How much does a CHP unit cost and when does it pay back: a step-by-step calculation
- Jul 5
- 5 min read
The most common investor question is: 'How many years will it take to recover the investment in a cogeneration plane?' There is no universal answer — payback depends on power output, fuel type, load profile, and current tariffs. In this article, we break down a real calculation for a typical 500 kW CHP unit and show what makes up the project economics.
How much does a CGU cost? What makes up the investment?
When people say 'a CHP unit costs N million,' they often refer only to the cost of the equipment. In practice, the total project cost (CAPEX) consists of several parts, and underestimating some of them is a frequent reason why project budgets exceed initial expectations by 20–40%.
Let's break down the typical CAPEX structure for a 500 kW natural gas CHP unit. The approximate turnkey total cost is around UAH 20 million including VAT.
CHP equipment — up to 70% of the total. The unit itself: engine, generator, heat exchangers, automation cabinet, frame, sound-insulating enclosure. The largest line item.
Installation and commissioning — 5–10%. Delivery to site, foundation mounting, utility connections, automation setup, grid synchronization, test run.
Infrastructure — 10–12%. Gas pipeline from connection point to the unit, foundation, building or container, exhaust system, chimney, connection to the facility's heating network, power cables to the main distribution board.
Engineering — 5–8%. Technical conditions from the local electricity and gas distribution companies, connection design, working documentation, expert review.
Permitting — 2–5%. Approvals from electricity and gas utilities, environmental services. Payments for technical conditions and licences.
Important note: if a supplier offers 'turnkey CHP for X' — always clarify exactly what is included. Sometimes 'turnkey' means only equipment on your foundation, without the gas pipeline, without grid connection, without engineering. Real turnkey means a working unit ready for industrial operation. |
What savings a CHP plane delivers
The economics of cogeneration are built on the difference between two scenarios: 'buy electricity from the grid + produce heat in a boiler house' and 'produce both in your own CHP unit from gas'.
Let's take as an example a facility that consumes 500 kW of electricity and 700 kW of heat over 8,000 hours per year (approximately 22 hours a day, accounting for maintenance downtime and holidays).
'Before' scenario — grid electricity + boiler house
Annual electricity consumption: 500 × 8,000 = 4,000,000 kWh. At an industrial electricity tariff in Ukraine of around UAH 12 per kWh including VAT (as of May 2026), this results in an electricity bill of approximately UAH 48 million per year.
Annual heat consumption: 700 × 8,000 = 5,600,000 kWh of thermal energy. To produce this heat, the boiler house burns gas. With 85% boiler efficiency and the heating value of gas, about 660,000 m³ of gas per year will be needed. At an industrial gas price of around UAH 30 per m³, that's approximately UAH 20 million per year.
Total 'before': around UAH 68 million per year for energy.
'After' scenario — your own CHP unit
The same facility, but now gas is purchased centrally and used in the cogeneration unit. The electrical efficiency of the DvG1A-500 is about 41%, the thermal recovery efficiency is about 47%. Total fuel utilization coefficient is about 88%.
To produce the same 4 million kWh of electricity and 5.6 million kWh of heat, about 1,080,000 m³ of gas per year will be needed. At the same price of UAH 30 per m³, that's UAH 32.4 million per year.
On top of gas costs, you add CHP operating expenses: oil, filters, scheduled maintenance, operator wages, depreciation. A realistic annual OPEX is around UAH 3.5 million.
Total 'after': around UAH 36 million per year.
Annual savings 'Before' scenario: about UAH 68 million. 'After' scenario: about UAH 36 million. Net savings: around UAH 32 million per year under stable operation. |
Additional sources of profit
The calculation above is the baseline. The actual project economics can be better if you use additional opportunities:
'Green tariff' for biogas operation. If you have your own feedstock (agricultural waste, manure, silage), you can use biogas instead of natural gas. The tariff for selling surplus electricity to the grid is then significantly higher than for natural gas operation. The payback period in this scenario often shrinks to 2–3 years.
Selling surplus electricity to the grid. If the unit sometimes produces more than the facility needs (for example, at night or on weekends), the surplus can be sold back to the public grid.
Energy independence and reduction of blackout losses. The most underestimated factor. An own CHP unit gives the facility complete energy independence: production runs even during a total grid outage. Production downtime due to power cuts is not only lost revenue, but also spoiled raw materials (for meat and dairy processing), products with broken temperature regimes, penalties for missed deadlines, customer loss. After the winter 2025/26 energy crisis, many facilities reassessed this factor — and concluded that a CHP unit pays back faster by eliminating these risks, not just by tariff savings.
Realistic payback period
Combining the baseline economics and additional profit sources, the typical payback for a cogeneration unit in Ukraine as of 2026 looks like this:
1.5 to 2 years — on biogas using own feedstock and the green tariff.
2 to 2.5 years — on natural gas for facilities with 24/7 continuous load and stable heat demand.
3 to 4 years — on natural gas for facilities with average load (12–16 hours a day, seasonal heat).
More than 5 years — for sites with irregular load, predominantly summer-only electricity consumption, or without sustained heat demand.
If your payback calculation shows more than 5 years — this is a signal that CHP may not be the optimal solution for your specific site. It's worth considering a backup diesel generator, solar panels with storage, or a hybrid configuration.
What data is needed for an accurate feasibility study
To make the payback calculation not an 'estimate' but an engineering document on which an investment decision can be based, we need specific data from you:
Electrical load profile — hourly, daily, or at least monthly consumption chart for the last year.
Thermal load profile — demand for hot water, steam, heating by season.
Operating hours of the facility per day and per year.
Current tariffs — actual electricity and gas bills for the last 12 months.
Technical conditions for connection — gas pipeline capacity, capacity of your grid cell.
Area available for the unit (500 kW CHP modules occupy about 25–40 m²).
All this data is usually available from the facility's chief energy engineer. If something is missing — we will help estimate values based on the type of production.
Pitfalls that are often missed
Service costs after warranty. First 2 years — warranty period. After that — you need either to sign a service contract with the manufacturer or have your own trained engineer.
Downtime for major overhauls. After 40,000 operating hours, an intermediate overhaul is needed; after 80,000 — a major overhaul. During this time, the unit is offline and you need to either have backup capacity or switch to the grid.
Gas and electricity price fluctuations. The calculation is based on current prices. If gas prices rise faster than electricity prices (which historically can go both ways), payback improves. If the opposite — it worsens. Calculate in three scenarios: pessimistic, base, optimistic.
Gas quality. In Ukraine, natural gas quality varies by region. This affects engine lifespan and spark plug expenses. During the feasibility study, local gas parameters must be taken into account.
Dieselmash provides a free, customized payback analysis—delivering figures based on your specific data within three business days.
Find out if a cogeneration unit will pay off for your business
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