The production of electricity from coal, oil, gas, and biomass is an inefficient process. While some modern combustion plants can achieve 60% energy con- version efficiency, most operate closer to 30%, and smaller or older units may reach only 20%. The United States, which has a typical developed-world mix of fossil fuel–based combustion plants, achieves an average power plant efficiency of 33%, a level that has barely shifted for the past 30 years. Other countries would probably struggle to reach even this level of efficiency.

Put another way, between 40% and more than 80% of all the energy released during combustion in power plants is wasted. The wasted energy emerges as heat that is dumped in one way or another. Sometimes it ends up in cooling water that has passed through a power plant and then returned to a river or the sea, but most often it is dissipated into the atmosphere through some form of air–heat exchanger. This heat can be considered a form of pollution.

Efficiency improvements can clearly curtail a part of this loss. But even with the most efficient energy conversion system, some loss of energy is inevitable. Neither thermodynamic nor electrochemical energy conversion processes can operate even theoretically anywhere near 100% efficiency and practical conversion efficiencies are always below the theoretical limit. So while technological advances may improve conversion efficiencies, a considerable amount of energy will always be wasted.

While this energy cannot be utilized to generate electricity, it can still be employed. Low-grade heat can be used to produce hot water or for space heating,1 while higher-grade heat will generate steam that can be exploited by some industrial processes. In this way the waste heat from power generation can replace heat or steam produced from a high-value energy source such as gas, oil, or even electricity. This represents a significant improvement in overall energy efficiency.

Systems that utilize waste heat in this way are called combined heat and power (CHP) systems (the term cogeneration is often used too). Such systems can operate with an energy efficiency of up to 90% when heat usage is taken into account. This represents a major savings in fuel cost and in overall environmental degradation. Yet, while the benefits are widely recognized, the implementation of CHP remains low.

Part of the problem lies in the historical and widespread preference for large central power stations to generate electricity. Large plants are efficient and they are normally built close to the main transmission system so that power can be delivered into the network easily. They may also be sited close to a source of fuel. This will often mean that they are far from consumers that can make use of their waste heat.

If central power plants are built in or near cities and towns then they can supply heat as well as power by using their waste heat in district heating sys- tems. Municipal utilities in some European and U.S. cities have in the past built power plants within cities they serve to exploit this market for heat and power, but it is not an approach that has been widely adopted and environmental considerations makes building large power plants in cities more difficult today. There are also many examples of power plants being built close to industrial centers such that they can provide high-grade steam for industrial use. In the main, however, large fossil fuel power plants simply waste a large part of the energy they release from the fuel.

At a smaller scale, the situation is slightly better. At the distributed generation level, in particular, where power is generated either for private use or to feed into the distribution level of a power supply network, it is much easier to find local sources of heat demand that can be met at the same time as power is generated. This means that there are greater opportunities to achieve higher energy efficiency.

In an energy-constrained and environmentally stressed world energy efficiency represents one of the best ways of cutting energy use and reducing atmospheric emissions. The German government has estimated that 50% of its electricity could be supplied through CHP systems. There are economic advantages too that make greater use of CHP an extremely attractive proposition. In spite of these arguments, growth in the use of CHP has been painfully slow and it remains a major challenge for the electricity industry to achieve higher energy efficiency through the use of CHP.

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