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Fuel does double duty in N.Y.

Efficient cogeneration units produce electricity as well as heat

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"[Finding] the optimum point is the challenge," says David Ahrens, an engineer at Energy Spectrum in Brooklyn, N.Y. "You don't want to put it in too big or too small." Savings depend on the price difference between grid-bought electricity and CHP fuel. In New York, where electricity prices are high, a correctly sized unit typically has a five-year payback, says Mr. Ahrens. After that, "you're earning 20 percent on your investment," he says.

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There are micro-CHP units for houses, microturbines for buildings, and larger combustion engines for skyscrapers. Several CHP business models exist: Building owners can buy a unit up front; they can partner with a third-party company and own a share; or they can simply rent space to a CHP specialist, which then installs the unit and sells electricity back to them. In that case, cost savings aren't passed on, but "green" status is, which suits many just fine, says Falcier.

"All of the interest we get from building owners is being driven by high-up executives' green initiatives," he says. "They want to be able to say ... that they've reduced their carbon footprint."

In New York, the Sheraton Hotel and Towers and Condé Nast headquarters have CHP units. Clinton Hill Apartments in Brooklyn has the nation's largest residential microturbine installation. Several wastewater treatment plants have units powered by biogas. "We think that New York City has more deployed CHP capacity than any other city in the nation, and probably the world," says Stephen Hammer, director of Columbia University's Urban Energy Program.

One driver: Demand on electricity is projected to outstrip supply soon. The city expects 1 million new arrivals and many more power-hungry gadgets. Old power plants are going off-line, and installing new lines is difficult, if not impossible in some cases. (The city already has 93,000 miles of subterranean lines.) To prepare, electrical utility Con Edison is embarking on what it says is its biggest construction spree in 30 years, but it's also urging the public to use less.

CHP addresses these problems nicely: no new lines coming into the city, no new large power plants, a relatively smaller up-front investment, and it uses clean-burning natural gas. "If there's a need to build more power plants, it may be easier, faster, better, and more reliable to build [many] smaller power plants than to build one large one," says Dana Levy, program manager for industrial research at the New York State Energy Research Development Authority (NYSERDA) in Albany, N.Y.

Mayor Michael Bloomberg's PlaNYC calls for 800 CHP-generated megawatts by 2030, up from 118 megawatts now. NYSERDA offers CHP grants at the state level; EPA offers help nationwide. It aims to double CHP capacity to 92 gigawatts (billions of watts) by 2010.

PlaNYC also aims to reduce carbon emissions to 30 percent below 2005 levels by 2030. In this effort, CHP makes particular sense. On average, 32 percent of the yearly emissions in the US come from buildings. But in the city, which has a carbon footprint equal to all of Ireland, 79 percent comes from buildings. Half of that comes from electrical generation.

Many energy theorists see a more efficient "smart grid," with various energy sources connected to a grid that both gives and takes. Adapting the grid to many accommodate small generators could help. "Localized generation is one of many features that can help make the current grid evolve to a smart grid," says Mr. Levy.