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Japan’s stationary gas engine market to grow leading up to 2020 – but what is driving it?

Japan’s large commercial and industrial gas engine market has been declining since the mid-2000s due to the economic slump and rising natural gas prices. Between 2009-2011, the gas engine market equated to, on average, 50 MWe of newly installed capacity per year. Yet, Delta-ee believes that by 2020, the market is likely to rise to around 250 MWe of installed capacity per annum. Why? What has changed?

Based on analysis conducted as part of our Distributed Power Service (DPS), we have sifted through Japan’s complex gas engine market and identified the key drivers. The figure below demonstrates that the strength each driver will have on gas engine sales will vary depending on the time period.

1. Energy resilience (growing interest across the commercial sector)

Since the 2011 Great East Japan Earthquake and tsunami, there has been greater value attached to energy supply security and reduction in peak electricity consumption - features which can be achieved using gas engines / CHP.
Japan’s power supply shortage is still an ongoing concern (especially in Western Japan) but it is important to note that Japan has not yet experienced wide-spread power cuts since the 2011 rolling blackouts following the earthquake. So, this fear of black-outs is likely to subside as a key driver towards the end of the decade.

2. High electricity prices

Since March 2011, utilities have started raising electricity prices due to rising fossil fuel imports (to cope with the closure of >40GWe of nuclear capacity). However, Japan plans to restart some of its idle nuclear capacity after thorough security checks in the next few years. This is likely to moderate electricity prices from rising further than they otherwise might have. While spark spreads are generally weak in Japan, electricity prices are so high that end-users find value in energy-efficient technologies such as gas engines & CHP.

3. Industrial sector recovery

Japan is an industrial economy. The 2008 financial crisis significantly affected the industrial sector, and sales of gas engines in the 2 to 10 MWe size range tend to follow the same general trends of industry activity and energy demand. The good news is that Japan’s manufacturing sector is gradually recovering, and hence we will likely see the return of new gas engines deployed within the industrial sector in the second half of the decade.

4. Policy incentives show no signs of being removed

In a nutshell, modest CAPEX support is in place for natural gas systems, while biogas systems enjoy a generous OPEX incentive (the current FiT rate of c€28 / kWh for biogas is possibly the highest in the world). In the latter half of the decade, we anticipate policy support in favour of energy-efficiency, smart grid applications, and energy market liberalisation – all of which will remain largely supportive of gas-fired CHP.

5. Competitive electricity pricing and supply (due to market reforms)

Historically, the Japanese electricity market has been almost completely monopolised by 10 local electricity companies. With further reforms (as defined in the Electricity Business 2013 Act), this is likely to open up the market to Independent Power Producers (IPPs). New market entrants include business operators who see opportunities to expand their businesses (and some will likely use CHP as a means to do this – e.g. gas utilities who also stand to gain from increased gas sales) to sell electricity at more competitive prices. Since the Act was passed, the number of power producers in 2013 has more than doubled from ~50 in 2012.

6. Balancing markets (stronger driver as more intermittent renewables come online)

Since the closure of Japan’s nuclear power capacity, utilities and power producers have filled the gap with increased thermal power generation (mainly LNG) and renewables (aided by generous feed-in tariffs). Japanese policy makers have also shown interest in introducing a capacity market and have already commenced energy market reforms which will likely stimulate investor interest amongst utilities and power producers for technologies such as CHP. We expect that large gas engines (>5 MWe) that can offer energy-efficiency and flexible generation will see increased sales nearer to 2020.

To find out more about the Distributed Power Service, and Japan’s most attractive end-use segments for gas engines with market forecasts segmented by engine size classes, contact Dina Darshini at dina.darshini@delta-ee.com

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Turkish gas engine market comparable with Germany and USA

Turkey is a fascinating country. Where East meets West and where Europe merges almost seamlessly with Asia, Turkey can boast one of the world’s most diverse cultures. And now we know that Turkey also has a ‘Distributed Power’ market to rival that of Germany and the USA.

Certainly, that is the case when considering gas engines in the 400 kWe to 20 MWe size range.

