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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.

mchp elasticity blog

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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Tuesday, 14 July 2020

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