Various microgeneration technologies are predicted to make a significant contribution to power supply in several countries in the future. But which technologies will be successful, and when? Here, Andrew Turton analyses the main driver – cost – for a range of technologies in the UK market, concluding that micro-CHP units based on Stirling engines have some of the best prospects.

‘Microgeneration’ is enjoying the media limelight and has progressed from a technical industry term to a more recognized concept in many UK households. Why is microgeneration currently being presented as a key component for the UK’s energy needs? This is due to the convergence of a number of factors:

  • The rising price of fossil fuels has increased the economic burden on consumers, encouraging improved energy efficiency and new energy sources.
  • All but one UK nuclear reactors are marked for closure in the next 20 years, requiring the current 19% nuclear share of electricity generation to be replaced. The long timescales for building new nuclear reactors could also result in a near-term power shortfall.
  • The national electricity grid requires significant investment to increase its capacity and reliability. A decentralized energy scenario consisting of large-scale renewable energy and microgeneration could help alleviate these grid pressures.
  • The concept of global warming is now almost universally accepted, increasing the pressure to cut CO2 emissions.

Micro-CHP can become a key part of the UK’s domestic energy supply if it can break into the mass market (Microgen)
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These have all increased the pressure for cleaner and more efficient systems. Microgeneration technologies offer significant CO2 reduction potential and could form a key part of the future UK energy mix. This is highlighted by an extra £50 million (€72 million) funding under the Microgeneration Strategy published in March 2006.

THE POTENTIAL OF MICROGENERATION IN THE UK

The report Potential for Microgeneration – Study and Analysis, written by Element Energy Ltd with the Energy Saving Trust and Econnect Ltd, was commissioned by the Department of Trade and Industry (DTI) to assess the barriers and potential uptake of microgeneration technologies in the UK to 2050.1

A microeconomic analysis was made of a range of microgeneration technologies operating under typical conditions in 2005. The analysis used capital and installation costs, maintenance requirements, and fuel supplies to assess the value of energy generated by each system. Projections of generated energy value were then made to 2050 using future capital cost predictions. This was achieved using the well known economic theory of ‘learning curves’ where the reduction in cost of a technology is related to the total installed capacity. For example, photovoltaics have a learning curve of 18%, meaning that for each doubling of cumulative capacity, the cost reduces by 18%. This theory has been applied to many industries and is backed up by historical data.

The theory of ‘willingness to pay’ is used to assess possible uptakes of each technology based on their energy costs in comparison to incumbent baseline costs. Willingness to pay is an established theory describing the probability of consumers to invest in a technology/supply based on the additional cost. Data demonstrates that a few ‘innovator’ or ‘early adopter’ consumers are willing to pay a large additional cost – this is true of the PV market where PV systems are installed even though they present a significant additional cost. However, the mass market has a much lower willingness to pay, and requires the alternative cost to be close to or even the same as the incumbent baseline. If the cost of the technology/supply can’t be reduced to this acceptable level, then once the early adopter market has been saturated, sales will stall. There are also some ‘highly sceptical’ consumers who require the cost to be less than the baseline before they are willing to change.

BREAK-EVEN

When the cost of energy from a system is equal to the incumbent baseline, the technology is said to be at ‘break-even’. Projected break-even points are illustrated for a range of microgeneration technologies in Figure 1. If the generated cost of energy is currently high, then the break-even point is further away to allow time for the capital costs to reduce. This the case for PV where the capital costs are currently very high and it could take many years for them to reduce, allowing the cost of PV electricity to approach the cost of grid electricity.


Figure 1. Predicted break-even points for microgeneration technologies in the UK1
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The issue of electricity export is crucial when discussing break-even. The economics can be poor when a large fraction of the generated electricity is exported and sold to the grid at a low price. This can delay or even prevent break-even as shown for PV and small wind. If a lower fraction of electricity is exported and/or a higher value similar to the purchase price is received for the exported electricity (called Energy Export Equivalence – EEE), then the economics improve and the break-even point can be sooner. The green bars in Figure 1 show the predicted break-even with EEE, and the blue bars break even without EEE (electricity is exported for a loss). In summary:

  • Renewable electricity-only technologies all require EEE.
  • Only heat-only technologies break even compared with more expensive baseline systems (electric heating, and not natural gas heating).

Stirling micro-CHP is particularly suitable for UK homes as this technology has a higher thermal demand than electrical demand (Whisper Tech)
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Only micro-CHP systems (the Stirling engine and small fuel cell) are predicted to break even without EEE and against a low-cost heating baseline (natural gas) before 2050:

  • 1.2 kWe Stirling micro-CHP are predicted to be cost-effective by about 2010
  • 1 kWe fuel systems about 5-10 years later under the same conditions.

While this presents a very positive picture for micro-CHP, the economics are marginal and it is crucial that a number of key targets are met regarding capital costs, maintenance and lifetimes. Otherwise break-even may be delayed or not achieved. More details relating to these targets are given later.

