RESEARCH REPORT Executive Summary: Natural Gas Generator Sets Distributed Reciprocating Engines for Portable, Standby, Prime, Continuous, and Cogeneration Applications NOTE: This document is a free excerpt of a larger report. If you are interested in purchasing the full report, please contact Navigant Research at research-sales@navigant.com. Published 1Q 2013 Mackinnon Lawrence Senior Research Analyst Kerry-Ann Adamson, PhD Research Director
Section 1 EXECUTIVE SUMMARY 1.1 Overview The natural gas generator set (genset) market designates the use of internal combustion engines for distributed power production. Today, reciprocating engine-based gensets are among the fastest-selling, least expensive distributed generation (DG) technologies in the world. Many specialized natural gas (NG) genset segments span power classes, applications, and end-use customers. These segments offer a rich ecosystem of opportunities for market participants. Potential applications for natural gas gensets offer a diverse range of opportunities for market participants. In backup or standby applications, NG gensets offer reliable performance with expanding opportunities among homeowners and commercial facilities like hospitals and data centers requiring mission-critical power in the event of a grid outage. As a source of continuous or prime power, NG gensets are capturing increasing market share as emissions regulations and inexpensive NG point to long-term value for new installations. NG gensets are also particularly well-suited to combined heat and power (CHP) applications, in some cases reaching efficiencies of up to 90%. As a whole, the NG genset market has experienced steady historical growth, but fuel costs and poor access to NG infrastructure have stifled further expansion. Over the next decade, the boom in unconventional gas resources and tightening emissions regulations for stationary generators particularly in North America will favor clean-burning NG systems over their diesel counterparts. Meanwhile, the emergence of opportunity fuels like biogas and landfill gas (LFG) coupled with cogeneration potential in a range of commercial and industrial facilities have raised consumer awareness around the potential for NG gensets in the burgeoning DG market. 1.2 Competitive Landscape Despite its healthy outlook, the NG genset market remains fraught with complexity. As described by more than one market participant, tradeoffs are all over the place. In other words, no one-size-fits-all solution can be applied to the entire addressable market for NG gensets. Accordingly, with the exception of a few diversified companies, market participants remain highly specialized in one or more market segments, catering to a narrow set of needs. For this reason, the market is expected to remain highly stable with high barriers to entry for new market participants. Nevertheless, the emergence of bio-based gases, CHP applications, and the BRIC countries (Brazil, Russia, India, and China) offer new opportunities for growth outside the traditional market purview. 1
1.3 Market Overview In 2012, just under 7 GW of NG genset capacity was installed globally across the standby, prime power, continuous, and CHP applications, representing 11% of the global genset market among all fuel types. Although portable units fueled by propane gas represent a small segment of the global portable genset market, NG-fueled standby installations in the 15 kw to 6,000 kw range are expected to capture significant market share across all global regions through 2018. Navigant Research forecasts that NG genset installations will reach 13.2 GW per year by 2018 and generate $45 billion in cumulative revenue between 2013 and 2018. As the most mature genset market and currently awash in inexpensive NG, North America is expected to lead all regions in capacity installments through 2018. Asia Pacific will also experience strong growth, benefitting from expanding opportunities in NG and the need to bolster capacity reserves in the face of rapidly increasing consumer demand. Europe and the Middle East offer lucrative opportunities for NG gensets, as well. Collectively, these regions will account for 95% of global capacity installments in 2018. Although Latin America and Africa remain relatively immature markets for NG gensets, both regions are expected to benefit over the long term from expanding NG infrastructure. Chart 1.1 Annual Natural Gas Genset Revenue by Region, World Markets: 2013-2018 $12 $10 $8 North America Europe Asia Pacific Latin America Middle East Africa ($ Billions) $6 $4 $2 $- 2013 2014 2015 2016 2017 2018 (Source: Navigant Research) 2
Section 9 TABLE OF CONTENTS Section 1... 0 Executive Summary... 1 1.1 Overview... 1 1.2 Competitive Landscape... 1 1.3 Market Overview... 2 Section 2... 3 Market Issues... 3 2.1 Overview... 3 2.1.1 Distributed Generation in the Global Context... 3 2.1.2 Role of Natural Gas in the Distributed Generation Market... 5 2.1.3 Gensets as a Distributed Generation Resource... 5 2.2 The Global Genset Market... 6 2.2.1 Reciprocating Engine-Based Genset Shipments... 6 2.2.2 Natural Gas Genset Market Share... 9 2.2.3 Portable versus Skid-Mounted Gensets... 10 2.3 Natural Gas Genset Advantages... 10 2.3.1 Fuel Security... 10 2.3.2 Reduced Emissions... 11 2.3.3 Performance, Reliability, and Convenience... 11 2.3.4 Low Cost... 11 2.4 Natural Gas Genset Applications... 11 2.4.1 Standby Power... 11 2.4.2 Prime Power... 12 71
