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Cate’s main research & consultancy focus areas at Delta-ee include the Connected Home Research Service and UK / European microgeneration market analysis.Before joining Delta-ee, Cate worked at the Energy Saving Trust, where she spent 6 years working in domestic energy efficiency and microgeneration, and renewable energy more widely, across the UK and in Scotland. 

Cate brings extensive knowledge of domestic energy use and householder behaviour and is experienced in database management, data analysis, report writing and market analysis. She holds a BSc (Hons) in Zoology from the University of St. Andrews.

Balancing the electricity grid: what role for micro-CHP?

Many European countries are making good progress towards decarbonising their electricity supply through increasing the proportion of electricity coming from renewable sources. But managing the intermittency of generation from some these sources such as PV and wind presents a challenge to Transmission System Operators (TSOs), who are responsible for ensuring the stable and secure operation of the electricity transmission network.

The costs involved in maintaining a stable supply are significant: the UK’s TSO, National Grid, for example, spends around £1bn per year (around a quarter of its total income) procuring ‘balancing’ or ‘ancillary’ services. These services are needed to balance the electricity grid, ensuring enough electricity is available (and at the right times) to meet demand and to maintain the right frequency of electricity.

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The power of up-close and personal

Low carbon heating techs are demonstrated ‘live’ to home-owners – and micro-CHP proves very popular.

As part of Delta-ee’s Microgen Insight Service, 36 intrepid UK home-owners came to the Baxi UK test lab in Warwick in July this year. They had been prepared for the evening by reading a description of five low carbon or renewable heating technologies, prepared by Delta-ee. During the evening they were shown examples of these products running in a test facility, and had the chance to ask questions.

At the start of the sessions, the participants were asked about their attitudes towards the technologies, and whether they could see themselves installing one (or any of them) in their home. At this initial stage, air source heat pumps (ASHP) were generally the preferred technology.

But following live demonstration of each of the products, during which time people also had the chance to ask questions from the expert demonstrator, this picture had changed dramatically. Micro-CHP’s popularity had soared by the end of the demos, based on the design they were shown.

So what made micro-CHP so appealing?

Among the top reasons given were:

  • It doesn’t take up much space: people could see it fitting into their homes, in the place of the current boiler.
  • It can be fitted without making significant changes to the home. Customers said they were less interested in having a heat pump (ground source or air source) once they were told there was a chance they might have to upgrade their radiators.
  • They liked the idea of being paid to generate electricity via the Feed-in Tariff. The rising popularity of solar PV over in the UK, thanks to the Feed-in Tariff, has probably helped here, in warming people up to the idea that they can be paid for generating electricity. However, since these focus groups, the Government has announced a consultation on the FiT (announced on Friday 28th August) – which might make this less of a selling point in the future.

 So what 3 things can the micro-CHP industry learn from this?

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Mind the Gap: Why are micro-CHP sales lagging in Europe?

Customer willingness-to-pay research shows a distinct gap between potential and actual sales – even at today’s prices. There are many reasons for this – and an equal number of solutions to the problems.

In my last blog I talked about whether micro-CHP is price elastic: i.e. would we expect sales of domestic micro-CHP units to change depending on what price a retailer sets? You can read about that here. (A quick spoiler alert for you: the answer is ‘yes’. But you’ll need to read the post to see by how much…).

However, besides showing how much potential there is for micro-CHP sales to rise if end-user costs are made more competitive (which is significant), perhaps the most interesting finding from our research was that current installation rates– based on the numbers of units we know are sold at today’s prices – is far lower than would be expected.

Delta-ee publishes annual global sales data on micro-CHP units as part of our Micro-CHP Research Service. Comparing the latest numbers of sales in Germany, the Netherlands and the UK with the response to our new willingness to pay research clearly shows that – even at today’s high prices – there is potential in all markets for sales to be higher.

For example: German customers indicated that at current prices of Stirling engine systems, take-up could be up above 20%. In terms of the suitable homes, this should translate into a market of around 30,000 units a year. But we know that the real-life market has only reached around 10% of this potential. Why?

So why is take-up of micro-CHP dragging?

This is definitely an interesting question, and one we’ve explored further in other research from the Micro-CHP Service. Customer over-statement of the likelihood to purchase is not sufficient on its own to explain the large gulf between potential and actual uptake that we can see. To start closing this gap we advise suppliers to look at addressing the following 3 key issues:

1. A lack of product availability (and a lack of knowledge among customers). Is there just not enough choice (yet) for customers who are thinking about buying a microCHP unit? Without a good product range, customers may not be finding the right product for them and/or their home.  If more products were launched into the market, would sales naturally start to climb?  Potentially - Germany offers the most choice to homeowners with 4 Stirling engine, 1 fuel cell and many internal combustion engine products currently available, while UK and the Netherlands have only 1 or 2 to choose from. Sales figures for Germany outrank these other two countries by a factor of 10:1.

