Power plants on the electric grid use fuel to produce electricity, however there are large quantities of waste-heat produced which often go unused. In other situations, high-grade fuel is burned at high-temperature for a low-temperature application. According to the second law of thermodynamics, a heat engine can generate power from this temperature difference. In a CHP system, the high-temperature primary heat enters the Stirling engine heater, then some of the energy is converted to mechanical power in the engine, and the rest passes through to the cooler, where it exits at a low temperature. The "waste" heat actually comes from engine's main cooler, and possibly from other sources such as the exhaust of the burner, if there is one.

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