|Nearly 18,000 ENE-FARM units are set to be sold this financial year in Japan Source: Fuel Cells 2000|
Micro-CHP’s emergence into markets has been both slow and – with the withdrawal of some national support schemes, particularly in Europe – inconsistent. Scott Dwyer surveys the global picture, from technical options to market movements.
In our last article for COSPP on the prospects for micro-CHP (Nov-Dec 2010), Delta-ee reported how after many years of waiting, micro-CHP had finally arrived in Europe but future growth prospects were uncertain. We will provide an update on the status of the global micro-CHP market (1–5 kWe). More than one year on, what has changed in an eventful year and is there still much uncertainty over how this market will develop?
In summary, micro-CHP has gained more traction in Japan, with fuel cell sales rising strongly and solid oxide fuel cells (SOFCs) joining polymer electrolyte membrane fuel cells (PEMFCs) on the market. In Europe, new micro-CHP products have shown themselves to be robust and reliable – but prices are generally high and sales numbers still small. Micro-CHP is still a high-price/low-volume market – but still has the tantalising potential to break out of this and move from niche markets of innovators towards mass markets in the future.
Policy developments in Japan are encouraging, with positive signs in Germany and the UK. But elsewhere, the challenging economic crisis has taken its toll, seeing subsidies cut and little short-term prospect of them returning.
FUKUSHIMA DISASTER – JAPAN’S PUBLIC OUTCRY
The Fukushima-Daiichi disaster – or 03/11 as it is being called in Japan – led to the world’s third biggest economy deciding to rethink its entire energy policy, bringing a strongly increased focus on micro-CHP. Energy policy priorities have now expanded from a focus on efficiency, reducing carbon, and increasingly the efficiency of how natural gas is used to include simply meeting peak power demand and keeping the lights on. Anxiety has been growing over blackouts and fuel costs, and this has led to unprecedented demand for home-grown 1 kWe fuel cell micro-CHP systems, from manufacturers such as Panasonic, JX and Toshiba.
Figure 1. Fuel cell micro-CHP subsidy budget Source: Delta-ee, 2012
Figure 2. Carbon savings (compared with a gas condensing boiler) of high-efficiency and low-efficiency micro-CHP in Germany. Source: Delta-ee, 2012
By the end of the 2011–12 financial year, nearly 18,000 units (jointly branded ‘ENE-FARM’) will have been sold; up from an initial target of 8000 (sales were just under 5000 in 2009).
Delta-ee expects to see CHP of all sizes and technology types (previously only a 1 kWe fuel cell has been supported) getting greater backing from policymakers in a country facing very real and immediate security of supply issues.
GERMANY’S ENERGIE U-TURN
Like Japan, Germany was betting on a future with nuclear as a significant part of its future energy mix. Since Fukushima, the decision has been made to end its reliance on nuclear power by 2022.
The ‘Energie U-turn’, as it has been termed, has helped the micro-CHP industry position its products as technical solutions that are available now, are effective at cutting carbon (see Figure 2), and can reduce peak power demand and provide synergy with renewables. Micro-CHP could prove to be an effective component in any future energy policy vision.
Delta-ee’s analysis, using average grid carbon intensity (this is typically used by policymakers, rather than the more accurate marginal grid carbon intensity, which would show much higher carbon savings for micro-CHP) shows that micro-CHP saves significant amounts of carbon for customers, when compared with a gas condensing boiler.
Then, in late 2011, it was announced that the German micro-CHP subsidy, suspended in 2010, would be re-introduced from April 2012. Amounting to a reduction of €1550 (US$2050)for a 1 kWe micro-CHP unit – or around a 15% saving on the current average product – this should help support sales for new products as they transition from volumes of hundreds a year to thousands a year.
EU MICRO-CHP POLICY – UNDER REVIEW IN 2011
During 2011 and going into 2012, many micro-CHP support schemes were under review or facing renewal – and the global economic crisis makes it easy to justify cuts. Here we will draw attention to the highs – and lows – of the last year in some of the key micro-CHP markets outside Germany and Japan.
