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Europe goes for gas

There is a great deal of activity in the sub-1 MW engine market. A recent global report shows that, driven by their low cost, flexibility and the availability of cheap fuel, gas engines are becoming the first choice for a wide range of applications.

The sub-1 MW power plant market is booming in Europe as well as in other parts of the world, following the creation of innovative on-site electricity generating solutions. In this sector of the market, the reciprocating engine is king. Cheap to buy and simple to operate, engines offer the ideal solution for companies and individuals that do not have large energy needs, or the skills and desire to enter the full electricity market.

The major growth area of this market is gas engines. Having fallen in cost considerably over the last five years, under-1 MW gas engines are flexible enough to provide power for a large cross section of applications.

Nowhere is this more so than in the European market – countries such as France and Germany already have large markets and a growing installed base. Delivered in low cost packages with or without heat recovery, gas engines offer the end-user rapid cost savings and a low return on investment period.

Four major factors are driving this market:

  • electricity market liberalization
  • gas market liberalization
  • performance contracting
  • emission regulations.

Falling prices

Liberalization of electricity markets around the world is creating uncertainty for the on-site power plant industry. Liberalization allows a great deal of freedom and flexibility for implementing on-site projects, and has led to many utilities and other suppliers moving wholesale into the market to provide a raft of services to those companies looking for on-site power. This has given the market a real boost, especially in parts of Europe such as Belgium and France, where independent electricity generation has been traditionally frowned upon.

But this is a side effect of liberalization, whose real job – a reduction in industrial electricity prices – actually undermines the on-site power market. As electricity prices fall across Europe, some large users have seen their energy bills cut in half over the last 18 months, and further substantial cuts are likely to come in several countries. The smaller industrial users are losing out, however. Prices for them are falling more slowly than for the larger users, and this is helping to drive the on-site power in the under 1-MW market.

Small projects are viable

The crucial driver for the gas engine market is the difference between the gas price and the electricity price, which must be wide enough to obtain large cost savings for the engine owner. Gas market liberalization and vast new supplies from Russia should help to drive natural gas prices down in Europe.

In addition, cogeneration units using gas engines allow the user to save on heat or steam costs. Heat production from engines is far lower than that from turbines, however, and for applications that need large amounts of heat, a 1 MW gas turbine can achieve as much as 90 per cent thermal efficiency.

Performance contracting can help to provide lower up-front costs. When linked in with electricity savings and emission reductions, small gas engines are almost always cost-effective. Return on investment can be as low as two years for some applications, making the economic argument very forceful. When combined with performance contracting, where the plant is paid for out of the energy savings made – no savings, no payment – the argument can be irresistible.

A reduction in up-front costs is important: in a recent Datamonitor survey of energy managers without on-site power, almost half of those who did not see it as a viable option gave up-front cost as the main reason.

The removal of this obstacle will help to open up the on-site power industry even wider than its current size, and the performance contracting industry is forecast to grow rapidly.

Forcing choice

Emission regulations are forcing buyers to choose natural gas as a fuel, even for standby applications. Emission limits on engines are tightening across the globe, with the USA and Europe leading the way. Even in standby markets, where the engine may only be run for a few days per year, the reduced emissions that gas engines offer over diesel units can be enough to ensure their installation. Standby is the largest sector of the sub-1 MW power plant market, and the market is very large. In the USA for example, more than 10 000 sub-1 MW engine units are sold for power generation applications each year, the majority of which are diesels for standby power. Small market share gains for gas engines will bring about huge volume increases for this technology.

In the Dutch market, gas engines have reached all levels, including standby. In fact, 84 per cent of all engines sold are gas engines, and this percentage is rising.

Although gas engines will never take a 100 per cent market share, the race is on in the mature markets for the removal of diesel engines from most applications.

