but difficult task of climate 

change mitigation. Combined Heat and Power (CHP) or cogeneration is an important industrial practice to 

maximise the efficiency and utilisation of fossil fuels. As the name suggests both process heat and power are 

generated together resulting in a higher efficiency compared to generating heat and power separately using the 

same fuel. Another benefit often cited is a reduction in Greenhouse Gas (GHG) emissions from the use of CHP 

(Schumm et al., 2016). Although it is well established that fuel efficiency is improved, the change in GHG 

emissions is more difficult to determine and is dependent on the location, type of CHP plant and the source of 

alternate electricity supply (Philipp et al., 2016). 

Several countries and regions, such as the USA (Brown et al., 2013) and the European Union (Directive, 2004), 

have targeted policies aimed at the promotion of CHP in industrial applications for both efficiency improvements, 

primary energy and emissions reduction; however effectiveness of these policies has been questioned (Moya, 

2013). In countries that have a low Grid Emissions Factor (GEF) the expanded use of CHP using fossil fuel can 

potentially increase the overall emissions from electricity by displacing renewable or low carbon generation 

sources (Keen and Apt, 2016). The net benefit for emissions reductions from using CHP is dependent on several 

factors including fuel type, overall grid emissions factor, grid based generation displaced by CHP (if any), and 

efficiency of CHP generation.  

The economics of industrial CHP is largely dependent on two main factors, the site fuel to power cost ratio and 

the capital cost of the CHP system (Comodi and Rossi, 2016). In countries that have a high degree of thermal 

power generation, fossil fuel and electricity costs tend to be coupled (if subsidies are disregarded), whereas in 

countries that have a high degree of renewable electricity generation, electricity costs can be decoupled from 

fuel prices further effecting the economics of CHP. Subsidies or rebates may be available due to aggressive 

                               
 
 

 

 
   

                                                  
DOI: 10.3303/CET1761120

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Please cite this article as: Atkins M.J., Walmsley T.G., Philipp M., Walmsley M.R.W., Neale J.R., 2017, Carbon emissions efficiency and 
economics of combined heat and power in new zealand, Chemical Engineering Transactions, 61, 733-738  DOI:10.3303/CET1761120  

733



policy instruments, which may assist the economics, although these may be dependent on the type and 

performance of the system (Directive, 2004). 

The aim of this paper is to determine the emissions reduction potential for New Zealand compared to Germany, 

United Kingdom, France, Finland and Australia, as well as the economics for industrial CHP in New Zealand. 

CHP technology will be limited to the use of back pressure and condensing steam turbines and gas turbines 

with heat recovery steam generators (HRSG). Net emissions from CHP electricity generation will be compared 

to grid based generation in other developed and developing nations to demonstrate under what conditions CHP 

using fossil fuels increases or decreases carbon emissions. An example case study is presented. 

1.1 Electricity Generation and CHP in New Zealand  
Electricity in New Zealand is mostly generated using renewable sources (Walmsley et al., 2014), and the 

national target is to achieve 90 % or more renewables by 2025. In 2016, 84 % of generation came from 

renewable sources (hydro 60 %, geothermal 18 %, wind 5 %) and 16 % from fossil fuels (gas 13 %, coal 3 %). 

These levels are predicted to increase over the coming years to over 90 % as the remaining coal generation is 

retired and additional geothermal and wind are constructed. New Zealand has an extremely liberal electricity 

market with no subsidies or incentives for using renewables. The lowest Long Run Marginal Cost (LRMC) of 

new generation is for geothermal and wind being between NZ$80 and NZ$100/MWhel (MBIE, 2016). In 2015 

the average industrial power price for large users was approximately NZ$80/MWhel. Indicative fuel cost in New 

Zealand are given in Table 1. 

There is approximately 562 MWel of installed CHP plant. The applications include (from largest installed 

capacity) from steel, dairy processing, pulp & paper, wood processing, hospitals, and other sectors. A wide 

range of energy sources are used including gas, coal, wood, geothermal, waste heat and biogas. There has 

been very little growth in CHP plants over the past 20 y, neither have there been dedicated policies to promote 

or incentivise CHP in New Zealand. GHG emissions are priced under the Emissions Trading Scheme (ETS), a 

market based mechanism. Under the scheme, emitters are required to surrender units purchased on the market 

to cover their emissions liability resulting from fuel combustion and the like. As of March 2017 the current trading 

price was around NZ$18/t of CO2 equivalent.  

