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FC Expo 2014 and the Gaijin - why are they targeting Japan, and what can they offer?

FC Expo ( is Japan’s largest international fuel cell conference and trade show and this year’s event looks set to be another one characterised by the growing number of non-Japanese companies it’s attracting.

In this Gaijin’s blog on last year's event, I commented how five years on from the launch of the ENE-FARM (Japan’s residential fuel cell micro-CHP systems), a second wave of Japanese manufacturers were now lining up to showcase themselves in the fuel cell space. Companies like TOTO, NGK Spark Plugs, and Miura Kogyo were on display and looking to follow in the steps of Panasonic, Toshiba, and JX – the three original manufacturers of the ENE-FARM and who are responsible for combined sales of more than 80,000 systems since 2009.

Now, we see a trend of non-Japanese companies continuing to target this event. So who are these “foreign invaders”, why are they targeting Japan, and what can they offer Japan with its world leading fuel cell industry?

The Gaijin companies

In terms of distributed energy solutions, Bloom Energy and ClearEdge Power lead the charge from the US, while from Europe it’s Finland’s Convion, Estonia’s Elcogen and Germany’s Sunfire. Posco is South Korea’s representative.

Non-Japanese companies have always had a presence at this event. Last year Elcogen and Convion were also joined by France’s Saint-Gobain and the UK’s Ceres Power (who last week announced the opening of a Japanese office and a working agreement with a Japanese OEM). But this year I see a continuing trend in the number of these companies taking a clear interest in the Japanese market.

What is attracting them?

So why this continuing interest?

Is it that the Japanese manufacturers are further down the road of commercialisation so they don’t need to spend millions of yen exhibiting at a trade show and conference – leaving room for non-Japanese companies to exhibit or present? This of course is part of the reason.

But I think the different fuel cell companies from outside Japan have also concluded that here is a country where the benefits and technology of fuel cells are clearly understood by the policy makers, where policy drivers are hurtling in the right direction, and where stationary fuel cell products above 750W power output are a rarity. All the non-Japanese companies attending this year are offering systems mainly in the hundreds of kilowatts scale – rather than the hundreds of watts.

What can they offer Japan?

Platts recently wrote how, since Fukushima, the growing volume of fossil fuel imports and the associated costs have outstripped growth of the economy and of people’s income. A weaker yen has then made things worse by increasing the cost of energy imports.

What the Gaijin companies can offer Japan is fuel cell solutions for the neglected commercial sectors – so far the focus of Japanese companies and Government policy has been primarily on residential fuel cell systems. There are many businesses, apartment blocks, public buildings and server rooms that could benefit from protection against rising fuel costs – and for which sub-1 kWe systems just don’t make sense.

With talk of a feed in tariff for CHP as well, the economics for distributed generation could receive a further boost (Japan now features as one of the “hot markets” covered in our Distributed Power Research Service.

In summary – a growth market with a gap for non-residential applications

The “foreign invasion” is made up of a diverse range of companies from around the world, who are targeting a country now with all the credentials to be a future powerhouse of distributed energy. The new market entrants from outside Japan have also noticed a gap in the market for non-residential scale fuel cell applications. Doing business in Japan is not always easy for Gaijin companies, but if they manage to find successful partnerships, then they will have a lot to offer Japan in its brave new energy world and complement its already world leading fuel cell industry.
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A Flexible Demand Revolution is coming: What role for smart heat pumps?

The direction of travel is clear for European markets – demand side flexibility will be an essential requirement of the future energy system.

In some markets (e.g. Germany, France, Denmark), the first signs are there. In other markets (e.g. the UK), future penetration of renewables and increasing distribution network congestion will see increased requirements for flexibility – we see the demand side as well positioned to provide this flexibility. And drawing upon Delta-ee’s ongoing research in heat and distributed energy, one of our conclusions is that electric heating will be a key part - or even the key part - of this on-coming flexible demand revolution.

This view was backed up by 
the research for our new report on Smart Heat Pumps (from the Delta-ee Heat Pump Research Service).  I also saw evidence of the growing recognition of the role of heat pumps during some of the interesting discussions at our Heat Pump Roundtable in Paris last week (a convergence of utilities, heat pump manufacturers and other industry players, which i'll tell you about in a later blog...).  We see a huge amount of activity using heat pumps - and electric heating - as a flexible demand resource.  Examples include:
  • There are a huge number of demonstration projects across Europe testing how much flexible demand can come from electric heating (including heat pumps), and how much value this can create for customers, utilities and others.
  • There are many more “smart-ready” heat pumps on the market from manufacturers than 12 months ago (e.g. including from NIBE, IVT, Neura and several others);
  • Some utilities have already launched smart electric heat offerings, or are testing business models (e.g. Fortum, EDF);
  • A host of new players are finding business opportunities for themselves in the emerging smart market – for example HEMS companies (e.g. There Corporation), and independent aggregators (e.g. Voltalis).
What is a Smart Ready Heat Pump – And Why Are They Required?