Peak shaving is a crucial application for gas engines in a liberalized market, for both on-site and utility applications. Peak shaving involves running a plant for just certain periods during the day. The reasons for this can be numerous: when electricity prices are high, when heating is required, or to reduce network congestion. For example, many hospitals have introduced gas engines in order to provide them with heat and electricity.

Understandably, heating is highly important in hospitals, and when the temperature falls below a certain limit, the gas engine can be used to assist. The electricity generated can also be used to reduce expenditure, or is often used the by the energy partner that has installed the unit.

This is a common practice in Europe, encouraged by liberalization which has caused price variations to become more pronounced.

Small cogeneration

Gas engines are also popular for small cogeneration schemes for the industrial, tertiary and utility sectors. Such cogeneration units are separated by the number of hours that they run, and cover the medium and baseload applications. For units under 1 MW, gas engines have a market share of virtually 100 per cent in Europe, although diesel units are commonly used in Asia.

In applications over 1 MW, the market is more fragmented, and gas turbines are more commonly used. What separates the two technologies is the amount of heat that is required, and the number of hours that the unit runs. Gas turbines can achieve higher thermal efficiency than gas engines, but gas engines generally have a high electrical efficiency.

Gas engines also have low emissions through high electrical and thermal fuel efficiency, but many are also fitted with deNOx equipment in order to meet the emission levels of different countries. This presents a challenge for gas engine manufacturers as these vary considerably, even in the EU.

Further cost savings can be arrived at by using a variety of fuels, rather than natural gas. The diverse fuels are landfill gas and biogas, which can be used to drive gas engine power plants. Although the initial investment to run such a plant is higher, as gas must be treated and pressurized, the savings on fuel costs more than make up for the extra expense. Furthermore, government grants are now available in most European countries for utilising such renewable resources, which can reduce the initial purchase price significantly or remove it altogether.

A bright future

In a recent Datamonitor survey of energy managers across Europe, those that were considering on-site power saw the sub-1 MW market as an important area of investigation. In fact the data presented here underestimates the potential of the below

1 MW market as it was primarily restricted to industry, rather than the key sectors of the tertiary market such as hospitals and local municipal installations such as swimming pools.

Gas engines are currently the key technology for the under-1 MW sector of mature electricity markets, and are taking an increasing share of emerging markets away from diesels. This is set to continue as long as gas supply is reliable and low cost, and in all but the lowest useage standby applications. Engine manufacturers are adjusting to this, and in the lower power ranges are beginning to close on the early advantage gained by Jenbacher and Waukesha.

But challenges will arise over the next few years, especially from the new generation of microturbines, which will attack the under-1 MW market with some force. Like gas engines, microturbines have a low heat output, so a large heat requirement is not required to make them economical.

Microturbines also have some key advantages over gas engines: lower emissions and reduced maintenance. Fundamentally the design for the microturbine has just one moving part and therefore maintenance costs are greatly reduced, as is the requirement for spare parts.

Although they are less fuel efficient than gas engines in low-load applications (standby and peak shaving), fuel efficiency and therefore fuel costs are less important in the overall plant costs than maintenance costs. As the load on a plant is reduced, the plant’s fixed costs – mainly operation and maintenance – take up a larger share of total costs than the variable costs – mainly fuel.

In high loads the microturbine also performs well, and some estimates put maintenance at just a few hours for a plant in continuous operation. In such plants these cost savings are balanced by higher fuel costs caused by a lower electrical efficiency. Thus there is a balance: engines will be suitable for some applications, microturbines for others. Like any power plant, there is a choice to be made by the investor. The choice will be made simpler by some basic calculations, but each project is individual, and it is the job of the contractor to offer the best solution to the owner.

About Datamonitor

Datamonitor is an independent market analysis firm with expertise in the global energy industry. Datamonitor publishes a wide range of market information reports on the power, and power equipment markets, based upon primary research and significant expertise in the area. Datamonitor can also offer a tailored research & analysis programme to meet strategic information needs. Contact:

Datamonitor
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