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F-Cell 2015: ‘F’ is for Finance

In part 1 of his Blog Series, Principal Analyst Scott Dwyer outlines some of the questions around whether better access to low cost finance for customers can help new energy efficient technologies into the market. 

I just returned from speaking at F-Cell 2015 in Stuttgart (part of WES 2015), where one of the hot topics was ‘finance’.

And it wasn’t just financing for stationary fuel cell that was being discussed. It was also a hot topic on the adjoining battery storage event.

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The future of the French and Dutch heating markets: How will they evolve?

In May 2014, more than fifty specialists from Europe’s leading utilities and heating industry companies joined a Delta-ee webinar to discuss the future of the French and Dutch heating markets. To access the webinar recording and slide set follow this link.

During the webinar, we explored two key questions using the Pathways Tool and Roadmap Service (Netherlands & France editions):

1.       How are residential properties heated in the Netherlands and France today?

2.       How will the heating markets in both countries change to 2025?

This was the second in a series of webinars exploring how the residential heating markets across different European countries will evolve to 2025.[1]  

Q1. How are residential properties heated in the Netherlands and France today?

The Netherlands and France are two major European markets for heating appliance sales – but are incredibly different in terms of the mix of annual appliance sales in each market, the mix of fuels used to heat homes and in the scale of their new build housing markets. 

BREAKDOWN OF THE HOUSING STOCK IN THE NETHERLANDS AND FRANCE BY THE FUEL TYPE USED TO HEAT HOMES, AND A COMPARISON OF THEIR NEW BUILD MARKETS



In the Netherlands, more than 95% of residential dwellings are connected to gas with low cost gas boilers dominating annual boiler sales.  Competing with cheap gas boilers is a huge challenge for lower carbon technologies, meaning lower carbon appliances only account for 3% of annual appliance sales today.  Air source heat pumps, ground source heat pumps, biomass boilers and solar thermal are competing closely for these sales today – each achieving sales of a few thousand units per year.

In France, the story is very different – homes are more likely to be heated by electricity or oil than they are by gas.  This higher share of “off-gas” homes (where heating bills are usually high) presents a good opportunity for lower carbon technologies to deliver fuel bills savings and deliver a more attractive proposition for customer.  As a result, 10% of annual appliance sales today are lower carbon, with air source heat pumps dominating these sales.

Another key difference between both markets which influences uptake of lower carbon technologies is the size of their new build markets.  In France, the new build market is near 300,000 dwellings per year.  Coupled with tough building regulations – requiring a share of the hot water demand to be met by renewables – this is encouraging the adoption of lower carbon technologies.  In the Netherlands, where building regulations are weaker and where the new build market is much smaller, new builds present only a small opportunity for lower carbon technologies.


Q2. How will the two heating markets change to 2025?

EVOLUTION OF LOWER CARBON HEATING APPLIANCE SALES IN THE NETHERLANDS & FRANCE TO 2025



By 2025, we expect lower carbon technologies to account for one quarter of annual heating appliance sales in the Netherlands, with gas boiler sales falling by around 75,000 units per year. A number of technologies will be competing for a share of these sales, with two key technologies dominating sales.  Lower carbon gas technologies will win out.

In France, we also see significant growth in lower carbon sales.  By 2025, we expect low carbon technologies to account for 30% of annual heating appliance sales – around 240,000 units per year.  A range of technologies will be competing for this – but we expect ASHPs to remain the leading technology, displacing primarily electric heating.  Lower carbon gas technologies such as hybrids, gas heat pumps and micro CHP will also be competing. 

To access the slide set for this webinar please go to our website.

 
How similar is this story in other European markets?

One thing is for certain – each European country has its own unique story as to why it’s heating market looks the way it does. And each country will have a new story to tell as to why each will develop uniquely out to 2025.

Next in this webinar series, we will be looking at the prospects for one or two key technologies across a number of European markets.  To register an interest in this webinar, please email [email protected]. Places are limited.



