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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: http://www.cospp.com/articles/2013/11/our-chp-orders-have-fallen-off-a-cliff.html
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Fracking: what it means for future CHP and distributed power markets

These days, there’s no escape from debate about fracking and shale gas.  What does it all mean for future markets for CHP and distributed power?

In July, the World Bank issued its latest round of global commodity price forecasts.  For natural gas, it projects price falls of 31% in Europe and of 32% in Japan by 2025.  Outside the US, shale gas is a part of the reason for this, but mainly after 2020.  

A lower gas price seems like good news for CHP markets based on gas engine and turbine systems – and, in general, this will be the case.  But it is likely to be more complicated than that.  The true impact will be very country specific and, at least for a few more years, will continue to depend greatly on the policy choices of governments.  

For example, with so much high profile talk about the potential benefits of shale gas, energy policymakers in several countries are highlighting the need for a new wave of investment in large gas-fired CCGT (Combined Cycle Gas Turbine) plants that do not recover heat.  

Take the UK: the Government’s latest Gas Generation Strategy advocates up to 37 GWe of new CCGT capacity by 2030.  In contrast, it devotes just two paragraphs to CHP, even while recognising that it is ‘the most energy-efficient way of using gas’.  Counter-intuitively, the UK seems committed to a strategy based on feeding as much gas as possible into CCGT plants.  They are not alone: there are other countries that are likely to prioritise new CCGTs over CHP as the first choice for consuming gas.  We expect this to act as a brake on CHP development.

It is only in that small, but growing, group of countries which are increasingly supporting CHP in their energy policy (alongside countries like Nigeria and Bangladesh where the electricity grid is weak and natural gas is increasingly available) where our sales projections for gas engines and turbines are more steeply upwards.  These include:

  • Several States in the US.
  • Brazil, which has been a world top 5 market for gas engine CHP for the past few years.
  • Germany, where we expect the market for gas engine systems to continue to grow by more than 7% pa. to 2020 and beyond.

We therefore see three main conclusions:

  • Up to 2020, our sales projections for distributed gas engine and turbine sales disregard major shale gas price impacts.  Till then, country-specific policy measures, alongside slowly improving spark spreads based on non-shale energy price drivers, will be more important.
  • Perversely, the current hype surrounding shale gas is leading some governments to a new ‘dash for gas’ based on new CCGT developments that is likely to constrain CHP development up to 2020.
  • The shale gas factor will not kick in strongly till after 2020 – bringing spark spread benefits that may be an even stronger driver than energy policy is today.
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E.ON invests in fuel cell company - a Bloom-ing good idea?

As part of a wider programme of venture capital activities, E.ON has recently announced that they have bought a stake in Californian fuel cell developer, Bloom Energy.

Bloom Energy has forged a name for itself by securing high-profile clients such as Google and Coca Cola for its large fuel cell products. Now, it seems, E.ON wants to get in on the act.

The deal undeniably demonstrates a willingness within E.ON to build momentum in the field of decentralised energy following last month's announcement of small-scale CHP installations in Germany and Russia. The move is likely to open the door to bringing larger, stationary fuel cells to Europe over the coming years, and E.ON is well positioned to establish routes-to-market throughout the continent. Recent Delta-ee analysis suggests that the European market size for 100 to 200 kWe distributed generation products is currently less than 1,000 unit installations per year. Presently, this is dominated by the incumbent decentralised energy technology in this size range, the gas engine. So the big question is: How will this market evolve over time and what share of the market can E.ON hope to capture with this new venture?

Today, larger fuel cell installations are likely to be limited to demonstration projects and some ‘early adopters’ who are not put off by the upfront costs or longer pay-back periods. Over time, though, with energy efficiency increasingly high on the agenda, rising electricity prices, tighter emissions controls within some built up areas and product costs gradually coming down, the market could shift in favour of fuel cell technology within some applications. Indeed, fuel cells could open up new opportunities which are not currently accessible by  gas engines. So, E.ON may have been savvy here and seen a long-term opportunity to capitalise on first mover advantage. We shall certainly be keeping a close eye to see how this develops over the coming months and years.

Coming back to Bloom: Delta-ee has been observing fuel cell developments on the other side of the Atlantic for some time. Certain states like California have support mechanisms in place which have served to jump-start the industry. This state funding, coupled with deep-pocketed blue chip companies who are willing to pay a premium to be 'seen to be green', has enabled Bloom to build up an enviable amount of venture capital –  $1.1 billion over the last decade. And last month, it was announced that Bloom Energy had raised a further $130million in VC funding from Credit Suisse and other sources. 

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E.ON’s move into small-scale CHP – good timing?

E.ON’s 17 May announcement that it is developing small gas-fired CHP systems (<1 MWe) for the retailer METRO is a significant one – mainly because such activity in Europe by a large integrated utility has been a rarity for almost two decades.  So rare as to be almost be invisible.  

A few regional and municipal utilities have developed such projects in a few countries, but the predominant players across Europe have been relatively small and specialised developers.

Indeed, one analyst quoted in the Wall Street Journal after the announcement indicated that E.ON’s timing is wrong, that it’s late in the game, that the smaller players have got there first.  We’re not so sure.  And, for us, that’s not the right question to be asking.

Delta-ee’s research indicates that the markets for gas engine based CHP – both natural gas and biogas fired – in several European and non-European countries have plenty of untapped economic potential.  Even in Germany, the world leader in the development of such projects.  

