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The impact of changes to RHI tariffs on the UK heat pump market

The latest Delta-ee podcast focuses on the impact of the latest changes to the RHI (Renewable Heat Incentive) tariffs and the impact they will have on the UK heat pump market.

Steven Ashurst, Senior Analyst and Micro-CHP Research Service Manager, and Lukas Bergmann, Senior Analyst and Heat Pump Research Service Manager, suggest the changes in tariff point towards a positive future for air source heat pumps.

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Is a European-wide ban on the sale of fossil-fuel heating appliances imminent?

Policy fundamentally dictates the commercial opportunities within a market, and the business models that are viable. With energy policy shifting focus from electricity, towards heating and transport, could the regulatory moves and discussions we are seeing in the transport sector be mirrored in heating?

A plethora of incentives for EVs are now in place across Europe, discussion of the mandatory requirement for every new build to be equipped with an electric recharging point and the outright ban of certain products are underway. Although developments in the heating sector are currently slower moving, the first steps are in place, in particular new build requirements. It is clear that when countries do decide to act, change and transformation can be rapid.

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In the new energy era, policy makers and new business models need each other

Policy makers need new business models as much as new business models need policy makers. This was one unexpected conclusion from some of our latest research on the new business models that are emerging in the distributed energy and connectivity markets we track.

We didn’t set out to prove this thesis. Our main aim of our latest research 'New Business Models for Micro-CHP" (published 16 January) was to develop an effective framework for analysing these business models, and test the hypothesis that they are all about 'getting to volumes' for new innovative (more expensive) home energy products. (More on this in my next blog).

So why do new business models need policy makers?


For new technologies - like micro-CHP, fuel cell or heat pumps - new business models have emerged as a response to:

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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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Energy Label & Ecodesign – 3 Reasons Why They Will Boost The Domestic Hot Water Heat Pump Market

This is the last in a series of five articles that shine light on some highlights from our study on domestic hot water heat pumps (DHW HPs), recently published as part of our Heat Pump Research Service. For more information on the study or the Service please contact me or my colleague Lindsay Sugden.

Ecodesign & Energy Label – Promoting Energy Efficiency in the European Union

Ecodesign and Energy Labelling are two of the key policies of the European Union to promote energy efficiency in the appliance markets, with two quite different approaches to the market. Whereas Ecodesign pushes appliance manufacturers to comply with certain minimum standards, Energy Labelling is betting on customer pull for more efficient products by giving them the necessary information to compare products on a scale of A (+ - +++) to G.

After long negotiations, the final versions of the Regulations for hot water heaters were published last Friday, the 6th of September, taking effect in 2015 and 2017. But how will these regulations interact to increase domestic hot water heat pump sales? Will they, ultimately, influence customer choice?

Ecodesign & Energy Label – Raising Cost Competitiveness and Transparency for Domestic Hot Water Heat Pumps, Thus Increasing Consumer Appeal

As discussed in my first article of this series, the biggest untapped potential for domestic hot water heat pumps lies in the replacement market for direct electric storage water heaters. I expect the Ecodesign and Energy Label regulations to make domestic hot water heat pumps more attractive to consumers. And even a small shift in consumer decision will have a significant market impact: If 5% of current annual sales of direct electric storage water heaters in France alone became DHW HP sales, the European market for DHW HPs would more than double from today’s size.

Here are three reasons why the Regulations will influence consumer decision-making in favour of domestic hot water heat pumps and boost the market:
  • The Ecodesign Regulation will exert an upward pressure on prices for direct electric storage water heaters. It is my understanding from discussions with various industry players, as well as the modelling in our report, that the insulation performance of direct electric water heaters will have to double in order to keep these systems on the market after 2017. Insulation levels using current solutions (e.g. PU-foam) will have to double, or new solutions like vacuum insulation will have to be brought to the market. This will move prices for direct electric water heaters more towards the higher end of the product range, reducing one of the currently most important barriers for domestic hot water heat pumps to enter this market.
  • Domestic hot water heat pumps will continue to decrease in price and increase in efficiency. Our calculations suggest that already the upper third of today’s domestic hot water heat pumps are efficient enough to comply with the highest label available to these systems (A+). With the investment in developing and marketing domestic hot water heat pumps on the increase, I expect that the current trend of decreasing prices and increasing efficiency will continue. This means that domestic hot water heat pumps will increase their cost competitiveness compared to direct electric systems.
  • The Energy Label will bring more transparency to the market, allowing customers to compare performance of different solutions. In a few years customers will for the first time have comparable efficiency data for electric hot water systems, clearly showcasing the energy efficiency advantages of domestic hot water heat pumps over electric water heaters. Energy Labels for other appliance categories have already proven to have a significant impact on the market (in Germany for example you will have a hard time finding any fridges below A nowadays). With the price differential between electric water heaters and domestic hot water heat pumps continuing to decrease, I believe that the labelling of domestic hot water heat pumps as more efficient will significantly drive the market.
Of course the extent of the impact of each of these three factors will only be measurable in 2-4 years as the Regulations take effect, but all the signs are pointing in the right direction. We forecast that the market for DHW HPs could at least double by 2020 to well over 100,000 units/year, and the Ecodesign and Energy Label Regulations will play an important role in that.
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