2. CHP Efficiency, Emissions Reduction, and Marginal Efficiency of Generation 

CHP efficiency (ηCHP) is defined as the sum of work or power (WCHP) and heat produced (QCHP) using CHP over 

the total fuel consumption (Qf,CHP) as in Eq(1a). It is common to define an electrical efficiency (ηel) and thermal 

efficiency (ηth) of CHP as in Eq(1b) and Eq(1c). 

𝜂𝐶𝐻𝑃 =
𝑊𝐶𝐻𝑃 + 𝑄𝐶𝐻𝑃

𝑄𝑓,𝐶𝐻𝑃
= 𝜂𝑒𝑙 + 𝜂𝑡ℎ (1a) 

𝜂𝑒𝑙=
𝑊𝐶𝐻𝑃

𝑄𝑓,𝐶𝐻𝑃
 (1b) 

𝜂𝑡ℎ=
𝑄𝐶𝐻𝑃

𝑄𝑓,𝐶𝐻𝑃
 (1c) 

A marginal efficiency of electricity generation (ηel,marginal) can be defined as the amount of power generated over 

the additional fuel required for electricity generation (ΔQf) as in Eq(2). ΔQf is defined in Eq(3) as the difference 

between the total fuel used in CHP mode compared to the fuel used in the reference case (Qf,ref). The fuel use 

for the base case here is defined as the fuel to provide only the thermal requirement only using a boiler operating 

at the typical efficiency for that boiler and fuel type.  

𝜂𝑒𝑙,𝑚𝑎𝑟𝑔𝑖𝑛𝑎𝑙 =
∆𝑊𝐶𝐻𝑃
Δ𝑄𝑓

 (2) 

Δ𝑄𝑓 = 𝑄𝑓,𝐶𝐻𝑃 − 𝑄𝑓,𝑟𝑒𝑓 (3) 

The emissions from the electricity generation from CHP (εel,CHP) can then be calculated using the fuel emissions 

factor (εf) by the marginal efficiency of electricity generation as in Eq(4). Fuel emissions factors for several typical 

fuels are given in Table 1. 

𝜀𝑒𝑙,𝐶𝐻𝑃 = [
𝜀𝑓

𝜂𝑒𝑙,𝑚𝑎𝑟𝑔𝑖𝑛𝑎𝑙
] (4) 

734



Table 1: GHG emissions factors indicative fuel costs for New Zealand. 

Fuel  Fuel Emissions Factor  

(εf) [tCO2-eq/GJf] 

Fuel Cost Rangea 

[NZ$/GJf] 

Biomass – Forest Residues (BM) 0.0020 7.00 – 15.00 

Natural Gas (NG) 0.0531 7.00 – 16.00 

Coal – Lignite (CL) 0.1000 3.50 – 8.00 

Coal – Sub-bituminous (CSB)  0.0953 7.50 – 12.00 
 a includes any transport and distribution costs 

 

The Grid Emissions Factor (GEF) (εGEF) is defined as the average GHG emissions from the transmission grid 

based on a fixed geographic region (usually a country or region) and dependant on the generation mix. There 

will be a net reduction in GHG emissions if εel,CHP is less than the GEF and vice versa. The GEF for several 

countries is shown in Table 2. 

Table 2: Grid Emissions Factors for a range of countries for 2013. 

Country  Grid Emissions Factor  

(εGEf) [tCO2-eq/MWhel] 

Country 

 

Grid Emissions Factor  

(εGEf) [tCO2-eq/MWhel] 

New Zealand (NZ) 0.155 China (CN) 0.807 

Australia (AU) 0.798 India (IN) 0.792 

France (FR) 0.076 Japan (JP) 0.572 

Germany (GE) 0.546 Malaysia (MY) 0.693 

United Kingdom (UK) 0.476 Canada (CA) 0.161 

Finland (FI) 0.311 United States (US) 0.497 

 

A common measure used to express the effectiveness of CHP is the Primary Energy Savings (PES), as in Eq(5) 

where ηel,ref and ηth,ref is the electrical and thermal efficiency of separate stand-alone plants. PES quantifies the 

reduction in primary energy for producing heat and power using CHP compared to separate plants (Badami et 

al., 2014). The core assumption of the PES is that CHP generation displaces existing or new thermal generation. 

In countries with high levels of renewable or nuclear generation this may not be the case, and CHP may displace 

low emission sources. In countries such as New Zealand, CHP would displace new renewables generation and 

so the PES is not a good measure of effectiveness. To measure the GHG emissions reduction a percentage 

reduction per unit of power generated (β) using CHP can also be calculated using Eq(6). 

