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The new GE Distributed Power business – do the numbers add up?

At the end of February, GE Distributed Power was launched.  It’s an important market development from one of the big beasts of this fast growing sector. 

I want to make 3 points that suggest GE is doing the right thing at the right time:

1. I recommend a reading of the associated GE DP White Paper on The Rise of Distributed Power.  One of its themes is that the era of utility-based central power is in decline.

What the Paper could add is that this trend looks like it is accelerating faster than even GE thinks: 
  • Most of Europe’s biggest utility companies are on their knees financially.  They are losing money on many of their largest plants and are trying to diversify away from big power generation.  RWE in Europe is a good recent example – it announced last week its first loss in 60 years.  E.ON is also struggling, and is diversifying into small-scale CHP (see my blog on this).
  • In many emerging markets, power demand is surging well ahead of the capacity of centralised utilities to deliver.  DP systems are increasingly the default option for end users.  In past Delta-ee research on the Global Gas Engine market to 2020 (0.5 – 5.0 MWe engines), our top 10 opportunity markets included Bangladesh, Nigeria and Indonesia:

Gas engine (0.5 – 5.0 MWe) sales projections, all power applications.  Delta-ee 2013.     


2. The White Paper describes 4 ‘driving forces’ of DP: 
  • The growth of natural gas, including shale gas
  • The high cost and unpopularity of new electricity network infrastructure. 
  • The scope for emerging automated control systems to increase the economic performance of DP. 
  • The growth in demand for ‘resilient’ infrastructure.

I would add 2 more important ones: 
  • The fast expansion of intermittent renewables, including solar and wind power.  This creates network system balancing challenges, and flexible DP systems – including gas-fired CHP systems with thermal stores - are already providing part of the solution. 
  • Economics: in addition to the network savings, critical drivers of gas-fired DP and CHP systems in many countries are policy incentives and the fuel/power price spark spread.  Both are on an upward trend in many countries. 

3. What about the numbers?  GE forecasts an annual market for all global DP investment in 2020 of $206bn.  This is a very large number, but it includes a diverse range of non power applications and widely deployed technologies such as diesel engines. 

Our view of 2020, based on Delta-ee’s global distributed power research, for a subset of the GE DP range - gas engines of all sizes, all fuels and all stationary power applications - is about $35-45bn, more than a doubling from our 2012 data.  I would say the two numbers look broadly consistent - and that the GE numbers do indeed add up. 

Either way, we are clear: DP is a growth market.

Note: Delta-ee’s Distributed Power Service is launching in March 2014.
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Tuesday, 27 May 2014 01:37
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Year of the Wooden Horse: Spotlight on East Asian CHP markets

Last week marked the end of the Year of the Snake, as vibrant Chinese New Year celebrations ushered in the majestic stallion to take his reign till February 2015. The time for “strategy” aptly followed by a year of “action”.  Can the same be said for CHP developments in East Asia? 

In China, two thirds of its urban central heating schemes and over 163 GW of the nation's electricity generation capacity are already CHP-based, fuelled mainly by coal (the National Development and Reform Commission has stated a goal of 200 GW of CHP by 2020 – estimated to be 22% of China’s installed electricity capacity by then).  Regional policy, economic and climatic conditions are strong drivers of the CHP market, alongside gas and electricity prices and availability. 

Beijing, Shanghai and Guangzhou are likely to have the greatest gas-fired CHP market opportunity within the next 5 to 10 years.  With medium to strong macro-economic performance predicted and colossal spending on projects that reduce carbon emissions, signs point to China meeting its 2020 CHP target - but then again the Trojan Horse has been known in the past to lull us into a false sense of security.   

Casting our eye over to China’s neighbours: 
Japan and South Korea
Delta-ee has produced a number of research reports for the International Energy Agency (IEA) CHP and DHC Collaborative, including some Country Scorecards (for a full list, click here).  Having worked on both the latest Japan and South Korea Scorecards, I noted three key trends:

1. Increasing concerns over security of electricity supply 

Following the Great Earthquake and tsunami of 2011, many of Japan’s power plants were damaged, most notably in the Fukushima region. This prompted a nation-wide nuclear phase out and a critical need for new capacity.  In that same year, South Korea experienced unanticipated technical glitches at two KEPCO nuclear plants, sparking public concern over the reliability of its electricity supply. Both these incidents have already been, and will likely continue to be, catalysts for CHP growth to 2020.

2. Heavy importers of fossil fuel 

With limited indigenous energy resources, Japan and South Korea are major importers of fossil fuels for power generation. Both countries have identified high efficiency CHP as a way to reduce this cost.

Energy market reforms underway

Both countries are in the midst of implementing plans for energy market liberalisation. Delta-ee’s research suggests that the impact of such liberalisation on CHP development globally has been very mixed. For example, since market reforms took place in Europe in the late 1990s, CHP deployment has barely advanced. 

So, how do these two countries differ with regards to CHP?

In 2012, over 9.5 GW of installed CHP capacity provided about 3.5% of Japan’s electricity production, while South Korea reported 7.7 GW of CHP capacity in 2011 (9% of national electricity capacity). Despite the similar installed capacities, there is a big divergence in the type of CHP prime mover and applications pursued. Japan is the world leader in the development and implementation of micro-CHP technologies at the residential level (primarily internal combustion engines, but fuel cells are increasingly gaining traction) - see the IEA Japan Scorecard for cost and deployment details.  Conversely, district heating and cooling schemes have been the core focus for South Korea, with recent interest in large scale fuel cell projects and domestic fuel cell micro-CHP as an electricity supply hedge. 

Looking forward, Japan aims to more than double its existing industrial and commercial CHP capacity to 22 GW and to install 5.3 million micro-CHP units by 2030.  South Korea has set a target for 100,000 1 kW fuel cell micro-CHP systems to be installed by 2020.

All three of these Oriental economic giants have shown clear CHP ambition, and our ‘CHP & Distributed Power’ research team will continue to study and track their progress. 
In 2008, the IEA gave the following star ratings in the Country Scorecards for each nation’s CHP policy benchmarked against global best practise. We compare them here with their recent 2013 ratings. Japan has gained an extra half star, in large part due to both a strong government “strategy”, but also clear “action” to provide CHP incentives.  Having said that, Japan didn’t meet its fuel cell micro-CHP target last year – it’s possible that the ambitious targets may not be achieved.

Overall, my key message to CHP manufacturers looking to exploit these and other markets would be – don’t just listen to what politicians say they will do (“strategy”), but track what they are actually doing (“action”).
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