Our latest analysis shows that 350 MWe of new gas engine capacity was installed in Turkey in 2013. This compares with around 440 MWe for Germany – the world’s largest gas engine market – and a little under 300 MWe for the USA. By 2020, we anticipate that the Turkish market will increase to almost 500 MWe of new capacity every year. Yet, as little as 10 years ago, Turkey had a gas engine market worth a paltry 50 MWe per year.

Graph: Turkey’s gas engine market is comparable with Germany and the USA




















So what has stimulated this significant rise in activity?


There are a number of drivers to consider. Here, I’ve highlighted the top 3:

1. A growing economy with rising demand for electricity: Over the last 10 years (2002 to 2012), Turkey’s annual GDP has grown at an average rate of 5%, outperforming almost every other European country. And this trend is set to continue out to 2020. A solid economy, and a young, increasingly urban population, has seen demand for electricity soar. In the future (beyond 2020), a new nuclear programme could see a significant amount of new generating capacity coming online. But in the short term, natural gas is playing a major role in meeting this new demand with gas engines often the prime mover of choice within new-build power plants.

2. An improving regulatory framework: It’s fair to say that Turkey does not have the most favourable policy support for low carbon and renewable energy technologies. Yet, the situation is gradually improving. Efficient CHP technologies can now apply for license exemptions when seeking connections to the electricity grid, by-passing lengthy and often costly permitting processes. And since 2011, a feed-in tariff has been available for renewable technologies including biogas and landfill gas facilities. Now we are beginning to witness a real growth in activity within this sector.

3. European and US players increasing activity: Partly as a consequence of a growing economy and increasing electricity demand, and partly due to the improving regulatory framework, major European and US gas engine players are increasing their operations within Turkey. By establishing local distribution networks and flagship gas engine developments, the technology is increasingly becoming an established alternative to gas turbines at the larger end of the size spectrum (10+ MWe) and proving to be a commercially sound investment within the small industrial and commercial sectors, especially in the 1 to 5 MWe size bands. Perhaps unsurprising in Turkey, the textile industry is proving a particularly attractive segment for gas engines.

Find out more

Delta-ee’s Turkey Country Report, available to subscribers of the Distributed Power Service, provides deep insight on the current and future market drivers for gas engines and contains detailed historic, current and forecast sales data segmented by size class, fuel type and year. For more information on our pricing structure, or to discuss this research, please contact John Murray at john.murray@delta-ee.com


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USA: A land of opportunity for gas engines

The USA is one of the top three gas engine markets globally and we are forecasting the market will double by 2020. There are a lot of opportunities, varying by State, by engine size, and by application (cogeneration or power-only generation).Our USA Distributed Power Service country report examines these in great detail, but here are a few highlights regarding key drivers:

1. Firstly, there’s the phenomenal boom in shale gas supply and the resulting low natural gas prices. Going forward, while there is likely to be upward pressure on gas prices, we believe healthy spark spreads will continue up to 2020 with some States still experiencing electricity prices that are 4 or 5 times more than that of gas prices. We show below the 2012/2013 spark spread snapshot of each USA state.



2. A second key driver is policy. Whether it is to comply with strict federal environmental regulation to cut down greenhouse gas emissions, or to qualify for State-specific renewables or energy efficiency incentive mechanisms, or as a power supply hedge in a black out-prone USA - utilities, industry, and commercial sectors have a much greater incentive to invest in, and support, “cleaner”, efficient, and reliable cogeneration systems. We expect that more States will offer credits or improved incentives in the future to facilitate greater uptake of cogeneration systems.

3. A third driver is the greater demand for flexible generation. We expect the installed capacity of non-dispatchable resources such as wind and solar to rise as individual States ramp up efforts to meet renewable energy generation targets by 2020 to 2025. This will benefit large engine units particularly, with the  larger than 5 MWe market segment expanding the most in terms of installed capacity at an average annualised growth rate of ~18.5% / year between 2013-2020.

And what of biogas projects (including landfill gas)? Overall, we expect some growth, but this will be concentrated in systems that are under 3 MWe in capacity and dominated by opportunities in California.  

