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Trump. What impact on the outlook for global distributed power?

Not many people saw that coming.  And certainly none of the pollsters. 

So what impact will a Trump presidency, and a Republican controlled Congress, mean for distributed energy expansion both in the US and globally?  Here is a first Delta-ee view.

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Mexican wave of new gas engine projects

Our research suggests that Mexico will become a ‘Global Top 10’ market for gas engines by 2020

Mexico’s energy reform is likely to herald increased activity in the field of distributed power. Since the Mexican government passed an historic energy bill in December 2013 - paving the way for deregulation of the electricity sector and bringing to an end state-owned CFE’s monopoly of the market - Delta-ee has witnessed growing evidence that Mexico is currently undergoing a period of sustained market growth, particularly in the field of stationary power gas engines.

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Global gas engine market to grow over 50% by 2020

The latest report from the Distributed Power Service shows that the global market for reciprocating gas engines used within stationary power applications is set for strong growth over the next five years. Our Global Gas Engine Statistics Report forecasts that for gas engines sized 400 kWe and above, the market will increase from 4.6 GWe in 2014 to 7.0 GWe by 2020, at a compound annual growth rate of over 7%.


Falling oil and gas prices help, but global economic expansion and ‘green’ drivers underpin our forecast for global gas engine sales. Our research has identified very different drivers and trends in key markets such as Germany, UK, USA, Brazil, Japan and China.

Throughout 2014 we have been researching in great detail the major global and emerging markets for gas engines. We found that nine countries make up more than half of the world’s gas engine market – these countries have been the focus of our research. 

Delta-ee’s Global Gas Engine Statistics Report details the key market drivers which are set to stimulate this growth, and provides detailed segmentation of sales data and forecasts, broken down by 6 global regions, 9 countries, and 6 size bands. For more information on our report, download this free Whitepaper, or contact John Murray at [email protected].
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Emerging drivers set to promote high-efficiency gas-fired generation in China

With a population of 1.4 billion and an economy which, by some measures, is larger than that of the US, almost all global industries are, to some extent, influenced by China. And while China is not normally the first market which comes to mind when the words ‘efficiency’, ‘decentralised’ and ‘energy’ are used in the same breath, there is no doubt that the sheer scale of the technical potential for distributed power investment makes China one market not to ignore. And so, at Delta-ee, we considered China as one of our nine global countries during ‘Year 1’ of our Distributed Power Service (DPS).

The DPS considers the past, current and future market sizes for gas engines used within stationary power applications. By considering market drivers such as energy price trends, the evolving regulatory environment, macro-economic factors, the competitive landscape and end-user segments, we are able to compile detailed insight on which we base our year-on-year projections out to 2020.



Here are three of the key observations from our China research:
  1. Coal mine (and coal bed) methane has taken a significant share of the Chinese gas engine market to date, but will likely have a falling influence in the period to 2020. This is partly due to the demise of the CDM (Clean Development Mechanism) funding stream which previously stimulated investment from overseas, but also due to the emergence of high-efficiency and renewable investments in other sectors. Nevertheless, Coal Mine/Bed Methane projects continue to come online, with both domestic and foreign gas engine manufacturers supplying units - normally in the sub-2 MWe size range.
  2. High-efficiency co- and tri-generation gas-fired projects will become increasingly prevalent. There has already been activity in this sector, with some high-profile projects already appearing. But this is just the tip of the iceberg. With emerging policy support in some regions – and Shanghai leading the way with capital grants and lower gas tariffs for high-efficiency co- and tri-generation developments – together with a continuous and growing need to address air quality issues in densely populated cities, there is strong evidence to suggest that this sector will exhibit growth to 2020.
  3. A shift towards gas-fired power generation will inevitably open up opportunities for large-scale, gas engine-based power plants. While there has been little activity in the ‘power plant’ segment for gas engines in China so far (for ‘power plant’, read multiple 10+ MWe gas engines used primarily for electricity grid export), past performance is unlikely to be a good indicator of the future in this case. The Chinese government has high ambitions to become less reliant on coal-fired power generation, with natural gas set to take an increasing share of the market. While much of this capacity will inevitably be met via large combined cycle gas turbines, towards the end of the decade, we expect multiple gas engine projects will have been announced – especially where flexible, high-efficiency generating capacity is required to meet peak demand. This is indicated via the light-blue bars in the chart above. 

To find out more about the Distributed Power Service, and our China research, please contact John Murray at [email protected].
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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 [email protected]

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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 [email protected].
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