These systems cover a range of heat-to-power ratios from about 5 for Stirling engines to 1 for fuel cells. The uptake study concentrated on domestic-type systems, namely Stirling engines and two sizes of fuel cells.

Stirling micro-CHP units have a low electrical efficiency, resulting in a high thermal output of around 8 kWth for a 1.2 kWe unit. This makes them suitable for homes with a high thermal demand compared with electrical demand, such as older and larger homes with thermal loads typically between 15 and 30 MWhth per annum. Why is the UK market particularly suited to Stirling CHP?

  • Mild climate with no sustained cold periods ensures heating is required for around 30% of the year. The relatively low peak thermal loads combined with long operating periods are ideal for CHP operation.
  • There are a large number of older homes with low thermal efficiency which are currently classed as ‘hard to treat’. In London alone, around 500,000 houses (not including flats) were built before 1919. These are difficult to improve thermally due to old methods of construction, and the largest potential for CO2 reduction lies in the supply of heat and power in a more efficient manner.

The large older home sector in the UK is typically owner-occupier and so the application of Stirling CHP to this market has two conflicting aspects. On the one hand, the flexibility of owner-occupier expenditure, combined with the desire to reduce fuel and power costs, could drive the uptake of micro-CHP units. However, the owner-occupier market is also the hardest to access with very few regulatory levers to pull, and the relatively poor uptake of other energy-saving measures such as cavity wall insulation proves this.

The Stirling micro-CHP unit in the model was based on a Whispergen-type unit, with a 1.2 kW electrical output and 8 kW thermal output. A similar type of unit has been trialled in the UK by Powergen, with an individual installation costing approximately £2500 (€3600) down to £1500 (€2160)for multiple installations (at the time of writing, Powergen had halted hand-production to review the manufacturing process with the aim of increasing production capacity, and new units are expected towards the end of 2006). The simulation used a 30% capacity factor – typically the maximum desirable in a residential environment without causing heat dumping. An indicative electricity export fraction of 33% was used – this is the amount of electricity sold to the grid at a reduced value.2 The export fraction is relatively low for micro-CHP due to the correlation between thermal and electrical demands in a typical home.


Figure 2. Baseline uptake scenario – electricity generation (the results for each technology are not additive and each represents a separate scenario. Please refer to accompanying text.)1
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For the economics of Stirling micro-CHP to improve and break-even to be achieved, it is crucial that maintenance and lifetimes approach those of boilers. Mass market consumers will view a micro-CHP system as a boiler replacement and expect similar costs and lifetimes. Maintenance levels are currently higher than for boilers due to the immaturity and sophistication of the technology, and lack of maintenance network. The model assumed a 2015 maintenance cost of 9% of capital expenditure per year, representing a single annual service visit or maintenance contract. This reduction could be achieved through mass production and reliability improvements combined with an extensive installer/maintenance network. Similarly the model assumed a lifetime rising from 10 to 15 years over the same timeframe to maintain competitiveness with conventional boiler technology.

UK UPTAKE OF STIRLING MICRO-CHP

The concept of willingness to pay allows a possible uptake of each microgeneration technology to be predicted, based on the additional cost a system poses to the consumer over incumbent baseline costs. Figures 2 and 3 show the predicted uptake without any market intervention. The results for Stirling micro-CHP are particularly strong:

  • 24 TWh (electrical) per year potential by 2050, around 6.5% of the total current UK electricity generation. This is second only to a fuel cell micro-CHP system (although these are still far from the commercial market).
  • 160 TWh (heat) per year by 2050 – this is around 36% of the current UK domestic heat demand (Figure 3).

Figure 3. Baseline uptake scenario – heat generation (the results for each technology are not additive and each represents a separate scenario. Please refer to accompanying text.)1
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How can the uptake of Stirling micro-CHP be increased in the short term? The near-term sales are due to early adopters who are willing to pay a slight premium. Although the year-on-year growth is very high, low starting point means that the cumulative growth appears to be negligible in Figures 2 and 3. It is only once the cost of the technology reduces to a level where the mass market consumers are willing to pay that the number of installations becomes relatively large (this is in the post-2020 period in Figures 2 and 3). To understand how the uptake can be affected, we need to discuss the concepts of consumer behaviour and market intervention.

CONSUMER BEHAVIOUR

Consumer behaviour is not entirely rational and a number of ‘soft effects’ also stipulate an investment decision:

  • Up-front capital. A Stirling micro-CHP system will pose a considerable capital cost to the average consumer. In general, a relatively low-cost measure is likely to be favoured over a more expensive option, even if the latter is more cost-effective. Loft insulation and hot water tank insulation experienced massive growth in the UK, resulting in market saturation in just over 20 years.3 These are both relatively cheap and simple measures.
  • Technology visibility. Cavity wall insulation is one of the most cost-effective ways of reducing thermal losses, but the fact that it’s hidden and the positive effects not immediately apparent have caused a slow uptake in the UK. On the other hand, double glazing has experienced strong growth even though it is a less economic method of reducing thermal losses. The immediate improvement of double glazing is far more visible and apparent, encouraging consumer uptake.

