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My top 3 micro-CHP related observations from the Fuel Cell Expo

I attended the Fuel Cell Expo, part of Japan’s 14th World Smart Energy Week conference and exhibition in Tokyo, mainly so that I could talk about the situation here in Europe. I presented the findings of a new study led by Delta-ee on business models for the stationary fuel cell market, which was funded by the Fuel Cell and Hydrogen Joint Undertaking.

At the same time, the Expo is the place to go for an update on what’s happening in the world’s most established market for fuel cells and micro-CHP. This post gives some of my key highlights from the fair, which centre on connectivity, competition and commercialisation.

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State of the micro-CHP sector part 1: 2015 sales and market summary

The first of our two-part blog on the state global micro-CHP market provides a run-through of the key events that shaped the outcome in 2015 – taken from the Delta-ee ‘Micro-CHP Annual Roundup and Market Outlook’ report.

2015 was the year of the first ‘double-dip’ in the micro-CHP market

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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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IEA Heat Pump Conference, Montreal, May 2014: Is Asia leading the way with Heat Pump R&D?

I have just returned from the IEA Heat Pump Centre Conference in Montreal, Canada, where I was impressed by the extent of new heat pump R&D and development – some of which is indicative of a new generation of heat pumps which could be commercialised over the next few years. I also gave a presentation on developments in Europe regarding smart heat pumps and the value to the customer which you can access here.  

While the papers presented at the conference illustrated the global extent of advancement of heat pump technologies and markets, I noted clear evidence that Asia in particular is ahead of the curve in terms of driving HP R&D - especially Japan and Korea but with China emerging fast. Developments in these markets are being driven by strong government energy efficiency targets in response to security of supply concerns, spiralling demand and a need for energy conservation.

This is supporting a massive amount of support for heat pump R&D in Japan, China and South Korea in order to deliver ambitious targets regarding efficiency improvements - and in some cases cost reduction. Looking at the way Japanese companies have already significantly influenced the competitive landscape in the European heat pump market in the last few years, and from seeing the research presented at this Conference, it is difficult to see this trend changing – the difference now is that we see a much stronger presence from Korea and China than before. European (and other international) manufacturers should take note of this increasing competition!

Here are some of the topics picked up at the conference which we will be watching closely in future Heat Pump Research Service and wider work…

  • Increasing heat pump system efficiency & cutting upfront cost: The Japanese Next Generation Heat Pump project (led by New Energy and Industrial Technology Development Organisation - NEDO), has already made steps in this direction in line with targets of 50% efficiency increase and 75% cost reduction by 2030.
  • Pushing the boundaries of heat pumps into new applications in Japan: Another NEDO demonstration project is testing the use of new heat sources such as waste heat from sewage systems in urban areas.
  • China playing Japan and Europe at their own game - advancing inverter technology, ground-source heat pumps and domestic hot water heat pumps. Technology in China is moving fast, and efficiencies will catch up. The emergence of Chinese DHW HPs we have discussed in a previous blog.
  • The R&D emerging from South Korea is driven largely by its immediate challenge of keeping the lights on: It has already experienced electricity shortages due to the rapidly increasing peak demand and declining capacity reserve margin. Demand response – potentially with heat pumps – is identified as a key mechanism through which to reduce the scale of this challenge. Incidentally, South Korea has joined the UK (in work being carried out by Delta-ee) & others in IEA HPP Annex 42 to share learnings on the use of heat pumps for such load management applications.
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