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PV deployment in 2015 eclipsed all other years – but what will give the market a jolt as the sun sets on the Feed-in Tariff era?

According to DECC residential PV (< 4kWp) has just had its record year, with 172,318 installations in 2015 (topping the previous one in 2012 with ~160,000 installations).  This was aided by the noticeable surge of installations towards the end of the year due to expected and finally confirmed Feed-in Tariff (FiT) cuts that took place at the start of this month.

While January of this year is still expected to show some of the surge from the customers that were jumping on the last train of the old FiT rate, there is a lot of uncertainty around the future of the UK market. Are subsidy cuts the beginning of the end for residential PV? Or, will innovations in technology and finance step in to continue the market development towards bright future? 

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Wave of new, renewed, and extended incentives to improve heat pump prospects in Europe

With renewable heat moving ever higher up the political agenda in Europe, heat pumps look to be benefiting already

Across Europe’s five largest heating markets (where almost 5 million heating systems, equivalent to more than 60% of the European total, are sold annually), there is a wave of renewed and extended support measures that look likely to improve the prospects for heat pumps.

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Despite being one of Europe’s largest heating system markets, heat pump sales remain weak in the UK – how can the industry find optimism on the road ahead?

This time last year the UK heat pump industry was enthusiastic, expecting unprecedented growth driven by the Government’s Renewable Heat Incentive (RHI). A year later the hangover is slowly receding and a more realistic outlook is starting to prevail.

As shown in our latest country report published under the Delta-ee Heat Pump Research Service, the UK heat pump market declined slightly in 2014 and for 2015 we at best expect a slow recovery of sales. There are 4 key reasons for this:

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Microgen with monitoring: The way to open up the market?

In the latest survey of British homeowners carried out under the Delta-ee Microgen Insight Service it was revealed that the inclusion of remote control and remote monitoring / maintenance features could have a sizeable impact on sales of renewable heating products.

This appears a strong option for product suppliers who want to widen their market beyond the small portion of homeowners that are already buying. We are beginning to see more of the latest products on the market (particularly air-source heat pumps) offering this feature.

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Ecobuild 2015 - 7 key take-aways from the event

Once again, March’s Ecobuild exhibition in London provided a valuable window into what’s happening, and what isn’t, in the UK low-carbon heating market. The event is the largest of its kind in the UK - showcasing the latest in sustainabiliby, low-carbon design and construction and energy technologies, among other topics.  Delta-ee's Microgen Insight Service research team were in attendance for all three days of the conference and exhibition.

This time around we were impressed with the variety of new renewable heat products coming to market (if not with the lack of finance to help customers afford them), underwhelmed by the lack of push from the big heating brands and any commitment-demonstrating announcements by civil servants, and enthused by the range of innovation shown around technologies like PV and energy storage. This blog provides a summary of our seven key take-away thoughts from the event.
1. A lack of big brands exhibiting - doors opening for smaller players
This is indicative of the big boiler brands backing away from low carbon heat in the UK at present – good news for specialist manufacturers, who have an opportunity to monopolise the early market. Companies like Bosch and Baxi, and other important names like Dimplex, Mitsubishi and Daikin (to name a few) chose not to take a stand this year and instead displayed a selection of products in the merchant areas.
2. Finance needed to unlock the full potential of the domestic RHI
There is no hiding from the fact that the RHI, in its current format, has failed to have the impact many in the industry expected (or hoped). It was clear from the event that the innovative financing packages our research shows customers are looking for are yet to reach the market.

Based on our own customer research Delta-ee still believes third party financing could significantly change the shape and trajectory of the market. If any of the big players can find a way to make this work this will be a game changer for the RHI.
3. Emphasis on wholesalers as the low-carbon route-to-market
Most large manufacturers showcased their products via the wholesaler stands: Travis Perkins Group, Plumb Centre etc., indicating a shift of focus from manufacturers – no longer trying to be a customer brand. Or maybe, just a bit of marketing maths to save costs?
4. BRE launched the new Quality Home Mark
The new Quality Home Mark – a consumer-centric replacement for the departing Code for Sustainable Homes - was unveiled for the first time. The launch marks the start of a renewed focus on energising the consumer; potentially a fantastic opportunity for microgen technologies.
5. PV still dominates the microgen sector in the UK...
Huge stands imported by Chinese manufacturers made an impressive sight once again in the Excel: JA Solar, Yingli and Jinko, for example.  Now a household name – the most recognisable technology among customers – PV demonstrates the mass appeal microgen can have if the pitch, and the price is right (at 45p/W the market has become very competitive).
6. ...Although manufacturers continue to provide more renewable heating options
While the big traditional brands may be scaling back their efforts, there is no shortage of smaller, more specialist companies bringing new products to market. For the most part it was evolution rather than revolution, but there was a wide range of next generation low-carbon central heating products on show. Notable examples included: Daikin's new reduced-size increased-performance monobloc air source heat pump (ASHP), Vaillant's wall-hung shared-borehold ground source heat pump (GSHP), Viessmann's fuel cell-powered micro-CHP and Grant UK's new condensing pellet-fired boiler.
7. Innovation was mainly focussed on 'smart' heating controls
The growing presence of companies offering the next generation of ‘smart’ heating controls: learning thermostats, zonal control and remote control apps etc., this year was undeniable. Such players were often the ones taking up space on the big stands vacated by the large OEMs. The jury’s still out on whether or not these products will be an enabler for the microgen market, but they are fast gaining momentum with customers; helping them become more engaged with their ‘boring old heating systems’.  It’s a start.