𝑃𝐸𝑆 = 1 −
1

𝜂𝑒𝑙
𝜂𝑒𝑙,𝑟𝑒𝑓

+
𝜂𝑡ℎ

𝜂𝑡ℎ,𝑟𝑒𝑓

 
(5) 

𝛽 = [
𝜀𝐺𝐸𝐹 − 𝜀𝑒𝑙,𝐶𝐻𝑃

𝜀𝐺𝐸𝐹
] (6) 

The εel,CHP for a range of fuels as a function of ηel,marginal is shown in Figure 1a. For fossil fuels εel,CHP is highly 

dependent on ηel,marginal, however biomass was less effected due to the very low emissions factor. The 

percentage reduction in emissions as a function of GEF is shown in Figure 1b for two different marginal 

efficiencies. For some countries, such as New Zealand, Canada, and France, fossil fuels always increase 

emissions and biomass based CHP is the only viable option for emissions reductions via CHP. For countries 

with medium GEF, such as Germany, UK, US, Finland, and Japan reductions can be achieved if high ηel,marginal 

are achieved using natural gas. This would exclude the use of gas turbines with HRSG due to the relatively low 

ηel,marginal (<35 %). In countries with high GEF, such as China, Australia, and India, both coal and natural gas 

CHP yield significant reductions. 

3. Economics of CHP 

A measure that is often used as an indicator of the economic performance of CHP systems is the Cost Saving 

Ratio (CSR) (Comodi and Rossi, 2016), as defined in Eq(7), where Cbase is the energy cost of the base case 

with no CHP and CCHP is the energy cost of CHP. One of the deficiencies of the measure is it fails to include 

capital and operational cost of the additional equipment over the base case (e.g. turbine, generator etc.). A 

better measure is to calculate a discounted levelised cost in real terms (Heck et al., 2016) of power generation 

and compare that to the cost of power purchased from the national grid. As a first order comparison the average 

power price can be used, although for markets with dynamic pricing a more detailed analysis would be needed. 

735



 

Figure 1: Emissions factor for CHP power generation (a) and percentage emissions reduction per unit of power 

generated using CHP (b). 

𝐶𝑆𝑅 = [
𝐶𝑏𝑎𝑠𝑒 − 𝐶𝐶𝐻𝑃

𝐶𝑏𝑎𝑠𝑒
] (7) 

The capital cost function of a back pressure steam turbine (CCST) and gas turbine (CCGT), including generator, 

installation and balance of plant, is given in Eq(8) and Eq(9). 

𝐶𝐶𝑆𝑇 = 1077𝑊𝐶𝐻𝑃 (8) 

𝐶𝐶𝐺𝑇 = 2500𝑊𝐶𝐻𝑃
−0.273 (9) 

Based on local experience, non-fuel operation and maintenance (O&M) costs were assumed to be 

NZ$7.50/MWhel and NZ$10/MWhel for the steam turbine and gas turbine. A levelised cost of generation was 

calculated, including depreciation of capital equipment under NZ’s tax regime. The straight-line depreciation 

rate used is 7 %/y and the corporate tax rate 28 %. A discount rate of 5 % is used and a 5 % per year cost 

escalation for both fuel, carbon and O&M are assumed. 

The levelised cost of CHP generation is shown in Figure 2. For steam turbines (Figure 2a) the levelised cost is 

lower than the average industrial price for a range of fuel prices and marginal efficiencies. It should be noted 

that the difference in cost between the different fuels is exclusively due to the difference carbon costs. The use 

of a gas turbine for CHP in NZ (Figure 2b) is uneconomic due to the high capital cost (compared to a steam 

turbine), O&M costs and inherent low ηel,marginal.  

4. Example CHP System  

An example of a typical CHP system is shown in Figure 3, illustrating a two-stage back pressure steam turbine 

reducing process steam from the High-Pressure header (40 barg) to a Low Pressure (10 barg) header. The 

system has been modelled in PetroSim 6.1. Condensate return and the deaerator is also shown. The option for 

pressure reduction values instead of the steam turbine is also shown, using feedwater as the desuperheater 

water. The performance parameters of the system is shown in Table 3. The total fuel used increased in CHP 

mode but the total cost of fuel, power and carbon is considered decreased by NZ$1.3M (8.6 %) due to the lower 

electricity cost. The total emissions for electricity increased when using natural gas (β=-59 %) and lignite 

(β=-197 %), but reduced for biomass (β=94 %).  

30% 40% 50% 60% 70% 80% 90% 100%

Marginal Efficiency of Electricity Generation (el,marginal)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4
E

m
is

s
io

n
s
 F

a
c
to

r,
 

e
l,
C

H
P
 [

t C
O

2
-e

q
/M

W
h

e
l]

 Coal (Lignite)

 Coal (Sub-Bitu.)