[1] In our previous webinar, we compared Germany and the UK – two markets that will develop very differently in the next 10 years.  To access the slides set & recording of this, click here
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Toshiba and BDR Thermea fuel cell partnership: does this mark a final nail in the coffin of Europe’s home-grown fuel cell industry?

Toshiba and ‘BDR’ announce a strategic partnership to bring Japanese residential fuel cell technology (‘micro-CHP’) to Europe. 

Other Japanese and EU fuel cell partnerships 

BDR is the third European manufacturer to move away from its own fuel
cell development and gravitate towards Japanese technology. First it was Viessmann with Panasonic, then it was Bosch with Aisin, now it is BDR with Toshiba. 

Panasonic and Viessmann will launch their product in Germany this year. Aisin and Bosch are further behind, but will be taking part in the EU’s ene.field fuel cell demonstration programme and we should see a commercial launch from around 2016. BDR and Toshiba will target commercialisation from 2015 in Germany.  Vaillant continues to work with Germany’s Sunfire (formerly known as Staxera) with a launch expected within the next 2 years.

History repeating itself

The technology battle between Europe and Asia seems to be tipping in Asia’s favour again. Over the last decade, we have seen Asian companies winning the battle for heat pump technology supremacy in many European markets.


Europe had hoped to win the fuel cell micro-CHP battle. With a host of domestic companies developing diverse product in Europe, its prospects looked promising. 


But Japan is way out ahead in the race to volumes.
 Selected European fuel cell developers                     
  • Baxi Innotech 
  • Ceres Power
  • CFCL
  • Dantherm Power   
  • Elcore
  • Hexis
  • Inhouse Engineering 
  • IRD Fuel Cell
  • SOFCPower,
  • Staxera
  • St. Gobain
  • Topsoe Fuel Cell

Japan’s success was not down to luck


Japan’s emergence as fuel cell micro-CHP global leader was not a fluke. It has been achieved through its Government’s backing of its home-grown fuel cell industry to the tune of almost half a billion euros in public capital spending and support through comprehensive R&D and market introduction programmes. This is not to mention the benefit Japanese companies have received from stable long term policy plan and attractive subsidies. 

However, Japan still faces the challenge of achieving its long term cost reduction targets for PEMFC technology. The technical challenge of SOFC technology has also meant that product availability remains limited in Japan but is still attracting significant investment. 

So does this mean a final nail in the coffin for Europe’s home-grown fuel cell industry?

Not necessarily. While many of the European fuel cell developers lack the resources and brand power of the large boiler manufacturer / Japanese partnerships - the smaller, more agile companies could have a crucial edge when it comes to hunger and desire to see fuel cells succeed in the heating market. And with a diverse range of products, technologies, business models, they could find the key to unlocking Europe’s fuel cell micro-CHP market potential.

 Press Release
  • BDR Thermea press release here.
  • Toshiba press release here.
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FC Expo 2014 and the Gaijin - why are they targeting Japan, and what can they offer?

FC Expo (http://www.fcexpo.jp/en/) is Japan’s largest international fuel cell conference and trade show and this year’s event looks set to be another one characterised by the growing number of non-Japanese companies it’s attracting.

In this Gaijin’s blog on last year's event, I commented how five years on from the launch of the ENE-FARM (Japan’s residential fuel cell micro-CHP systems), a second wave of Japanese manufacturers were now lining up to showcase themselves in the fuel cell space. Companies like TOTO, NGK Spark Plugs, and Miura Kogyo were on display and looking to follow in the steps of Panasonic, Toshiba, and JX – the three original manufacturers of the ENE-FARM and who are responsible for combined sales of more than 80,000 systems since 2009.

Now, we see a trend of non-Japanese companies continuing to target this event. So who are these “foreign invaders”, why are they targeting Japan, and what can they offer Japan with its world leading fuel cell industry?

The Gaijin companies

In terms of distributed energy solutions, Bloom Energy and ClearEdge Power lead the charge from the US, while from Europe it’s Finland’s Convion, Estonia’s Elcogen and Germany’s Sunfire. Posco is South Korea’s representative.

