The hospitality industry is poised for a boom in the use of combined heat and power systems (CHP) due to the low cost of natural gas and the ever-increasing cost of electricity. Hotels are a natural match for CHP due to their high baseload demand for energy and the ability to efficiently use the heat generated from these systems by offsetting hot water, heating and air-conditioning loads.
In addition, CHP technology has become more reliable, remains comparably inexpensive and creates efficiency. The spark spread is the difference between the cost of burning natural gas for electricity and buying that electricity directly from the grid. In the United States, this difference has never been larger -- and hotels can take advantage of this.
There is one problem, though, that stands in the way of CHP's widespread adoption.
The principal barrier to the sale of CHP is finance. The majority of potential sales are constrained by their available investment capital. We estimate that nine of 10 potential clients will be limited by their capital budget to buy a CHP system. So far, the CHP industry has been actively pursuing this well-funded 10 percent of the market. Other major target market sectors -- such as municipalities, hotels and hospitals -- are not as flush with cash. These markets continue to limp along with the economy.
Further, most companies have other priorities for the limited use of their capital. In addition, CHP is a technology that is not familiar to most of the potential clients. As a result they are most likely not aware of their financial options when purchasing such a system. Last, these systems come with other risks such as gas price risk, operations and maintenance costs and equipment failure risk.
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