Propelled into prominence in the early 2000s, the BRIC acronym refers to Brazil, Russia, India, and China as a single economic concept – of nations at similar phases of their advanced economic development journey. Coined by economist Jim O’Neil, he claimed that GDP (Gross Domestic Product) of these four markets would rise at a faster rate than that of developed economies. To his credit, the share of global GDP (based on purchasing power parity) attributed to BRIC, has risen from 18% to 29% from 2000 to 2013.
But a lot has happened in the past year. While things look promising for India following its unprecedented switch in government, and for China as it diligently abides by its target to keep annual GDP growth above 7% – Russia has been crippled by international sanctions, plummeting oil prices, and weakened currency; Brazil meanwhile, has been swept up in deep structural problems and high-profile corruption scandals.
Economy-wise, 2014 seemed very much an IC year, rather than a BRIC year. Though, the IMF (International Monetary Fund) forecasts economic recovery for Brazil and Russia leading up to 2020.
Source: IMF (International Monetary Fund), 2014
Did BRIC reciprocating gas engine markets follow a similar fate? While traditional drivers like healthy spark spreads and supportive regulatory frameworks are still key, the macro-economic landscape of a country most certainly has some influence on the uptake of distributed generation.
According to Delta Energy & Environment’s latest research, Russia and Brazil’s gas engine markets did indeed suffer in 2014 and will likely experience the negative effects of the nations’ economic fragility in the next 2-3 years. But a steady recovery is anticipated.
China’s gas engine market, conversely, did not mirror its projected GDP growth slowdown – but rather, is estimated to more than double in size (growing from an annual installed capacity of ~low 200 MWe / year in 2014 to over 600 MWe / year in 2020, at an average annualised growth rate of around 15% per year).
Below, I’ve summarised Delta-ee’s outlook for each BRIC gas engine market:
We expect a market recovery from 2017/18 in line with forecasts for a strengthening economy. In the longer term, we expect an improving spark spread situation with increased investment in the power sector (in a bid to move away from hydro and more towards thermal power generation) manifesting itself in higher electricity prices. This improved spark spread will be a key driver for gas engines with likely rising sales towards 2020.
Gas is relatively abundant and cheap (the non-natural gas market is almost non-existent), but the power system is inefficient, unreliable and expensive to users. As a consequence, the incentive for independent on-site generation is strong. This is a market driven by security of energy supply even more than by spark spreads. Beyond 2017, we see decent market recovery, possibly enhanced by a new heat supply law that incentivises CHP / district heating systems.
India has a much lower base of annual installed capacity compared to the other three markets. A prime reason for this is that from 2011, India’s retail natural gas prices have been on the rise due to expensive LNG imports, resulting in its natural gas engine market coming to a near standstill by 2014. With the government announcement in late 2014 that well-head prices of domestically-produced natural gas will also rise by over 30% to €4.5/mmbtu (US$5.6/mmbtu), investor confidence is at an all-time low for future installations in the next 2-3 years. The only silver lining for this market is the proposed expansion of natural gas pipelines and regasification terminal capacity in the next 5-10 years, which will aid in the technical feasibility of gas-fuelled decentralised systems.
The outlook for the China gas engine market is positive, and based on a number of different drivers. Today, the market is underpinned by smaller gas engines (usually – but not exclusively under 2 MWe in size) deployed within coal mine methane applications. Increasingly, however, co- and tri-generation (C/CHP) systems are being installed in new-build developments in densely populated urban areas. Driven predominantly by a need to improve air quality and move away from coal-fired generation, these ‘distributed energy systems’ are seen as a key part of China’s future, and part of a bigger move towards natural gas-fuelled generation in the second half of the decade. While patchy across different regions of China, some supportive policy incentives are being introduced for high-efficiency gas fired C/CHP, with Shanghai leading the way.
We forecast that China’s stationary gas engine market will overtake and lead the BRIC pack by 2020.
Dina Darshini is a market analyst at Delta Energy & Environment, a consultancy specialising in global heat and distributed energy markets. To find out more about other distributed power generation market outlooks and Delta-ee research, please contact Dina at email@example.com