Pennsylvania's AEPS program has no CHP efficiency requirement. Here is what actually governs eligibility.

A widely repeated claim about Pennsylvania's Alternative Energy Portfolio Standard is that combined heat and power systems must clear a combined thermal-and-electric efficiency threshold to qualify for Tier II Alternative Energy Credits.

They do not. The program administrator states it directly: "Currently, the PA AEPS does not have a system efficiency requirement."

That sentence matters commercially, because a threshold that does not exist has kept qualifying projects out of the market. It also matters in the other direction: the absence of an efficiency test is not the absence of eligibility rules. Four other conditions do the gatekeeping. For the project-level registration path, see our CHP overview and the CHP qualification guide.

What actually governs eligibility

• Location. The system must be located in Pennsylvania. Act 114 of 2020 effectively closed Tier II to out-of-state resources; in energy year 2025, 100% of Tier II credits retired were Pennsylvania-sourced and 0% came from other states.
• Capacity. Total capacity must be less than 5 MW.
• Interconnection. The system must be interconnected with the local utility — the guidance adds that a generator that is not interconnected "may still qualify under demand-side-management." The application requires a certificate of completion from the interconnecting utility.
• Metering. A production meter must record generation, and a photograph of that meter is a required application document. Under 52 Pa. Code § 75.63(f), credit certification is verified by metered data obtained from or by a party the regulation designates.

Eligible prime movers are gas internal combustion engines, gas combustion turbines and microturbines. Eligible fuels are natural gas, biogas and landfill gas. An air quality operating permit — or an exemption letter — is required, along with documentation of useful thermal energy use and fuel source.

Credits are issued on electricity, not on heat

This is the point most often gotten wrong, and it is worth stating plainly.

The program administrator's credit basis is one AEC per megawatt-hour — 1,000 kilowatt-hours of generation or savings. Recovered thermal energy is what makes a CHP system a CHP system, and documentation of useful thermal energy use is a required application document. But no published mechanism credits thermal energy. It qualifies the system; it does not generate AECs. A project modeled on the assumption that recovered heat converts into credits is modeled on revenue that does not exist.

The practical consequence is that CHP AEC revenue scales with metered electrical output and runtime, not with thermal recovery. A system sized for a large thermal load but run intermittently will produce fewer credits than its nameplate suggests.

Three questions the published guidance does not answer

Being accurate about what the program requires means being equally accurate about what it leaves open. Three gaps are worth knowing before a project is modeled.

• What proves "useful thermal energy"? The application requires documentation of useful thermal energy use. No minimum thermal utilization is published, no measurement method is specified, and no test procedure is given. In practice this is an evidentiary question rather than a numerical one — but a project relying on marginal thermal use should expect to have to argue it.
• Is generation credited gross or net? Parasitic load and station service are not addressed in published guidance, and the meter photograph requirement does not specify whether the meter sits at the generator terminals or at the point of common coupling. Those two positions can differ by several percent of annual output.
• What does the demand-side management route change? The guidance permits qualification as demand-side management where a system is not interconnected, but does not explain what that route requires, how it changes metering or credit calculation, or which designation the resulting credits carry.

Where the record is silent, the answer is to ask the program administrator in writing before filing — not to assume. A written answer is also worth having on file if a facility is later selected for inspection.

Why this matters now

In energy year 2025, Pennsylvania's Tier II obligation was 13,654,235 credits. Credits cleared at a weighted average of $26.92 against a $45.00 alternative compliance payment that effectively caps the market, and total Tier II compliance spending reached $367.6 million. Prices have moved from $0.10 in 2016 to $1.92 in 2020 to $26.92 in 2025.

The supply side is narrow. Waste coal accounted for 50.5% of Tier II credits retired in energy year 2025, pumped storage 24.5%, conventional hydro 11.6%. Combined heat and power accounted for 1.4%.

In our view, a misremembered efficiency threshold is part of why that CHP number is as small as it is. The threshold is not in the regulations and not in the program administrator's guidance — and a project team that assumes otherwise never files.

Sources

• PA AEPS — Combined Heat and Power Projects — https://pennaeps.com/resources/combined-heat-and-power-projects/
• PA AEPS — CHP Overview (April 2026) — https://pennaeps.com/wp-content/uploads/2026/04/CHP-Overview-Public-4.15.26-2.pdf
• 52 Pa. Code § 75.62 — https://www.law.cornell.edu/regulations/pennsylvania/52-Pa-Code-SS-75-62
• 52 Pa. Code § 75.63 — https://www.law.cornell.edu/regulations/pennsylvania/52-Pa-Code-SS-75-63
• 52 Pa. Code § 75.65 — https://www.law.cornell.edu/regulations/pennsylvania/52-Pa-Code-SS-75-65
• PA AEPS 2024/2025 Annual Report — https://pennaeps.com/reports/
• PA AEPS historical pricing — https://pennaeps.com/aeps-historical-pricing/

Does Pennsylvania's AEPS program require a minimum CHP system efficiency?

No. The Pennsylvania AEPS program administrator states that the program currently does not have a system efficiency requirement. Eligibility is governed instead by location in Pennsylvania, total capacity less than 5 MW, utility interconnection, a production meter, an air quality permit or exemption letter, and documentation of useful thermal energy use.

Does recovered heat from a CHP system generate Alternative Energy Credits?

No. The program administrator's credit basis is one Alternative Energy Credit per megawatt-hour, or 1,000 kilowatt-hours, of generation or savings. Documentation of useful thermal energy use is required to qualify a combined heat and power system, but no published mechanism credits thermal energy separately.

What size CHP system qualifies for PA Tier II AECs?

Total capacity must be less than 5 MW and the system must be located in Pennsylvania. Eligible prime movers are gas internal combustion engines, gas combustion turbines and microturbines, running on natural gas, biogas or landfill gas.

What documents does a CHP Tier II AEC application require?

A certificate of completion from the interconnecting utility, an air quality operating permit or exemption letter, a photograph of the production meter, and documentation of useful thermal energy use and fuel source.