2. Industry requires more market creation efforts by suppliers. Are manufacturers pushing their microCHP units hard enough compared to their other low carbon products? Are utilities engaged and committed enough to micro-CHP? Is enough being done to engage and educate the installers, who play a key part in promoting microgeneration technologies to customers? ‘No’ is the simple answer to all the above (for more of our thoughts about this, see here).

3. Ineffective market channels.  Micro-CHP has not fared well so far by being sold through existing gas boiler routes to market. As a much more expensive product than a conventional boiler – while also being a less mature and a more sensitive technology – it has struggled to make an impact at the point of sale. More is now being done by the industry to find innovative and effective channel strategies. Which is just as well, as these interventions will help micro-CHP to meet its (sizeable) market potential.

So, what can the industry do to drive micro-CHP sales upwards? The points above are clearly within retailers’ own powers to influence. However point 2 will rely on the industry working together as a whole and this may prove the biggest challenge if micro-CHP is to “mind the gap” and truly fulfil the potential that our analysis has revealed. 

All comments welcome, or please get in touch directly: [email protected].

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Stretching the rubber band: how ‘elastic’ is the price that people will pay for micro-CHP?

‘If we can lower the price of our micro-CHP unit by €1,000, what will that do to sales figures?’ It’s a question on the lips of a lot of micro-CHP manufacturers – and one that we’ve answered in our latest research for the Delta-ee micro-CHP research service.

We recently surveyed over 600 ABC1 homeowners in Germany, the UK and the Netherlands, asking how much they would be willing to pay for a micro-CHP unit, allowing us to look at the price elasticity of micro-CHP. ‘Price elasticity’ describes how the price you set for a product changes the demand: does demand change as prices rise or fall (an elastic response)? Or does demand continue at more or less the same level (an inelastic response)?

Micro-CHP costs are currently high compared to incumbent domestic heating technologies, and total unit sales are low. Should retailers and manufacturers of micro-CHP keep their prices high and continue with the existing (small) number of customers they have? Or, if costs can be lowered, would an increased number of sales compensate for the decrease in the individual unit price?

How do micro-CHP sales respond to price?

We found that above a certain price threshold, raising the price has only a very small effect on the number of sales possible. As long as prices stay above this threshold, take-up will remain inelastic, and very low in %-age terms (‘Zone 1’ in figure 1).

As prices drop below this threshold, demand becomes increasingly elastic, and each £1 or €1 taken off the price has an increasing effect on potential sales (Zone 2 in figure 1). When in this price zone, reducing cost can be a good decision – as long as the reduced revenue per sale is outweighed by the increase in sale volume.



Figure 1. Price elasticity

Demand for micro-CHP products ‘maxed out’ at between ~50% and ~85%, depending on the country and the technology. So even if the micro-CHP product cost the same as a boiler, a certain percentage of households would not choose to purchase it.

The threshold price at which demand becomes elastic, and the maximum uptake possible, varies between countries and technologies. If you would like to see the threshold prices, data and analysis for the UK, Germany and the Netherlands you can purchase a copy of the full report. Please contact service manager Scott Dwyer ([email protected]; +44 (0)131 625 3213).

So, how much are people actually willing to pay for micro-CHP?

Our results show some very clear differences between the three countries. German customers are willing to pay the highest prices for micro-CHP units – by quite some way. By contrast, homeowners in the UK and the Netherlands are much more price sensitive to the up-front cost, and place less importance on reduced running costs.

German households also show the clearest willingness to pay a premium –of around €4,000 - for fuel cell micro-CHP compared to Stirling engine. The UK and Netherlands showed a similar preference for fuel cell over Stirling engine, but the premium was lower.

Mind the gap

For us, the most interesting finding comes from comparing this research to real-life take-up in these countries. Annual sales figures - at current prices - are far lower than would be expected from our findings.

For example, our research with German customers indicates that at current prices of fuel cell and Stirling engine micro-CHP, take-up should be up above 20%. In terms of the suitable homes, this could translate into a market of around 30,000 units a year – but we know the real-life market has only reached 10% of this potential. So, why is take-up lagging behind what we’ve seen from this research? We’ll be exploring possible reasons in our next blog.

To find out more

The full report and data set are available to members of the Delta-ee micro-CHP research service. For non-members, the full report is also available for purchase. For more information or to enquire about the report or membership of the micro-CHP service, please contact service manager Scott Dwyer ([email protected]; +44 (0)131 625 3213).
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