The primary purposes of this paper are to describe a practical model which can be used to assist economic evaluation of district heating proposals, with particular reference to potential micro combined heat and power (CHP) applications, and to discuss the results of applying this model to a proposal for a particular scheme. The problems of realistic simulation of demand patterns, and the sensitivity of micro‐CHP project values to scale, fuel prices, differential purchase/selling tariffs for electricity, duty cycle and plant utilization factors are discussed. Of several options, two were shown to be economically viable, relative to existing methods of supply (gas‐fired boilers); however, the margin of benefit is small relative to wisely chosen modern boiler installations. A brief discussion of alternative methods of finance is provided; ceteris paribus, the proposed scheme would not be likely to attract venture capital from would‐be lease‐hire agencies. There is scope however for pilot schemes, whose results could be used to define more closely the limits of uncertainty of, for example, annual availability and duty cycle influences on the cost economics of operations.
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