We believe that value will be offered for flexible demand in the future. If heat pumps can exploit this value, and use it to create a better customer proposition, a part of this value will be shared with the customer.  And it is when the value is shared with the customer, that the flexible demand revolution will really translate into sales growth for heat pumps.

We have identified three key characteristics which differentiate ‘smart-ready’ heat pumps from ordinary heat pumps. Our competitor analysis reveals that a very small number of manufacturers fully meet all of these criteria – though many are taking steps in this direction:
  • Connectivity: The ability to remotely monitor and control the operation of the heat pump is a minimum requirement for any smart heat pump.
  • 2-way Communication: The heat pump should be able to accept dynamic signals from external sources (for example, weather forecasts, variable price signals, direct control requests)
  • Sophisticated Control Algorithms: The control system should be able to optimise performance through proactively preparing to meet demand AND providing flexibility.
Where’s The Money?

In our latest research on smart heat pumps, we identify five key value sources for flexible demand. While it is difficult to exploit many of these value sources today, we see developments in market and regulatory structures which will ultimately open up more of these value streams:
  • System operators paying for balancing services from flexible demand resources such as heat pumps
  • Distribution Network Operators avoiding the costs of grid upgrades by shifting the operating times of e.g. heat pumps away from peak times
  • Energy retailers creating value by shifting HP demand to periods with lower electricity costs
  • Energy retailers minimising their imbalance costs by using smart heat pumps to reduce the errors between actual demand and expected demand.
  • End customers benefiting through e.g. time of use tariffs enabling running cost savings, or even eventually ‘heat pump for free’ business models.
The way in which value is shared across the different stakeholders in the electricity value chain – and critically how much is shared with the customer - will determine the size and exact timing of the flexible demand opportunity.

In my next blog on this topic I’ll be looking at some of the learnings from selected demonstration projects testing the use of heat pumps as flexible demand……..
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Recent Comments
Guest — Aaron Hanson
Great read. I know that Nest thermostat offers a program called Auto-Tune that works with utility companies to use smart heat pump... Read More
Tuesday, 11 February 2014 22:50
Guest — James
Great post!!This program will really help to use less energy....
Wednesday, 09 April 2014 08:42

Seven things you need to know about Micro-CHP in Europe

In the past, Micro-CHP (5kWe and below) has been guilty of over-promising and under-delivering. However, product choice in Europe has been steadily increasing over the last three years and some major global brands are now committing themselves to bringing micro-CHP product to market. Gas industry involvement and support will be key if the technology is to achieve its full potential in a region containing 740 million people and 190 million buildings. New business models are also being proposed for capturing additional value from micro-CHP – leading to increasing interest in what ultimately remains an industry defined by much uncertainty.

For those wanting to consider where the value could be for them, here are seven things you should know about Micro-CHP in Europe:

1. Germany is Europe’s leading market

Out of fifteen micro-CHP systems to choose from in Europe, eleven are only available to customers in Germany. The reasons being: higher electricity prices in Germany making self-generation of power more attractive, supportive policy and a greater willingness of customers to innovate with their heating systems. This will eventually change but Germany will continue to lead for the time being.

2. Europe’s market leaders are two of its largest boiler manufacturers – but they still lag behind the global leader, Japan’s Honda

BDR Thermea and Vaillant are Europe’s market leaders in micro-CHP with a combined 15% of the global installed base.  On the other hand, Honda still dominates with a worldwide market share of 54%.

3. The size of the opportunity is an annual heating market of 8 million gas boilers – worth around €25 billion each year

Across Europe, around 8 million boilers are sold each year which represents a market value close to €25 billion. While micro-CHP won’t be a perfect replacement for each of those boilers, taking just 4% of the market would make it a billion euro industry.

4. Japan is the global leader in micro-CHP and its companies have their sights set on Europe

Japanese sales of micro-CHP now outnumber those in Europe by around 10 to 1. The main reason behind this success story is the support from Government, and the fact that the manufacturers and the gas industry have joined forces, to help find synergies in the supply chains that would allow a single, recognisable “brand” for micro-CHP (specifically fuel cells) to be created.

