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.