So what about next year? The ethos of Ecobuild 2016 could be all-change depending on what happens with the election in a few months’ time. With DECC’s current call for evidence and timeline for introduction on third party financing in the domestic RHI, we’d be really surprised at a comparable lack of ‘green’ financiers next year. The presence of energy storage grew at this event and we certainly expect this trend to continue, as will the encroachment of smart controls into the mainstream market. It remains to be seen whether the big heating brands will decide to become more heavily involved from 2016, probably not, but this will at least again leave the door open for the smaller, more invested manufacturers to get customers more interested in renewable heat.

Download our expanded event briefing note here.

Contact: steven.ashurst@delta-ee.com; +44(0)131 625 1003.
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Why we think smart thermostats will lead the connected home energy market in the UK and the Netherlands

When we speak of connected home energy solutions, different types of products come to mind, among these are smart thermostats, multi-zonal (room thermostat) systems, remote diagnostic of heating systems and tariff optimisation solutions.

Latest Delta-ee research shows that smart thermostats are expected to be the dominant type of connected home energy product in 2017. Our central scenario sees sales in the UK and the Netherlands expected to reach 700,000 and 400,000 units per year respectively, from around 100,000 units per year base today.

Today’s supply chain is dominated by energy suppliers


Although some of these products, especially in the UK, are available through retailers and installers, majority of sales are coming from energy suppliers, as they attempt to reduce customer churn in a highly competitive market. In the UK, Hive, which has the vast majority of sales today, is being pushed through British Gas. Other energy suppliers are offering product but with far less sales so far. Climote through Scottish Power, Nest through Npower and Tado through SSE. As for the Netherlands, Quby has majority of the sales with the Toon smart thermostat, which is available exclusively through Eneco. Essent is offering ICY smart thermostat, as well as Nest thermostat. Plugwise, with Anna, a “Nest like” aspiration type product, introduced towards the end of 2014, will be looking to increase the level of competition in the Dutch market, and will push its smart thermostat primarily through Dutch utility, NLE.

Why are the UK and Netherlands set for growth?

The level of heating controls in the UK are typically quite basic, which makes it an ideal market for smart thermostat upgrades. As for the Netherlands, although the heating controls are typically more advanced, the high level penetration of easily upgradable “dumb thermostats”, on top of the high number of gas boilers coming with OpenTherm (an open communication protocol), makes the Dutch market also very attractive.

The overall opportunity for smart thermostats in the Dutch market is limited by an installed base of ~6 million boilers. However, the UK market, with ~21.5 million gas boilers installed, and annual installations of heating systems reaching 1.6 million, presents a much bigger opportunity. This opportunity has been exploited mainly by energy suppliers, looking to increase customer retention by offering a smart thermostat for free or at a reduced price in exchange for a long term energy supply contract. This could be further exploited in the UK if ECO, an energy efficiency obligation on energy suppliers, was to include smart thermostats within its framework - smart thermostats could then bring significant additional value to energy suppliers, and see sales exceeding our reference scenario of 700,000 per year by 2017.

How can value be extracted from the connected home space?

Delta-ee’s recent report on different business models for connected home players identified 20 value creation opportunities for energy suppliers, heating appliance manufacturers, connected home providers, installation companies and telcos.

Some of these value creation opportunities are attainable by 2017, for instance the direct profit from selling these smart thermostats, or cost-to-serve savings through customers understanding their energy usage better. Other opportunities, such as value creation from demand response programmes, have high potential, but are not likely to be widely in reach by 2017 in most markets. Sweden is one exception where ToU (Time of Use) tariffs are already available (Denmark will follow) although they are not yet widely promoted by energy suppliers and the value is dampened by low volatility in the wholesale electricity market there.

Sweden and Denmark will be the next countries to be added, as part of Delta-ee‘s Connected Home Market Outlook Report, following the first part which covered UK, the Netherlands, Germany and France.

So although smart thermostats will remain dominant in the UK and the Netherlands, the story is different in other markets. For example, multi-zonal heating systems will be more successful in other countries, such as Germany. We will be writing about this in a future blog.

To find out more about this research or the Connected Home Service, contact me at ali.dadkhah@delta-ee.com.

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