Non-Japanese companies have always had a presence at this event. Last year Elcogen and Convion were also joined by France’s Saint-Gobain and the UK’s Ceres Power (who last week announced the opening of a Japanese office and a working agreement with a Japanese OEM). But this year I see a continuing trend in the number of these companies taking a clear interest in the Japanese market.

What is attracting them?

So why this continuing interest?

Is it that the Japanese manufacturers are further down the road of commercialisation so they don’t need to spend millions of yen exhibiting at a trade show and conference – leaving room for non-Japanese companies to exhibit or present? This of course is part of the reason.

But I think the different fuel cell companies from outside Japan have also concluded that here is a country where the benefits and technology of fuel cells are clearly understood by the policy makers, where policy drivers are hurtling in the right direction, and where stationary fuel cell products above 750W power output are a rarity. All the non-Japanese companies attending this year are offering systems mainly in the hundreds of kilowatts scale – rather than the hundreds of watts.


What can they offer Japan?

Platts recently wrote how, since Fukushima, the growing volume of fossil fuel imports and the associated costs have outstripped growth of the economy and of people’s income. A weaker yen has then made things worse by increasing the cost of energy imports.

What the Gaijin companies can offer Japan is fuel cell solutions for the neglected commercial sectors – so far the focus of Japanese companies and Government policy has been primarily on residential fuel cell systems. There are many businesses, apartment blocks, public buildings and server rooms that could benefit from protection against rising fuel costs – and for which sub-1 kWe systems just don’t make sense.

With talk of a feed in tariff for CHP as well, the economics for distributed generation could receive a further boost (Japan now features as one of the “hot markets” covered in our Distributed Power Research Service.

In summary – a growth market with a gap for non-residential applications

The “foreign invasion” is made up of a diverse range of companies from around the world, who are targeting a country now with all the credentials to be a future powerhouse of distributed energy. The new market entrants from outside Japan have also noticed a gap in the market for non-residential scale fuel cell applications. Doing business in Japan is not always easy for Gaijin companies, but if they manage to find successful partnerships, then they will have a lot to offer Japan in its brave new energy world and complement its already world leading fuel cell industry.
 
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Seven things you need to know about Micro-CHP in Europe

In the past, Micro-CHP (5kWe and below) has been guilty of over-promising and under-delivering. However, product choice in Europe has been steadily increasing over the last three years and some major global brands are now committing themselves to bringing micro-CHP product to market. Gas industry involvement and support will be key if the technology is to achieve its full potential in a region containing 740 million people and 190 million buildings. New business models are also being proposed for capturing additional value from micro-CHP – leading to increasing interest in what ultimately remains an industry defined by much uncertainty.

For those wanting to consider where the value could be for them, here are seven things you should know about Micro-CHP in Europe:

1. Germany is Europe’s leading market

Out of fifteen micro-CHP systems to choose from in Europe, eleven are only available to customers in Germany. The reasons being: higher electricity prices in Germany making self-generation of power more attractive, supportive policy and a greater willingness of customers to innovate with their heating systems. This will eventually change but Germany will continue to lead for the time being.

2. Europe’s market leaders are two of its largest boiler manufacturers – but they still lag behind the global leader, Japan’s Honda

BDR Thermea and Vaillant are Europe’s market leaders in micro-CHP with a combined 15% of the global installed base.  On the other hand, Honda still dominates with a worldwide market share of 54%.

3. The size of the opportunity is an annual heating market of 8 million gas boilers – worth around €25 billion each year

Across Europe, around 8 million boilers are sold each year which represents a market value close to €25 billion. While micro-CHP won’t be a perfect replacement for each of those boilers, taking just 4% of the market would make it a billion euro industry.