Taking all the above into account - for gas engines sized 400kWe and above  - we expect to see a doubling of today’s annual installed capacity by 2020 in USA. While the size of the pie will vary from State to State – overall the USA is a land of opportunities for gas engines.

Delta-ee’s USA country report, available to subscribers of the Distributed Power Service, dives into detail about which States offer the best opportunities and for what customer segments and what engine size classes. For more information on our pricing structure or to discuss this research - please contact Dina Darshini at dina.darshini@delta-ee.com.
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Germany’s Renewable Energy Act (EEG) reforms are unwelcome - but not fatal – for CHP industry

Earlier this year, German policy makers announced plans to reform the EEG, the country’s much-publicised package of policies aimed at dramatically increasing the uptake of renewable technologies. While the EEG has been hugely successful in this overall aim – in 2000, approximately 6% of Germany’s electricity was sourced from renewable sources; in 2012 this stood at around 25% - it has come at a cost.

A cost in terms of the price end consumers pay for electricity , with an EEG ‘surcharge’ added to bills to help fund these low-carbon, yet expensive, technologies.

And a cost in terms of an energy market which is now prone to wildly erratic wholesale electricity prices, with fluctuations literally caused by weather patterns and the unerring regularity of night and day.

In a word, the energy market is ‘unwell’. No longer can the likes of E.ON and RWE – Germany’s largest utilities - continue to operate existing assets without sustaining significant losses. Over the past five years, their share prices have dropped by 45% and 50%, respectively. In 2013, E.ON was close to mothballing Irsching 5 – hailed as one of the world’s most efficient CCGT plants – as a result of weak electricity demand. And since 2012, on particularly windy, weekend days especially, the European Power Exchange (EPEX) in Germany is increasingly exposed to negative electricity prices on the wholesale market.

What happens now?

Things have to change. And now it looks like they are about to. On the 8th April 2014, Angela Merkel’s cabinet approved a revised package of EEG reforms which are due to come into effect from August this year. While the latest revisions have been watered down since earlier proposals in January, they are nevertheless set to have a significant impact on Germany’s CHP industry.

Here’s how:

  • Currently, highly efficient CHP operators are exempt from paying the EEG surcharge for electricity that is generated, and consumed, on-site. Today, the EEG surcharge stands at 6.24 €c / kWh. This exemption is a significant driver for the uptake of decentralised, CHP systems which generate heat and electricity for onsite consumption.
  • Since 2007, we have seen natural gas-fuelled systems increase 6-fold on the back of this exemption, and support via the CHP Law. - From 1st of August, all newly installed CHP systems will be subject to payment of 50% of the EEG surcharge for all electricity consumed onsite. Some industrial sectors – including the food and drink industry – will be subjected to a lower surcharge rate of 15%. This development has been hailed by CHP players as a major setback for the industry, and a fatal blow to Germany’s ‘binding’ target of generating 25% of electricity from CHP by 2020.


What is the reality?

While Germany’s CHP industry has understandably been very vocal in denouncing these proposals and calling for a re-think (and there is still a small chance that the latest proposals could be revised once more), at Delta-ee, we have taken a more rational view of the impact these changes will have on future sales. There is no doubt that this development is unwelcome for the CHP industry; an increase in tax is never going to improve the financial viability of new developments. But when the dust settles, we are likely to see that 2015 will once again have Germany as the leading European market for decentralised, small-scale CHP installations.

The German CHP light bulb is flickering but certainly not about to go out.

Delta-ee’s latest report as part of the Distributed Power Service looks at the current and future prospects for Germany’s gas engine industry in the 400 kWe to 10 MWe size range. Our projections out to 2020 take account of the very latest EEG developments and inform readers of the future opportunities across all applications.

For more info on Delta-ee’s Distributed Power Service, please contact John Murray, Service Manager at john.murray@delta-ee.com.