UK – taking positive step
The UK has recently made positive changes to its incentive schemes for micro-CHP, proposing to increase the generation tariff for electricity generated by micro-CHP with an electrical output of 2 kWe or less. The proposed increase is modest – £0.125 ($0.202)/kWh, up from £0.105/kWh – but this still represents a small victory given economic austerity cuts elsewhere (the solar PV export tariff was reduced by 50%). The UK government now acknowledges that micro-CHP is one of the technologies that will enable the switch from gas boilers to a lower carbon alternative where there are significant barriers for heat pumps and district heat.
In the UK, 1 kWe micro-CHP units are still only available through one manufacturer (BDR Thermea) with less than 1000 units installed, although we expect more choice to arrive for homeowners in the latter part of 2012.
Netherlands – death of subsidy stalls the industry
While the Netherlands was shaping up to be one of the strongest markets for micro-CHP, with a bullish subsidy of €4,000 per unit, the support was suspend at the start of 2011 and then fully abolished later that year. This has led to the near collapse of the micro-CHP market in that country – a stark reminder of how a boom-bust scenario involving government support can be catastrophic when a new industry is trying to establish itself.
Figure 3. Annual sales of micro-CHP – EU versus rest of the world – the vast majority of RoW sales originate in Japan
Figure 4. Micro-CHP sales by technology type Source: Delta-ee, 2012
Belgium follows suit
Belgium has also gone the way of the Netherlands, with the axing of a national tax credit scheme that reduced the price of a brand new micro-CHP by up to 40%. In addition, some regional incentive schemes for micro-CHP have also seen cuts. Again, this was hugely damaging at a time when companies are trying to build sales, but regional subsidies still provide some financial support for what is still a new but expensive technology.
There are similar tales from around Europe – with the region now pulling in many different directions in terms of energy policy and vision for micro-CHP’s future role in their energy mix. Amid the current economic turmoil, it is a challenging time to launch a new, relatively high-cost product.
South Korea – an up-and-coming market
Mention should be made for South Korea which, like Japan, is backing its fuel cell micro-CHP industry to the hilt. With generous subsidies of up to 80% of the system cost, more than 400 fuel cell micro-CHP systems had been installed under their deployment scheme by the end of 2011, while companies such as Samsung are getting involved in development. The government has ambitious plans to grow the micro-CHP industry in the coming years.
US – support still lacking
In the US, micro-CHP has yet to get off the ground despite some attractive niches – such as in the northeast – with high electricity prices and an intense and long heating season. Although net metering is in place in some states, there is no concerted national or local policy push for micro-CHP.
TRENDS IN SALES
While policy has been evolving quickly around the world, how have micro-CHP sales been affected?
Japan still leads global sales
In terms of global sales, Japan still leads the way. This has been achieved through a combination of strong government support in both the R&D and the early market introduction phase. By fixing a budget and timescale for manufacturers to get their micro-CHP products market ready, this provided the stability that new technology products like micro-CHP need to get a foothold in the market.
As we have already mentioned, growing concerns over energy issues since the Fukushima disaster have driven sales of fuel cell micro-CHP to unprecedented levels.
Germany – EU market of choice
Germany continues to lead the way in Europe and we see this remaining to be the case in the coming years, especially with its recent energy policy U-turn. A number of other factors exist to make Germany the market of choice for many companies offering or developing micro-CHP product today. As in Japan, German homeowners are much more willing to invest in expensive technology for their house, which could be heat pumps, solar PV, biomass or micro-CHP. Many German houses have their heating systems in their basements, making a large and heavy micro-CHP system less challenging than in other markets.
Germany is also among the economies with the strongest hope of full recovery from the economic crisis and this is likely to strengthen as we approach the middle part of the decade. Around this time, we expect some fuel cell micro-CHP offerings to be available to Germany’s house-proud early innovators as well (Panasonic has also stated its intentions to target this market with the opening of a micro-CHP research and development centre in Germany in 2011).
US – no breakthroughs
The Honda FreeWatt system, offered by Climate Energy/ECR International, has not gained traction in the market. A few hundred systems have been installed but at an installed price of over $20,000, it struggled. Climate Energy has since decided to stop offering this product to customers. In Western US, PEM fuel cell manufacturer ClearEdge Power has clocked up a hundred installations of its 5 kWe fuel cells (mainly in California), and recently signed a deal with an Austrian company to bring its technology to Europe.