5. Some in the gas industry are pioneering new ways of helping the product to market

Companies in the gas industry are trying to help micro-CHP succeed, from providing small financial incentives and assisting in product development, to supporting laboratory and field tests as well as selling and installing product. New micro-CHP business models are also being tried and tested by current market players in an effort to capture extra value and help products into the market.
6. There is an increasing range of technologies to choose from but ICE still dominates in Europe

There are generally five types of micro-CHP technology. All are at various stages of commercialisation in Europe but internal combustion engine (ICE) – the most mature of them all – will remain the bestselling one for the time being.

7. Its a market offering great potential yet characterised by huge uncertainty

Despite the uncertainty regarding the potential growth of micro-CHP, a number of major corporations remain committed, among them are utility companies such as E.ON, RWE, British Gas, GDF Suez, SSE, some of their biggest heating equipment manufacturers such as BDR Thermea, Bosch, Vaillant, Viessmann, Ariston, as well as some high-profile global brands from Japan which include Aisin-Seiki - part of the Toyota group, JX, Panasonic, and Toshiba.

To unlock micro-CHP’s potential, they will need a stable policy environment, ensure their products reach the market on time and at a reasonable cost, and foster greater involvement from the wider energy industry.

This blog was based on an article that originally appeared in Gas for Energy Magazine.   Click here to read the full article.
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Low-carbon at the coal face: Delta-ee’s newest report reveals what installers really think about the microgeneration sector

The newest report from Delta-ee’s ‘Microgen Insight Service’ comprises our analysis of the 250 responses to our nationwide Installer Survey, offering the most up to date investigation of installer attitudes towards – and their experiences of – microgen technologies. The full report takes a deep dive into all aspects of the installation process, delivering key insights on what factors are really shaping the views of installers (and also their customers) about domestic renewables and what product suppliers must do to enable greater engagement from them. Here, we offer a brief summary of three of our key report findings.

The 2013 Installer Survey Report

Central to every sale – and critically, a key influence on product choice – installers, from a range of product specialities and geographical locations, are the subject of the latest primary research from the MIS. 250 of them responded to our call to share their experiences of the UK heating market:

With the majority of the sample survey having over 10 years industry experience, the data also reveals valuable insight about the awareness of microgeneration incentive schemes and how the different technologies are favoured by those at the installation front line.  Our analysis revealed a multitude of industry trends – some to be expected, some far more surprising! Below are just a few of the most interesting...
Installers know their customers well – but are suppliers delivering what customers really want?

Understanding customer drivers is a key concern for product manufacturers. Reassuringly, Delta-ee’s research shows that equipment installers know their customers well; their take on the key customer drivers echoes what we found previously, direct from end-users. Installers confirmed that the desire to reduce running costs is the main customer driver for fitting microgen. At a time of increased political debate surrounding the sharp rises in energy prices (see e.g. here), the report highlights the opportunity microgen players can take to demonstrate their products’ resilience in the face of inflation-excelling fossil fuel prices. Although, because installer drivers vary as much as their customers’ drivers do, understanding the different target audiences for microgen products will be critical; more detail on which can be found in our full write-up.
Many installers remain unenthused about the Renewable Heat Incentive (RHI), and the impact appears to be weak – should DECC be concerned?

With only 50% of installers who currently cab fit both conventional heating and renewable systems even aware of what is arguably the single-most important policy piece for low carbon heat in the UK, Delta-ee’s Installer Survey Report highlights a key threat to the sector’s ability to capitalise on the RHI scheme. If installers themselves are not adequately aware of the full range of offers available, how can customers make fully informed investments?  And, if those who are aware are personally indifferent, how will they sell the value on to potential customers?

Q. 21)    Has the recent announcement about the Renewable Heat Incentive made you more or less likely to want to install renewables in future?

The Installer Report demonstrates the need for product manufacturers and policy makers to really sell the full opportunity the RHI offers to installers as much as customers. Today the impact has largely been weak, possibly due to a lack of understanding or uncertainty surrounding the scheme’s delivery. The RHI can only avoid the disappointing fate of the Green Deal if the entire supply chain is working together.
Feedback highlights key supply chain issues: Are opportunities to sell microgen being lost?

