Process, Controls & Plant Focus on: CHP 24 | Plant & Works Engineering www.pwemag.co.uk June/July 2025 PWE takes a look at how Combined Heat and Power (CHP) systems fit within the UK’s decarbonisation goals, exploring the changing policy landscape, regulatory challenges, and the decisions manufacturers face when aligning their CHP investments with climate commitments. CHP and the Net Zero challenge for manufacturing For many years, Combined Heat and Power (CHP) has been a go-to solution for improving on-site energy efficiency and reducing operating costs. But as climate legislation tightens and scrutiny of direct emissions increases, the question facing manufacturers is no longer whether CHP is efficient — but whether it is futureproof. Traditionally powered by natural gas, CHP systems have helped hundreds of UK manufacturing sites reduce electricity costs and make better use of waste heat. In sectors such as food processing, chemicals and paper, the simultaneous generation of heat and power has offered a natural fit. Yet the core fuel on which most CHP systems depend now poses a growing problem. As the UK government sharpens its focus on Scope 1 emissions and presses forward with net zero targets, gas-fired CHP risks being seen less as an efficiency measure and more as a carbon liability. This shift in perception is mirrored in the policy environment. While CHP was once firmly supported by favourable tax treatments and incentives, that landscape is changing. Programmes such as the Enhanced Capital Allowance scheme have ended, and while CHP still qualifies under some Climate Change Agreements and the Capacity Market, the tone of support has become more conditional. The government’s increasing preference for electrification of heat, combined with long-term plans to phase out unabated fossil fuel use, puts new pressure on manufacturers planning energy investments that will span decades. For those in the process of considering or renewing CHP installations, this presents a dilemma. On the one hand, gas CHP still offers immediate and significant efficiency gains over grid-supplied electricity and separate boilers. On the other, long-term reliance on a fossil fuel system may not sit comfortably with company ESG goals or stakeholder expectations. The fear of investing in a stranded asset is real — particularly for energy-intensive users who might face future exposure to the UK Emissions Trading Scheme (UK ETS) or other carbon pricing mechanisms. No one-size-fits-all answer There is no one-size-fits-all answer, but there are emerging pathways that can bring CHP into alignment with decarbonisation. One of the most promising is fuel switching. While the current gas grid is dominated by methane from fossil sources, plans are underway to increase the share of low-carbon gases such as biomethane and hydrogen. CHP engines capable of operating on biomethane already exist and are in operation on some UK sites. For forward-thinking manufacturers, specifying CHP units that are ‘hydrogen-ready’ or capable of mixed fuel use can offer a route to decarbonisation without writing off current investment. Of course, the availability of low-carbon fuels is not universal, and many of the necessary supply chains are still emerging. That makes local context critically important. Regional industrial clusters and hydrogen hubs are becoming key players in enabling the transition. Where such infrastructure is developing — for example, in the Humber or Teesside — manufacturers may find it viable to invest in CHP today with a clear upgrade path to cleaner fuels. Elsewhere, partnerships with energy service companies or local authorities may be needed to close the gap. Another area of focus is emissions accounting. CHP can lead to reductions in overall energy use and lower grid dependency, but because it generates energy on site, the carbon emissions associated with combustion fall under Scope 1. This creates challenges for companies trying to reduce their direct emissions, especially where decarbonisation targets are linked to supply chain standards or regulatory compliance. That has led to growing interest in integrating CHP within broader decarbonisation strategies — for instance, pairing it with carbon capture systems, or operating it in tandem with renewable energy sources to reduce net emissions. Manufacturers are also beginning to explore the role of hybrid systems. A gas-fired CHP unit used for baseload thermal demand might be combined with electric heat pumps for variable loads, allowing the system to flex depending on carbon intensity and tariff signals. In this way, CHP becomes part of a transitional energy strategy — maintaining operational resilience while decarbonising over time. What remains clear is that policy clarity will be critical. Industry stakeholders continue to call for stronger signals from government around the long-term role of CHP in a low-carbon energy system. Questions remain about the timeline for decarbonising the gas grid, the structure of future carbon taxes, and the availability of support for retrofitting or transitioning legacy systems. Without clearer guidance, many manufacturers are left in a holding pattern, wary of investing in either traditional CHP or newer alternatives that remain commercially unproven. In the meantime, the most robust approach for manufacturers is to take a long-term, sitespecific view. That means engaging early with energy advisors, technology providers and local stakeholders to understand what fuel options may be available, how policy changes could affect financial modelling, and whether systems can be designed for future adaptability. It also means aligning energy planning with broader corporate sustainability goals, ensuring that CHP investment supports — rather than complicates — the net zero narrative. CHP has not outlived its usefulness, but the way it is viewed must change. Efficiency alone is no longer enough; compatibility with decarbonisation targets is now essential. As the UK manufacturing sector works to balance cost, carbon and compliance, CHP can still play a valuable role — provided it evolves in step with the policies and pressures shaping our energy future.
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