Overall, we believe that most of the key drivers for this scale of project are net positive for the period to 2015 / 2020.   We project annual European deployment of around 1.5 – 2.0 GWe of projects in the 0.4 – 5 .0 MWe size range by 2020, and up to 1.5 GWe in the 10 – 400 kWe size range.  That’s more than a doubling of today’s rates.  

That is potentially very good news for the product manufacturers – and there are new engines coming into the market almost every month, especially in the smaller size ranges – and the developers.  Including new ones like E.ON.

So the market looks likely to be there for E.ON, and the timing is not bad in our view.  The main question is: can a company of this scale develop a new and nimble business with the right sales, marketing and after-sales service strategies to win new customers and build great relationships with them?

Only time will tell, but the commitment is clearly there - E.ON has already made steps into decentralised customer solutions in a few markets, including PV, district heat schemes and heat pumps.
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Guest — Tom F
Interesting. Any idea what engines they are using?
Thursday, 23 May 2013 11:51
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Micro-CHP and CHP – Front & Centre at Hannover Messe 2013

Delta-ee attended the Hannover Messe 2013 last week. The Messe is a leading global trade event, held annually in north Germany. It is actually 11 trade fairs held concurrently on the same exhibition grounds.  Energy is just one of these 11 trade fairs, focusing on renewable and conventional power generation, power supply, transmission, distribution and storage.  

From our Delta-ee decentralised energy perspective, Hannover Messe is a really interesting event for both micro-CHP and CHP, and it was great to talk with some of our clients and contacts while we were there, and discuss latest developments.  Here are some of our observations from our time at Messe 2013.
  • In overall terms the event seemed much quieter and less well attended than previous years.  The Messe was only a month after ISH so perhaps this had an impact on attendance, but the nervous economic climate can’t be helping much.
  • It was also very noticeable that none of the big German utilities had any major presence or large exhibition stands, a marked contrast to previous years.  We see this as a symptom of the crisis these companies are facing in Germany, with the phase out of nuclear power and growing impact of decentralised power generation on their core business.
  • Wind had a very strong presence in the Energy fair, as in previous years, but there was less evidence of solar PV and nothing significant on heat pumps.  The smart grid forum felt quite different to 2012, with the focus being on grids/network/smart metering, and there was minimal presence of HEM vendors.  This could be a reflection of the Messe 2013 overall theme of “Integrated industry” but may also indicate that many companies at the Messe see the best near term ‘smart’ opportunities on the utility side of the meter.  This made an interesting contrast to the ISH fair a month earlier where it was ‘apps galore’ - see Top 5 Takeaways from ISH 2013
  • For micro-CHP, the focus of the Messe is primarily on fuel cells.  Many of the micro-CHP developers are participating in the Callux and/or Ene.field field trials, and some claim their product is ‘ready’ for market launch.  I say ‘ready’ because this doesn’t mean we expect to see a wave of fuel cell micro-CHP products to hit the market this year.  There will be some launches but these may be quite selective as some companies need to scale up production capacity and supply chains before they are really ‘ready’.  Also some manufacturers are still working hard to make their products as ‘plug n play’ as possible.  This is to try and negate the risk that installers will charge customers very high fees for installation.  But we sense that developers who have been collaborating through the Callux programme are now gently starting to think about how they can differentiate their own fuel cell product, what makes their product special and what customers they will focus on – indicative that market competition is getting closer.  For example, CFCL, which is already active in the market with its Bluegen product, is particularly focusing on maximising sales into the small, commercial market in the German state of Nordrhein Westfalen, where incentives are now available.  See our latest micro-CHP research for more details on this topic. 
  • For CHP, the Messe provided further evidence to support our view that economic and policy drivers are helping the sector to recover from the doldrums of 2009-2010.  This is especially true of mini- and small-scale CHP (in our eyes 5 to 100 kWe and 100 to 400 kWe, respectively). This increasingly dynamic sector has witnessed a number of product launches recently which are likely to challenge the incumbent ‘main players’. For example, EC Power has recently expanded their portfolio of products to include smaller 6 and 9 kWe CHP units which will surely be in direct competition with the current market leader in this segment - the 5.5 kWe Dachs unit from Senertec. Interestingly, Senertec appear to be returning fire; they are due to launch a new 20 kWe product later this year. To help our clients understand the opportunities and changing dynamics in this space, Delta-ee have recently commenced a new multi-client study focusing on gas engines (CHP and power-only applications) in the 10 to 400 KWe size range throughout Europe; you can find out more about the research here.
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Poll results are in! Delta-ee CHP Webinar

Free Delta-ee Webinar - 10-400 kWe Gas Engines - the fastest growing segment of the distributed generation market in Europe?

The results from our poll

We asked our webinar listeners this question: “Which of the following countries will be included in the ‘Top 5’ European markets for 10 to 400 kWe gas engines in 2020?” (We assumed, rightly or wrongly, that Germany would still be a ‘Top 5’ European market in 2020!).

The following selections were made:
  • Czech Republic (20%)
  • France (20%)
  • Italy (45%)
  • Poland (45%)
  • UK (55%)
Thank you to everyone that attended the webinar. The full recording will appear on the website soon.

To view the project scope of our forthcoming Multi-Client Study, please click here.

If you have any questions about the webinar or the Multi-Client Study, please email: john.murray@delta-ee.com

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