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About 60 % of Russian territory doesn't have centralized energy supply. Energy supply of these areas is carried by gas or diesel fuel oil cogeneration power units. Natural gas is a chemically valuable and expensive product not exceeding 25% of the fuel and energy balance in the power generating of the most developed countries. Natural gas is approximately 53% of the fuel and energy balance in Russian energy. Diesel fuel oil is expensive due to high transport costs for delivery to the place of consumption. As a result, the electricity cost of cogeneration power units is higher than cost of centralized generation in 30-35 times. Development of the power plants using local resources of low-grade fuel for decentralized energy supply is a relevant objective. Purpose of this paper is to research the Russian cogeneration market and the development of advanced heat and electricity generation technologies by conversion of low-grade fuels. Cogeneration market analysis and patent research is presented; basic requirements are formed for the modern power plants according to these results. The principle of cogeneration by means of a fuel element based on low-grade fuel conversion was proposed and tested in an experimental unit. As a result, technical solutions of the cogeneration power unit were developed.