So that is a roundup of the global market and what is changed in 2011. How about the technical status of the technologies? What have been the developments there?
Until last year, the internal combustion engine (ICE) was the leading micro-CHP technology – mainly on the back of Honda ECOWILL sales in Japan and 5 kWe systems in Germany. While Senertec (and therefore ICE) still leads in Europe, in Japan this year we have seen PEMFC sales catch up with ICE sales. We expect PEMFC to continue to grow strongly in 2012 and 2013, and pull away from ICE sales, while we think it may be 2013 or even 2014 before Stirling engine gains a lead on ICE in Europe.
What does this mean for micro-CHP? It will provide householders with more choice when they go looking for a low-carbon option and build confidence in the micro-CHP ‘brand’ with more products available. We expect to see a mix of technologies, particularly in Europe, in the next five years – with different products doing better in different market niches.
So ICE is the most mature micro-CHP technology. Stirling engine has had limited market availability across Europe since 2010, although we have seen the launch of new 1 kWe Stirling engine product in Germany from Viessmann and BDR Thermea’s Senertec brand (both utilizing the same free piston engine manufactured by Microgen Engine Corporation). The PEMFC has shown strong growth in Asia. What about the status of the other technologies?
SOFC launch in Japan
The big news in tech development for 2011 was the world’s first SOFC micro-CHP, launched by JX in late-2011 in Japan. While numbers installed in 2011 were small, we expect to see a couple of thousand SOFC sales in Japan in 2012 (a second SOFC product will be launched in Japan from April 2012, with a product developed by partners that included Toyota-Aisin). A SOFC differs from a PEMFC as it can achieve higher efficiencies – and maybe crucially – has better cost reduction potential.
This leads us on to the launch of SOFC technology in markets outside Japan. Customers in Germany, UK, the Netherlands, and Australia have become the first to be able to buy this product – known as the BlueGen – from Melbourne-based developer Ceramic Fuel Cells Ltd (CFCL).
It is important to note that the BlueGen is not being positioned as a micro-CHP product that will supersede your gas boiler (although two micro-CHP products are being developed separately in Germany and the UK with partners). Instead, it is being positioned as a gas-to-electricity generator that will provide some waste heat and carries an impressive 60% electrical efficiency. It is going through quite different distribution channels from conventional boilers and is not linked to any of Europe’s major boiler manufacturers. Hundreds of orders have been received but we have not included it in these market forecast as it does not represent a boiler substitute. It is still very expensive, in the region of €30,000.
ORC and micro-turbines
The last year has seen lots of behind-the-scenes development from firms working on other micro-CHP technologies. Field trials have been running for UK-based Energetix Group and its 1 kWe wall-hung Organic Rankine cycle (ORC) micro-CHP. We expect a launch in late 2012. Meanwhile, MTT (based in the Netherlands) has developed prototypes now being testing in the lab, with the 3 kWe units entering field trial in 2012 in Germany and the Netherlands.
2011 has been full of highs and lows for those trying desperately to develop a market for micro-CHP in countries around the world. We have seen some polarization in terms of the markets that are being developed for micro-CHP, with Japan and Germany set to retain the majority of market share due to strengthening drivers. The UK may join them as more products are brought to market in 2012 and 2013. Previously uncommercialized technologies have made it out from field tests and into homes and the choice for homeowners is growing.
Global growth last year has been driven mainly by demand in Japan and we expect the same for 2012. In Europe, we expect modest growth in 2012 but we feel it could become an important market as we approach the middle of this decade. As with any newly commercialized technology, uncertainty will exist about future growth as experience needs to be gained and customers have to be educated. What we know for sure is that, if 2012 is anything like 2011, we can expect more dramatic announcements, policy U-turns, exciting new technologies,and some market growth to boot.
Scott Dwyer is a senior analyst and research manager with Delta Energy & Environment, Edinburgh, Scotland, UK. Email: firstname.lastname@example.org