Flexibly applicable

In the current phase of the energy transition, the question arises of how to reconcile energy security with economic viability. Combined heat and power (CHP) offers a solution to this challenge. It is characterized by flexible applications and efficiency.

The energy transition is currently entering a new phase of development. The long-term goal of climate neutrality remains firmly in place and is also enshrined in law. However, as the expansion of renewable energies progresses, questions regarding implementation are increasingly coming to the forefront. This is because with every additional gigawatt of wind and solar capacity, the demands for flexibility, reliability, and system integration rise. At the same time, affordability and the competitiveness of the industrial location are at the center of political attention.

The question now is how the transition process can be structured in such a way that energy security is maintained and the economic burden remains manageable. Against this backdrop, an integrated assessment of system costs is crucial—and this is where combined heat and power (CHP) plays a central role.

Decentral structure

The economic assessment of the energy transition is often reduced to the levelized cost of electricity for individual technologies. For industry, public utilities, and private consumers, however, the total system costs are relevant, which are caused by grid expansion, redispatching, reserve capacity, storage requirements, and price spikes during periods of low renewable feed-in. Through the combined generation of electricity and heat, CHP achieves overall efficiencies of over 80 percent. These efficiency gains reduce not only CO2 emissions but also fuel costs and dependence on imports.

CHP is particularly effective due to its decentralized structure. Electricity is generated where it is consumed—in industrial facilities, hospitals, residential areas, or local heating networks. This reduces transmission losses and the need for grid expansion. This decentralization has a direct impact on competitiveness and lays the foundation for a robust, regionally supported energy system.

As part of the German government’s power plant strategy, the need for additional, reliable capacity is currently being discussed. This capacity is primarily expected to be provided by large-scale, centralized power plants. However, a significant portion of the required capacity could just as easily be provided on a decentralized basis—for example, through containerized, motor-driven CHP units with a capacity range of 50 kilowatts (kW) to five megawatts (MW). Such modular units can be implemented quickly without lengthy planning procedures and can be installed directly at existing locations—in industrial facilities, municipal facilities, or existing local heating networks.

The German industry has a production capacity of approximately six gigawatts (GW) per year, enabling it to make significant contributions to securing power supply at short notice. In practice, this was demonstrated, for example, in Ukraine, where approximately two GW of containerized units were installed within 18 months. Decentralized structures thus not only increase regional supply security but also the resilience of the overall system. Technology-neutral tenders and the possibility of combining multiple small power plants in tenders would allow many smaller plants to be bundled in a way that benefits the system and integrated into market mechanisms.

Flexibility as added value

The future potential of CHP lies primarily in its flexibility. Modern plants can be operated in electricity-driven mode and combined with heat storage systems, allowing them to feed power into the grid in a targeted manner during periods of high residual load or low renewable output. In this way, they not only contribute to system stability, but also reduce price spikes in energy market. In addition, engine-based CHP plants are already capable today of flexibly utilizing renewable gases. The increased flexibility of existing biogas plants demonstrates how installed capacity with reduced operating times can specifically compensate for fluctuating feed-in. Numerous international projects demonstrate operation with 100 percent hydrogen.

To ensure that this flexibility can be utilized economically, clear and reliable framework conditions are needed. The Combined Heat and Power Act (KWKG) should therefore not only be extended, but also specifically refined to reward flexible behavior, promote storage integration, and provide investment security for hydrogen-compatible facilities.

The challenges of the energy transition particularly affect industrial companies, the housing sector, and municipal operators, who must upgrade their buildings for energy efficiency while simultaneously limiting cost risks. Photovoltaics and heat pumps are key components, especially for new construction, while existing properties often face technical or economic constraints —such as high heating loads in winter, when electricity demand rises at the same time. In these cases, a flexible CHP plant combined with photovoltaics, heat pumps, and storage systems can form an integrated hybrid model.

This model reduces peak loads, stabilizes local grids, and enables an efficient, demand-driven supply of electricity and heat. Through decentralized on-site generation, grids are relieved, infrastructure costs are minimized, and supply security is enhanced. To fully harness this potential, CHP should once again be explicitly included in the Building Modernization Act (GMG). A technology-neutral framework that uses efficiency and CO₂ reduction as benchmarks creates planning certainty and promotes investment in flexible, decentralized solutions. This enables private, commercial, and municipal stakeholders to contribute to the energy transition.

A Reliable Framework

In practice, project developers and operators are faced with increasing regulatory complexity. Various subsidy programs and legal frameworks overlap, sometimes subject to state aid, which complicates investment decisions. Yet the CHP sector’s offering is clear: It can provide decentralized, highly efficient, and flexible power plant capacity in the short term. What matters most, therefore, is not so much the name of the specific funding instrument as the consistency and reliability of the framework.

Modern CHP plants also offer a realistic path to transition. Many of them are H2-ready or can be retrofitted and are capable of integrating renewable gases. Even when currently operating on natural gas, they replace inefficient, separate electricity and heat generation and thus contribute to a reduction in emissions. In doing so, they contribute to long-term climate neutrality without jeopardizing short-term system stability or affordability. A cost-effective energy transition requires integration rather than one-sidedness. Combined heat and power connects electricity, heat, and, in the future, gas infrastructure, increases the efficiency of the overall system, provides flexible, reliable power, and strengthens regional resilience.

For it to fulfill this role, we need a timely extension and greater flexibility in the KWKG, an opening of the power plant strategy to decentralized solutions, a technology-neutral provision in the GMG, and a consistent, investment-friendly regulatory framework. If affordability, security of supply, and competitiveness are the guiding principles of current energy policy, then modern, flexible combined heat and power enables the energy transition.