Installers are undoubtedly the main point of call for customers making their installation choices, be they strategically planned or hastily taken (a further revealing topic explored in the report). But, focusing on the role of the installer as an influential source of advice, we have learned that, too often, customer enquiries for microgen systems are not being converted. Even among installers of purely conventional system, as many as 1 in 10 installs involve a microgen enquiry, and the figure is understandably far higher among those offering renewables. Effectively, we believe this demonstrates how more consumers are beginning to engage with microgeneration. Yet, alarmingly, (far) fewer than half of all these enquiries result in a microgen technology being fitted.

Together with other aspects of installer engagement, such as the most important factors shaping their own decisions on whether a property is suitable for microgen, this research highlights the crucial role installers hold in shaping – and clearly sometimes obstructing – customer uptake of microgen. Rectifying such obstructions is crucial for growing the market for renewable solutions, and therefore the report pays considerable attention to which strategies will work best.

Delta-ee’s market leading Microgen Insight Service

Offering extensive coverage across all the key customer groups, Delta-ee’s Microgen Insight Service (MIS) is a subscription-based research service designed around the needs of manufacturers, distributors/suppliers and retailers of microgeneration technologies. By combining primary research (with owner-occupiers, installers, social landlords and housing developers) with detailed techno-economic analysis, the MIS provides the most comprehensive account of the latest trends in the microgeneration industry, drawing out the all-important conclusions / ‘so what’s’ to inform our clients’ commercial strategies.

For further information on the Installer Report and Delta-ee’s Microgen Insight Service please contact:

[email protected];    +44 (0)131 625 1009
[email protected];    +44 (0)131 625 1003
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“Our CHP orders have fallen off a cliff”

I vividly remember being told these words during a telephone conversation I had with one of our clients in January 2009, a successful global player in CHP and distributed power systems.

We were discussing a renewal of a subscription to one of our information services and it quickly became clear he would not be renewing – his company was cutting costs dramatically.  This was about four months after the Lehman Brothers collapse and the world was reeling in the midst of a deep financial crisis.

When Delta-ee produces our CHP & distributed power market projections, we take into account a broad range of factors and drivers, most important of which are often future trends in energy policy, especially the promise of new incentives) and in the relationship between fuel and power prices.  But back in 2009 / 10, it was clear that these drivers were largely irrelevant.  More or less everyone stopped buying anything that was non-critical, including on-site power systems.

To continue reading, please follow this link:
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UK low carbon heat, coming to the boil - Annual value to double to £0.5 billion by 2016

The market for residential low carbon heating products (including solar thermal, air source heat pumps, ground source heat pumps, micro-CHP, biomass and hybrid technologies) is set to take off, according to the latest forecasts from the Delta-ee Microgen Insight Service. 

Annual installations of low carbon heating products are to rise from ~30,000 this year to 80,000 in 2016, making the market worth more than £0.5billion – more than doubling its current value.

A key catalyst for this growth is the recently announced (domestic) Renewable Heat Incentive (RHI), scheduled for launch in 2014. The tariff announcement marked the end of years of uncertainty which had left the low carbon heat markets flat. It will give industry participants the confidence to invest in supply chains and to develop new customer propositions, like those that developed around PV, such as “heat pumps for free”.

We will also see growth expanding into new segments.  Currently, sales are concentrated in social housing and new build properties – which together account for 77% of installs. However, owner occupiers are expected to grow their market share to over 40% of installs by 2016. Uptake will be driven by attractive paybacks in this sector (5 years or less in some cases) as households take advantage of the RHI. Companies that develop propositions for these households will be the big winners in the growing low carbon heat market.

In technology terms, heat pumps will increasingly dominate the low carbon heating market; growing from ~15,000/year today to upwards of 45,000/year in 2016.   For customers using heating oil today, air source heat pumps – with the RHI – are a competitive alternative. The inclusion of hybrid heat pumps in the RHI will provide an innovative low carbon solution for on-gas customers too.

What does this mean for market players?

  • Energy suppliers: have a significant opportunity to tap the market growth.  Some – such as EDF and British Gas – are already developing a portfolio of low carbon solutions for their customers.  
  • Boiler manufacturers: hybrids have significant potential and could be a game changer for involvement of leading boiler companies – Vaillant already has a hybrid heat pump product on the market.
  • Low carbon product manufacturers: an opportunity to be early movers on innovative propositions for off-gas grid owner occupier customers. For Daikin and others, hybrids will be a driver for engagement with on-gas customers too.
  •  Installers: great opportunities to grow and diversify business – expect new training opportunities from manufacturers and distributors.
The full market forecasts report, including the key segments and customer groups to target is available via the Delta-ee Microgen Insight Service. 
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