CHP is a very efficient technology for generating electricity and heat simultaneously. The electricity is generated by conventional generation technologies, fuel cells, ‘stirling’ engines or other similar engines within a CHP ‘plant’ whilst the heat generated, by the process, is utilized via heat recovery equipment.

Micro-CHP units will vary in size up to 10 kWe depending on the application and the need to comply with national electrical connection standards.

Micro-CHP systems are based on three main engine types:

1. External Combustion – This currently forms the majority of the available micro CHP systems as it is best suited to a stationary, constant running application. One such engine is the “Stirling Engine” that uses a simple ambient pressure combustor, similar to a furnace or hot water heater, to provide a constant source of heat. This heat is transferred to a gas that expands and moves a piston, thereby doing work. Once the gas has done its work, it is passed through a heat exchanger called a regenerator where whatever heat is still useable is recaptured to preheat the incoming gas. The gas is cycled back and forth and never leaves the engine. These engines are more controllable and generally more efficient, cleaner and quieter than internal combustion engines. 
2. Internal Combustion Engines – Internal combustion engines inject fuel and air into cylinders where combustion occurs. This results in temperature and pressure changes of the fuel/air mixture which is also the working gas and is used to produce useful work. As the process is cyclical, rather than continuous, it is more difficult to ensure complete combustion of the fuel, and noise and pollutant emissions tend to be higher. Early mini CHP products were derived from automotive engines converted to run on Natural Gas and suffered from very high service costs and unreliable operation.  Current models, however, have been specifically developed for extended operation between services.
3. Fuel Cells - In a fuel cell, the chemical energy within the fuel is converted directly into electricity (with by-products of heat and water) without any mechanical drive or generator. In theory this can result in high electrical conversion efficiencies and low emissions. However, additional components are required to condition the fuel and to convert the DC electrical output into AC, suitable for domestic installations. Fuel cell system have yet to be realise their full potential in a practical domestic product. Fuel cells have only recently been developed specifically for micro CHP applications and it is unlikely that commercially viable products will be available before 2010. 
4. Other Technologies - There are numerous experimental technologies which may at some future date result in useable products. These include thermo-ionic technologies that utilise temperature difference acting on metals to produce electricity and thermo-photovoltaic units which convert the radiant energy emitted by the burner to produce electricity from infra-red PV cells. Although these are relatively inefficient and produce little power, there may be applications, for example, in "self-powered boilers".

The micro combined heat and power concept favours the External Combustion Engine (ECE) over an Internal Combustion Engine (ICE), small turbines and fuel cells. This is because typically ECE’s, such as the Stirling engine, operate at lower temperatures, pressures and revolutions without explosive combustion. Consequently, the CHP plant is quieter and with less vibration during operation and has lower manufacturing, installation and maintenance costs.