Combined heat and power (CHP), or cogeneration, is the production of electricity and useful heat in a single process, generally at the site where it is needed. The heat derived from electricity generation is not wasted but is used for central heating or hot water. Alternatively, waste heat from a boiler is used to drive an engine to generate electricity.
This greatly improves the overall efficiency, which is typically around 80-90%. This compares wiith an average efficiency of only 40% for central electricity generation in the UK, where much of the energy is lost as heat and during distribution along power lines.
CHP schemes are well suited to the needs of community buildings such as hospitals, hotels, and leisure centres, where there is demand for both heat and electricity throughout the year. However, smaller-scale mini or micro CHP systems are available for small businesses and households. 
Micro or mini CHP?
A micro CHP unit is defined by the European Cogeneration Directive as any CHP unit with an electrical capacity of less than 50 kW. It replaces the central heating boiler, and supplies some of the household's electricity, with the potential to feed surplus electricity back into the grid.
The range of domestic systems currently available in the UK is very limited. Small-scale micro-CHP units essentially consist of a gas boiler that uses waste heat to power a Stirling engine (i.e. a 'heat engine'), which drives a dynamo to generate relatively small amounts of electricity, around 1 kW. New models are due to be launched on the market during 2009.
In some situations, larger capacity, or 'mini-CHP' units might be more suitable, depending on the type of dwelling and occupancy. Commonly, these use an internal combustion engine powered by natural gas or liquid petroleum gas (LPG) primarily to generate electricity, typically 5 kW, while producing less usable heat than a boiler-based system.
CHP systems based on fuel cells are being developed, and some domestic systems are installed, especially in the USA. Fuel cells are devices that convert hydrogen and oxygen into water, producing electricity and heat in the process. If the fuel is hydrogen, there are zero direct carbon emissions. In the absence of ready supplies of hydrogen, current designs use natural gas or LPG, which entail some emissions.
Points to consider
- Micro and mini CHP can cut carbon emissions, albeit by relatively small amounts, typically 5-15%
- Excess electricity can be sold to the grid, at a price set by the feed-in tariff of the supplier
- Electricity is generated at times of peak demand
- Reliability of older systems was poor, and life expectancy short
- Installation costs are high
- CHP units based on combustion engines can be noisy and produce exhaust fumes
- From April 2010, micro-CHP under 2 kW capacity is eligible for a feed-in tariff for the electricity generated, currently to the tune of 10 pence per kilowatt hour. See article on Feed-in Tariffs for more details.