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New Delta-ee research forecasts growth for small-scale CHP in the UK over the next 5 years

As part of the Distributed Power Service, a new global research service which considers current trends and future opportunities for distributed power systems in the world’s leading markets, Delta-ee has published its latest report on the UK market for small-scale gas engines. All gas engines used within CHP and stationary power applications - and with capacities ranging from 400 kWe to over 10 MWe - have been considered.

Here, we share some of our key findings:

The UK gas engine market has improved steadily since the major slump in 2008 and we expect continued growth to 2020 driven by improving spark spreads and a supportive policy framework for biogas installations. A gradual recovery from the economic downturn is also likely to improve investor confidence in the second half of the decade, with a stronger emergence of district heating expected nearer to 2020. 



Overall, we expect strongest growth among the smaller sized gas engines - primarily those under 1 MWe in capacity.  Increasingly, we are seeing CHP systems installed within commercial and public buildings while policies are tending to favour smaller systems. Furthermore, as spark spreads improve, small systems which were previously prohibitively expensive are becoming more viable. Specifiers are also turning to CHP solutions in order to meet energy efficiency targets in new build developments.  




The full UK Country Report is available via the
Delta-ee Distributed Power Service, a subscription-based research service. For more information, please contact John.Murray@delta-ee.com.

More about Delta-ee’s Distributed Power Service

The Distributed Power Service covers global markets and provides in-depth market insight to help you grow your business in an increasingly dynamic energy sector. We have designed this service to be as accessible and relevant as possible with Market Intelligence updates regularly sent to subscribers, covering policy updates, product developments, energy price movements, and more. In-depth country reports are published throughout the year alongside segmented sales data and future projections to 2020.

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Russia: a market with huge potential – will decentralised energy take off?

Everyone knows that Russia is a vast market with huge untapped potential. But in the context of a struggling economy and increasingly tense diplomatic relations, what is the future for decentralised energy in the world’s largest country?

Earlier this month, I travelled to Moscow to attend the annual Russia Power conference and trade fair in a bid to find out if Russia is ready to embrace a new generation of efficient, distributed power facilities.



Here are three key messages that emerged during the conference:

  • Energy price trends across Russia are increasing but have been frozen for 3 years amid the uncertain economic climate. A programme of sustained energy price rises has been underway in Russia for a number of years. Mandated by government, these price rises are seen as crucial step towards a competitive and efficient energy market, and follows decades of government subsidies for energy consumers. Yet, the announcement towards the end of 2013 that energy prices are to be frozen for 3 years has undermined investor confidence in the Russian energy sector. It now seems that cost parity is more likely to be achieved towards the end of the decade – perhaps then we may see a new era of Russian modernisation.
  • Weak and out-of-reach electricity grid drives sales of distributed power systems. Vast regions of Russia have no access – or limited access - to the electricity grid. For industrial consumers who require a reliable electricity source, distributed power systems (often gas engines) are frequently the most effective way to secure a supply.
  • Russia is burdened with an over-abundance of aged, inefficient generating plant. Today, the Russian electricity sector has significantly more generating plants than is required to meet what is a reducing demand for electricity. These inefficient plants are badly in need of replacement; yet with the economy weakening, and energy prices frozen, there remains a lack of appetite among investors to build new capacity. Still – there could be good news in store for distributed generators. 50 GWe of distributed generation is set to appear by 2030, driven by industrial consumers looking to mitigate against risks of rising energy prices and security of supply issues.

This month, we are also launching a new Delta-ee research service. Covering global regions for distributed power systems (including Russia), our research will cover both the established markets of today, and the emerging markets of tomorrow.

To find out more about the Distributed Power Service, please click here.

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Recent Comments
Jan Hughes
Do you think there can be a barrier in micro cogeneration in Russia the fact of high price of CHP units and high maintenance cost?... Read More
Tuesday, 11 November 2014 16:36
John Murray
Hi Marina, Thanks for your question. Certainly, the relatively high price of 'micro-CHP' compared to more conventional solutions ... Read More
Wednesday, 12 November 2014 10:04
John Murray
In most cases, a payback period of less than 5 years is necessary to promote significant uptake in sales. This is true across Euro... Read More
Wednesday, 12 November 2014 10:09
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