 Natural Gas

 Biomass

a

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

Grid Emissions Factor, GEF [tCO2-eq/MWhel]

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

P
e

rc
e

n
ta

g
e

 E
m

is
s
io

n
s
 R

e
d

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c
ti
o

n
, 


el,marginal

 70%

 80%

Biom ass
Natural Gas

Coal (Lignite)

b NZ FI DE AU

736



 

Figure 2: Levelised cost of power generation using back pressure steam turbines (a) and gas turbine (b) at 

different efficiency of electricity generation. A carbon price of NZ$18/tCO2-eq is included.  

 

Figure 3: A typical example of a multi stage back pressure steam in use for CHP. 

 

$6 $8 $10 $12 $14 $16 $18 $20

Fuel Cost, Cf [NZ$/GJf]

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

$220
L

e
v
e

li
s
e

d
 C

o
s
t 

o
f 

C
H

P
 G

e
n

e
ra

ti
o

n
, 

C
e
l,
C

H
P
 [

N
Z

$
/M

W
h

e
l]  Natural Gas

 Coal (Lignite)

 Biomass
el, marginal

40%

70%

80%

60%

50%

NZ Industrial Ave.

a

$6 $8 $10 $12 $14 $16 $18 $20

Fuel Cost, Cf [NZ$/GJf]

$50

$100

$150

$200

$250

$300

$350

L
e

v
e

li
s
e

d
 C

o
s
t 

o
f 

C
H

P
 G

e
n

e
ra

ti
o

n
, 

C
e
l,
C

H
P
 [

N
Z

$
/M

W
h

e
l]

 Natural Gas el, marginal

20%

35%

30%

NZ Industrial Ave.

b

Hdr-100

Pressure

Temperature

40.00

260.0

bar_g

C

Hdr-101

Pressure

Temperature

10.00

184.2

bar_g

C

STG-100

Total Power Gen. 5238 kW

Fuel

Heat Flow 83.966 MW

Hdr-100

Cnd-1

Loss-1

Vnt-1

Hdr-101

Cnd-2

Loss-2

Vnt-2

Boiler

Stm-1

BlDwn-1

BFW-1

STG-100

1

2

PowerCHP

Fuel

DSP-100

4

5

Desup

Use-100

6

Cnd-3

Loss-3

Use-101

7

Loss-4

Cnd-4

MIX-100

Deaer-100

Vnt-3

3

Make_up

BFW-2

Stm-2

P-100

8

RCY-1

R

737



Table 3: Performance Parameters of Case Study. 

Parameter Base Case CHP 

Qf,CHP [MW] 77.27  83.97  

WCHP [MWel] - 5.24 

QCHP [MWth] 64.89  64.89 

ηel, ηth -, 84 % 6.2 %, 77.3 % 

ηCHP - 83.5 % 

ηel,marginal - 78.3 % 

εel,CHP  [tCO2-eq/MWhel] - 0.247 (NG), 0.460 (CL), 0.009 (BM) 

Electricity Cost [NZ$/MWhel] 80.00 51.66a 

Annual Fuel + Power + Carbon Cost [NZ$/y]b 15.79M 14.43 M  

Electricity Emissions [tCO2-eq/y] 4872 (Grid) 7,764 (NG), 14,460 (CL), 283 (BM) 

 a levelised cost per MWhel, NG at $7/GJ, carbon emissions price at $18/tCO2-eq 

 
b

 based on 6,000 h/y, NG at $7/GJ, carbon emissions price at $18/tCO2-eq, excludes capital cost 

5. Conclusions 

Although in many cases there is a sensible economic rationale to utilise CHP in NZ (based on levelised cost of 

generation), the emissions factor for fossil fuels is greater than the grid emissions factor. Aany use of CHP 

involving fossil fuels will actually increase emissions. Based on NZ’s future demand and generation scenarios 

further fossil fuel CHP would not displace thermal/fossil fuel generation and only displace low-emissions 

renewable generation. For other countries with higher grid emissions factors the fuel type and marginal 

efficiency of generation need to be known to determine the emissions reduction potential of CHP.  

Acknowledgements 

This research has been supported by the project “Catalyzing Investment in New Zealand Wood-Energy 

Industrial Symbiosis Opportunities” funded by the New Zealand Ministry of Business, Innovation, and 

Employment, and the EU project “Sustainable Process Integration Laboratory – SPIL”, project No. 

CZ.02.1.01/0.0/0.0/15_003/0000456 funded by EU “CZ Operational Programme Research, Development and 

Education”, Priority 1: Strengthening capacity for quality research. 

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