On the surface, a micro-CHP unit does not have a high visibility and provides no apparent benefits to the home, and has a high up-front capital costs. The average mass-market consumer will probably therefore require the systems to provide minimum additional costs and requirements over their existing boiler, and simply view the unit as a replacement boiler.

MARKET INTERVENTION

How can the uptake of Stirling micro-CHP be encouraged in the UK market? Consumer studies demonstrate that while a few pioneering ‘deep green’ consumers are willing to pay a premium, most mass market consumers will not. This is highlighted by the current UK utilities market where only a few ‘deep green’ consumers are willing to pay the extra for a green tariff and many mass market consumers will regularly change their supplier to the cheapest competitor.

Market intervention can be used to promote growth through a number of incentives and regulatory measures. For electricity-only technologies, the inclusion of an EEE metering approach could increase uptake by providing a realistic value for exported electricity. This will improve the economics of micro-CHP system, but is not a major issue given that micro-CHP could (as modelled) break even without EEE. Capital subsidies can also be used but the scope is limited with micro-CHP, considering the capital costs are already close to boilers.


Figure 4. Market intervention can be used to kick-start uptake1
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A key opportunity for improving the uptake of Stirling micro-CHP is regulatory intervention once the economic and technical characteristics are comparable to existing boilers. The effect of this is to kick-start the market by injecting a large initial number of installations. While the year-on-year percentage growth may stay the same, or even reduce, the absolute growth in cumulative installations will be dramatic, allowing the take-off points in Figures 2 and 3 to move forward as shown in Figure 4. This happened with condensing boilers in the UK – although condensing boilers have been available for many years, the number of installations remained relatively low until regulatory impact virtually forced their installation, resulting in a high capacity. Market intervention of this kind is only required for a short period to allow this transition.

In practice, regulatory intervention could be hard to achieve for micro-CHP. The sense behind regulation is clear – once a technology is competitive technically and economically, and results in a clear CO2 reduction, there is no reasonable cause to install an alternative. However, regulation is enforced by operational parameters and not a technology type. The requirement for condensing boilers has been achieved through regulatory minimum efficiencies, which in theory could also allow high-efficiency non-condensing boilers that meet the targets. The approach for Stirling CHP would be more complex, with the viability of each installation having to be assessed before deciding whether regulation could be applied. The regulation would then have to stipulate parameters which are favourable to Stirling CHP, but also allow other technologies to compete. A CO2 target rate could be enforced, which in practice requires the generation of heat and power from a clean source. In the viable situations, this could be a micro-CHP unit, and in other situations, a combination of separate heat and electricity generating systems such as biomass heating and micro wind turbines.

CONCLUSIONS

This discussion demonstrates that Stirling CHP could make a huge impact on the UK domestic energy scene. The systems as modelled were borderline break-even in the 2005-2010 timeframe and were the only technologies to be economical without receiving a higher price for exported electricity. However, their impact is limited by installation requirements and certain performance and cost criteria that have to be achieved.

The high heat-to-power ratio of Stirling micro-CHP makes it an ideal technology for larger and older homes which are otherwise hard to improve. On the other hand, the viability of the systems is severely reduced when operating in non-optimal conditions, and this makes Stirling micro-CHP unsuitable for smaller and/or more modern energy-efficient homes. For this reason, Stirling micro-CHP can only ever be part of the future energy mix and will be complemented by a number of other micro-CHP and non-CHP technologies.

To achieve mass market acceptance, Stirling CHP units will need to be viewed as a boiler replacement. The willingness of most consumers to pay an additional cost is low, and so capital costs and maintenance requirements should not present an additional burden. In addition, the lifetime of the units also needs to be increased to upwards of 15 years to be comparable with boilers.

Regulation is possibly the most effective process through which uptake can be increased in the near term. This again relies on the units being competitive with conventional boilers, and a process needs to be found which can enforce the installation of Stirling micro-CHP when viable. Assuming that there are around 4 million suitable homes in the UK and the average boiler lifetime is 20 years, then regulation could result in the installation of 200,000 Stirling micro-CHP units in a single year – this would kick-start the growth and help reduce costs.

Finally, the nature of domestic CHP could allow innovation in the home utility market with novel ownership schemes being instigated. The CHP unit could be owned, maintained and fuelled by the utility company, while the user simply pays for the energy generated (thermal and/or electrical) and also possibly an annual or monthly lease fee. This is further extension of the current situation, where boiler owners can pay monthly insurance maintenance contracts, simplifying and limiting the ownership risks associated with the technology.

Andrew Turton is a Consultant Engineer at Element Energy Ltd, Cambridge, UK. Fax: +44 1223 356215 E-mail: andrew.turton@element-energy.co.uk

NOTES

  1. Potential for Microgeneration – Study and Analysis. Energy Saving Trust. DTI, 2005.
  2. Metering, Settlement, and Export Reward – Options for Micro-generation. Ilex Energy Consulting. DTI, 2005.
  3. Domestic Energy Factfile. Building Research Establishment. 2003.

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