The microturbine installed behind the Philadelphia Gas Works headquarters is contained in a 12-foot-long beige steel box that has all the cosmetic appeal of a shipping container.

But beauty is in the eye of the beholder, and this gas-fired combined heat and power unit - that's CHP in power-generation lingo - does some remarkable things that excite PGW executive Joseph A. Smith.

"CHP is the sexy thing right now," said Smith, vice president of marketing for the city-owned utility.

The microturbine - essentially a jet engine - generates 200 kilowatts of electricity, about 40 percent of the PGW building's peak demand.

But rather than blowing the 580-degree waste heat directly into the atmosphere, the hot exhaust boils water that can help heat or cool the building's interior.

"We can use the heat just about all year-round," said Smith.

The unit is expected to save PGW $130,000 in electrical and heating costs, but its larger value may be as a sales tool to persuade other large institutions to generate their own electricity and steam rather than buying it from PGW's competitors, Peco Energy Co. and Veolia Energy North America Holdings Inc., the operator of the Center City steam loop.

The project's $1.2 million cost was partly covered by a $465,000 federal stimulus grant awarded by the Pennsylvania Department of Environmental Protection. Political leaders, including Lt. Gov. Jim Cawley, attended the official inauguration this month.

"Technology like microturbines shrinks our carbon footprint and conserves energy by making sure we waste less," Mayor Nutter said at the ribbon-cutting.

There is nothing new about CHP - cogeneration plants have been around since Edison invented the lightbulb.

But over the decades, electric generation became dominated by distant power plants connected to customers by large transmission lines. The current trend is to build hundreds of generation projects distributed around the grid, ranging from solar arrays to microturbines.

PGW is promoting microturbines and other types of combined heat and power projects as a means to selling more natural gas. As a landlocked utility serving a city whose population and industrial base have declined, PGW has a lot of underused infrastructure.

With the price of natural gas low, partly because of an abundance of fuel now being produced from shale formations such as the Marcellus Shale, PGW highlights the savings of natural gas over electricity or steam.

To induce customers to invest, PGW offers a discounted industrial cogeneration rate for CHP projects that recover at least 15 percent of the waste heat.

At current natural gas prices, a CHP operation can generate electricity for about 4 cents a kilowatt-hour, less than half the cost that a typical big industrial customer would pay for power off the grid, said Hans F. Greene, PGW's director of business development.

Though PGW does not make a lot of money from selling the gas, it hopes to make it up in volume. "If we get enough of them, then the profit becomes substantial," said Smith, the marketing chief.

PGW is targeting large customers that use a lot of thermal energy in addition to electricity. Customers on the Center City steam loop, including some of the city's tallest buildings, are a prime target because they use enormous amounts of energy for heating and air conditioning.

The Philadelphia Eagles, which are devising a plan to install a large solar-energy array at Lincoln Financial Field, will include a combined heat and power unit that can generate energy when the sun is not shining.

Because PGW is owned by the city, the utility has approached various city institutions about converting to CHP. PGW's marketing officials estimate that one city-assisted art institution could reduce its annual energy costs from $1.2 million to $750,000.

But some city officials expressed reluctance to switch because it would mean Philadelphia employees would have to maintain power-generation equipment, said Steven P. Hershey, PGW's vice president for regulatory and external affairs.

Smith, the utility's marketing head, said businesses with year-round heat loads, such as hotels, are good candidates because they need lots of thermal energy to wash mountains of laundry, cook food, and keep swimming pools warm, besides heating and cooling their premises.

"This has great applications for the hospitality industry, anything from condos to hotels to prisons," Smith said. "People don't think of prisons as hospitality, but based on their thermal-energy needs, it's the same thing."

Though hardly a prison, the Four Seasons hotel in Center City was an early adopter of microturbines. In 2009, it installed three 65-kilowatt generators made by Capstone Turbine Corp., of Chatsworth, Calif., the same company that manufactured the unit PGW installed at its headquarters this year.

The generators are so quiet that the hotel installed them on the roof directly above a suite.

The Four Seasons project is now expected to be paid off in 31/2 years, a year earlier than expected.

"It has exceeded our expectation," said Farra D'Orazio, the hotel's spokeswoman.

The Philadelphia Water Department is planning to build a combined heat and power project at the Northeast Water Pollution Control Plant that would use biogas generated from sewage sludge.

The average installed cost for a microturbine is $2,500 to $5,000 per kilowatt, said Jim Crouse, executive vice president of Capstone, the turbine manufacturer. The cost can vary depending upon the complexity of the system - whether it is installed on a roof or on the ground - and whether absorption chillers are installed to convert steam heat into air-conditioning.

Although several gas utilities are marketing CHP to expand market share, Crouse said PGW and several other municipal utilities are pushing the technology more aggressively because they have a social mission.

PGW's sales pitch emphasizes that CHP units are more than twice as efficient as central power plants, and that natural gas units produce fewer emissions of nitrogen dioxide, sulfur dioxide, and carbon dioxide than coal-fired generators.

Contact staff writer Andrew Maykuth at 215-854-2947, amaykuth@phillynews.com, or @Maykuth on Twitter.