Dissecting the North American market for distributed generation

Matthew Goodwin, Venture Development Corp.

Shortcomings in the electric power grid have proven to be problematic and costly in the information age, where five, six and even seven “nines” availability is becoming the norm rather than the exception. This issue has recently come to the forefront as a result of the problems with power quality and availability associated with deregulation. To avoid these problems, electricity end users are increasingly turning to distributed-generation in addition to other power quality technologies. This move is changing the landscape of the energy marketplace in North America, as time proven products are tested by newer technologies and more stringent safety and environmental regulations.

Power needs for high reliability and power quality are changing the face of the power economy. As it becomes evident that the grid cannot meet all of the market demands, distributed generation and ride-through technologies are poised to seize new market niches and overturn old ways of thinking. This article provides an insight into influencing factors, assesses emerging market niches, and analyzes the size and growth of the markets. The products currently in consideration include fuel cells, microturbines, reciprocating gen-sets, and small gas turbines.

Fuel cells

Fuel cell technologies covered are proton exchange membrane (PEM), solid oxide (SOFC), molten carbonate (MCFC), phosphoric acid (PAFC), and alkaline (AFC). The North American fuel cell market was believed to be between $40 and $45 million in 2002. VDC believes based on recent developments that it is positioned to grow to approximately $110 million by 2007. This yields a compound annual growth rate (CAGR) of 21 percent, though much of the growth should be experienced in the latter half of the forecast period, as many vendors have plans to commercialize products between 2005 and 2007.

A total of thirty-five factors were identified that will impact the future of each fuel cell technology types. Of the total, the following eight were identified as most influential:

“- end user need for power backup,
“- reduction in initial costs,
“- development of interconnection standards,
“- successful commercialization schedules,
“- enforcement and development of emissions regulations,
“- development in reforming technologies,
“- utilization of resource recovery potentials,
“- utilization of co-generation/combined heat & power (CHP) potentials.

Solid oxide fuel cells: Solid oxide fuel cell commercialization is expected to begin in North America in 2005, and is forecast to see measured growth through 2007. Solid oxide fuel cells have experienced significant delays in the commercialization process. The true potential and growth of solid oxide fuel cells most likely will not develop until after 2007 as prices begin to be competitive with PEM technology.

Phosphoric acid fuel cells: Phosphoric acid fuel cells have over 10 years of commercial availability through United Technologies Fuel Cells. In 2002, PAFCs accounted for over 85 percent of the fuel cell dollar market. However as other technologies mature and gain acceptance, phosphoric acid fuel cells are expected to witness slowing unit growth and decreasing prices.

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Proton exchange membrane fuel cells: Most PEM fuel cells currently in development are between 1 – 10 kW. Well over half of all established fuel cell suppliers are currently involved in PEM technology. This market should be fueled by residential applications among suppliers like Plug Power, Ballard Power Systems, and Avista Labs. PEM fuel cell revenues and growth rates have the potential to peak in 2005 due to the expected influx of new commercial systems at that time. By 2007, PEM fuel cells are expected to hold over a third of the fuel cell dollar market.

Molten carbonate fuel cells: FuelCell Energy is currently the only major MCFC player in North America. MCFCs should play a role in the industrial and CHP market segments. These systems will hopefully generate significant revenues relative to unit shipments due to high selling prices and larger unit sizes (300 kW – 3 MW). By 2007, MCFCs could hold approximately 5 percent the dollar market.

Alkaline fuel cells: Alkaline fuel cells have been used since the 1960s, though almost exclusively by the government (NASA). Because of these limited applications and the emergence of competing technologies, Alkaline fuel cells are expected to see slower growth than the rest of the fuel cell market, and are forecast to hold less than 1 percent of the dollar market by 2007.

Microturbines

The North American microturbine market was valued just over $46 million in 2002, and is estimated to grow at approximately 30 percent annually through 2007, reaching $173.1 by that time.

A total of twenty-nine factors were identified that will impact the future of the microturbine market. Of the total, the following 5 were identified as most influential:

“- utilization of co-generation/CHP potentials,
“- reduction in initial costs,
“- development of interconnection standards,
“- end user need for power backup,
“- potential of the 200+ kW market segment.

Microturbines in the 30 – 100 kW range have been commercially available for several years, however the higher output (200+ kW) range has only recently commercialized. This power output range is widely believed to more accurately represent the real market potential for microturbines. Microturbine market success hinges this market segments’ development before solid oxide and molten carbonate fuel cell technologies develop. These technologies could establish themselves as significant competing technologies as early as 2004. There are less than 10 North American suppliers, the major players being Capstone Microturbine, Elliott, Ingersoll-Rand, and DTE Energy Technologies.

Reciprocating gen-sets

Reciprocating engines dominate the distributed generation marketplace today. They are primarily used in backup applications (with or without a ride-through device), but are also used for base loading and peak-shaving. They typically consist of an alternator, a control device (clutch), a fuel source, and an engine. They are a time-proven technology and have a number of beneficial characteristics:

Strengths:

“- short start-up times,
“- partial load performance,
“- easy installation,
“- little dependence on ambient conditions,
“- allow for incremental capacity expansion,
“- can provide co-generation applications,
“- power ranges: under 1 kW – 10 MW,
“- initial costs: around $500/kW,
“- operating costs: around $0.007 -$0.015/kWh.

Weaknesses:

“- high maintenance costs,
“- short operating life between major overhauls
“- very loud,
“- potential vibration problems,
“- high emissions performance (NOx emissions: around 500 ppm),
“- efficiency: 20 – 45 percent.

Notable reciprocating gen-set players include Caterpillar, Cooper Energy Services, Cummins, Detroit Diesel, Jenbacher, Katolight, Kohler Co., Wartsila, and Waukesha.

Estimates of the North American market are plentiful and range from $1.5 billion to $2.5 billion. The market saw significant growth in a few years back due to the millennium bug scare, but it is generally considered a mature, relatively slow growing market. These products dominate the majority of distributed generation installations.

Reciprocating gen-sets currently overlap the market space that microturbines and fuel cells hope to capture (backup, base-loading, and peak-shaving). Yet because the overall RCP market size is so much larger, many in the industry believe that fuel cells and microturbines will never significantly impact reciprocating gen-set revenues. This remains to be seen, however the issue will come to the forefront in the near future as prices for fuel cells and microturbines decline, and competitive conditions intensify.

Small gas turbines

Gas turbines come in a variety of sizes, from microturbines (30 kW) up to massive centralized power plants. Small gas turbines, as defined and analyzed by VDC, are used for distributed generation applications, located close to the end user, with a power range between 1 – 10 MW. The market for gas turbines has grown steadily the last number of years as energy problems have persisted in many North American urban centers. It was estimated at $125 million in 2002, and is projected to witness slow steady growth at 2-3 percent each year, to approach $150 million by 2007.

Strengths:

“- high output power ratings,
“- proven technology,
“- co-generation capabilities.

Weaknesses:

“- large size,
“- doesn’t scale down below 1 MW.

Some of the vendors involved with small gas turbines are Kawasaki, Mitsubishi Heavy Industries, Rolls-Royce Industrial Power Group, and Solar Turbines.

Goodwin is with the power conversion and control practice of Venture Development Corp. VDC is located at One Apple Hill Drive, Suite 8190, Natick, Mass., 01760.

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