4. Japan is the global leader in micro-CHP and its companies have their sights set on Europe

Japanese sales of micro-CHP now outnumber those in Europe by around 10 to 1. The main reason behind this success story is the support from Government, and the fact that the manufacturers and the gas industry have joined forces, to help find synergies in the supply chains that would allow a single, recognisable “brand” for micro-CHP (specifically fuel cells) to be created.

5. Some in the gas industry are pioneering new ways of helping the product to market

Companies in the gas industry are trying to help micro-CHP succeed, from providing small financial incentives and assisting in product development, to supporting laboratory and field tests as well as selling and installing product. New micro-CHP business models are also being tried and tested by current market players in an effort to capture extra value and help products into the market.
 
6. There is an increasing range of technologies to choose from but ICE still dominates in Europe

There are generally five types of micro-CHP technology. All are at various stages of commercialisation in Europe but internal combustion engine (ICE) – the most mature of them all – will remain the bestselling one for the time being.

7. Its a market offering great potential yet characterised by huge uncertainty

Despite the uncertainty regarding the potential growth of micro-CHP, a number of major corporations remain committed, among them are utility companies such as E.ON, RWE, British Gas, GDF Suez, SSE, some of their biggest heating equipment manufacturers such as BDR Thermea, Bosch, Vaillant, Viessmann, Ariston, as well as some high-profile global brands from Japan which include Aisin-Seiki - part of the Toyota group, JX, Panasonic, and Toshiba.

To unlock micro-CHP’s potential, they will need a stable policy environment, ensure their products reach the market on time and at a reasonable cost, and foster greater involvement from the wider energy industry.

This blog was based on an article that originally appeared in Gas for Energy Magazine.   Click here to read the full article.
 
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Will the Renewable Heat Incentive revolutionise domestic heating in the UK?

The announcement of the domestic Renewable Heat Incentive (RHI) scheme in July this year is welcome news for the fledgling renewable heat industry, as discussed in our previous entry: ‘RHI = Really Happy Industry'.  But, will the proposed incentive levels ignite genuine interest amongst discerning UK customers and drive significant uptake?

I’ve been using our Pathways Tool and Roadmap Service research to explore this question, and the answer is yes!

Over the next decade, there’s going to be a huge shift in the structure of the UK’s domestic heating market.  Overall boiler sales are set to fall by 30% (by more than 400,000 units per year).  Oil boiler sales will almost disappear (see the figure below).  These heating systems will be displaced by a range of low-carbon alternatives whose market will grow from low 10,000s today to 100,000s by 2025 – with an installed market value worth £2.5 billion in 2025.

Evolution of residential heating appliance sales in the UK to 2025.

Source: Delta-ee, 2013

And the winners will be….     
  • I expect to see a boom in sales of hybrid heat pumps to 2020 – the combination of a relatively low upfront cost with a great payback (even on gas), and a comparatively straightforward retrofit will grab the attention of UK customers. Most other low carbon alternatives will struggle to compete with this in the short term.    
  • And the market for ASHPs will take off – ASHP economics means they will become very attractive options for off gas homes, with this opportunity extending to on gas properties in the 2020 – 2025 period. 

But many other technologies will also have a role to play!  

Some other low carbon heating technologies are supported by the RHI (biomass, solar thermal, GSHPs), and others are supported by the feed-in tariff scheme (micro CHP and fuel cells).  With growing awareness of low carbon technologies that will come with the RHI introduction, all will become more attractive to customers and grow their market shares in the next decade. I expect to see growing competition among the low carbon technologies and an increasingly dynamic market.

What does all this mean?
  1. There are great opportunities for energy suppliers to become service providers, and to develop new product offerings for their customers.
  2. Boiler manufacturers face a real challenge as their boiler sales take a hit in the next decade.  But low carbon technologies, if added to their portfolio, could make up for this.
  3. The UK will miss its carbon target for decarbonising residential heat, if the uptake of low carbon heating appliances remains on this trajectory.

For further information on the above, please contact [email protected]

For shorter term forecasts to 2016 and insights into what UK customers really think, please check out our Microgen Insight Service.
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