2.4.3 Peak Shaving... 12 2.4.4 Grid Support... 12 2.4.5 Combined Heat and Power... 13 2.5 Natural Gas Genset Markets... 14 2.5.1 Consumer Market Opportunities... 15 2.5.2 Commercial and Industrial Market Opportunities... 15 2.6 Market Drivers... 17 2.6.1 Competitive Fuel Cost... 17 2.6.2 Emissions Regulations... 19 2.6.3 CHP Policies... 19 2.6.3.1 United States... 20 2.6.3.2 China... 20 2.6.3.3 Germany... 21 2.6.3.4 Russia... 21 2.6.4 Greater Adoption of Renewables... 21 2.6.5 Increase in Catastrophic Power Outages... 22 2.6.6 Rural Electrification... 23 2.7 Market Barriers... 23 2.7.1 Gas Infrastructure... 23 2.7.2 Interconnection and Utility Barriers... 24 2.7.3 Maintenance Challenges... 24 Section 3... 26 Natural Gas Market Issues... 26 3.1 Overview... 26 3.2 Natural Gas Supply... 26 72
3.3 Natural Gas Markets... 27 3.3.1 Upstream Segment... 27 3.3.1.1 Gas Mining... 28 3.3.2 Midstream Segment... 28 3.3.3 Downstream Segment... 29 3.4 Opportunity Fuels... 29 3.4.1 Renewable Natural Gas... 29 3.4.2 Syngas (Gasified Biomass)... 30 3.5 Natural Gas Pricing... 31 3.5.1 North America... 32 3.5.2 Europe... 32 3.5.3 Asia Pacific... 33 Section 4... 34 Technology Issues... 34 4.1 Overview... 34 4.2 Chemical Characteristics of Natural Gas... 34 4.2.1 Pipeline Natural Gas... 34 4.2.2 Propane (Liquefied Petroleum Gas)... 35 4.3 Natural Gas Genset Technologies... 35 4.3.1 Natural Gas Genset Applications... 36 4.3.1.1 Consumer Market... 36 4.3.1.2 Engine Speed Considerations... 37 4.3.2 Natural Gas Genset Costs... 38 4.3.2.1 Installed Cost of Natural Gas-Fueled Reciprocating Engine System... 39 4.3.2.2 Installed Cost of Typical Natural Gas-Fueled Reciprocating Engine CHP System... 40 73
4.4 Genset Applications by Power Rating... 41 4.4.1 Continuous Power... 41 4.4.2 Prime Power... 42 4.4.3 Standby/Backup Power... 42 4.5 Natural Gas Genset Technology Development... 43 4.5.1 Fuel Efficiency Improvements... 43 4.5.1.1 Rich-Burn versus Lean-Burn... 44 4.5.1.2 ARES Program... 44 4.5.2 Ignition Improvements... 45 4.5.2.1 Bi-Fuel Systems... 45 4.5.2.2 Laser Ignition... 46 4.5.3 Monitoring Systems and Software... 46 4.5.4 Low-Btu Reciprocating Gensets... 46 Section 5... 47 Key Industry Players... 47 5.1 Competitive Landscape... 47 5.1.1 Briggs & Stratton... 48 5.1.2 Caterpillar... 48 5.1.3 Cummins... 49 5.1.4 Dresser-Rand... 49 5.1.5 Dresser Waukesha... 50 5.1.6 GE Energy... 50 5.1.7 Generac Power Systems... 50 5.1.8 Guascor Power... 51 5.1.9 Jenbacher... 51 74
5.1.10 Kohler Co.... 51 5.1.11 MTU Onsite Energy... 52 5.1.12 MWM... 52 5.1.13 Wärtsilä... 53 Section 6... 54 Market Forecasts... 54 6.1 Methodology... 54 6.2 Key Flex Points... 54 6.3 Genset Market Outlook... 55 6.4 Natural Gas Genset Installations Forecast... 57 6.4.1 Forecast by Region... 57 6.4.2 Forecast by Power Class... 58 6.5 Natural Gas Genset Revenue Forecast... 60 6.5.1 Forecast by Region... 61 6.5.2 Forecast by Power Class... 63 6.6 Conclusions and Recommendations... 63 Section 7... 65 Company Directory... 65 Section 8... 67 Acronym and Abbreviation List... 67 Section 9... 71 Table of Contents... 71 Section 10... 77 Table of Charts and Figures... 77 75
Section 11... 79 Scope of Study... 79 Sources and Methodology... 79 Notes... 80 76
Section 10 TABLE OF CHARTS AND FIGURES Chart 1.1 Annual Natural Gas Genset Revenue by Region, World Markets: 2013-2018... 2 Chart 2.1 Installed Distributed Generation Capacity by Region, World Markets: 2012... 4 Chart 2.2 Genset Units Shipped by Power Class, North America: 2009-2012... 7 Chart 2.3 Genset Capacity Shipped by Power Class, North America: 2009-2012... 8 Chart 2.4 Market Share of Genset Capacity Shipped by Fuel Source, World Markets: 2012... 9 Chart 2.5 CHP Installed Capacity in Commercial and Institutional Buildings by Region, World Markets: 2012-2022... 14 Chart 2.6 Oil and Natural Gas Price Ratio, United States: 1990-2012... 18 Chart 2.7 Share of Global Natural Gas Consumption by Region, World Markets: 2012... 24 Chart 3.1 Top 10 Producers of Natural Gas per Capita by Country, World Markets: 2011... 27 Chart 3.2 Market Share of Biogas Revenue by Region, World Markets: 2012... 30 Chart 3.3 Average Annual Spot Price of Natural Gas by Market, World Markets: 2001-2011... 32 Chart 4.1 Comparison of Installed Costs by Distributed Generation Technology, World Markets: 2012... 38 Chart 4.2 Cost Breakdown of Typical Natural Gas Reciprocating Engine Genset... 39 Chart 4.3 Cost Breakdown of Typical Natural Gas Genset-Based CHP System... 40 Chart 4.4 Forward Cost Reduction Estimates for Natural Gas Reciprocating Engine Genset by CHP Application, World Markets: 2005-2030... 41 Chart 6.1 Annual Genset Installations Capacity by Fuel Type, World Markets: 2013-2018... 56 Chart 6.2 Market Share of New Installed Natural Gas Genset Capacity by Primary Application, World Markets: 2018... 57 Chart 6.3 Annual Natural Gas Installations Capacity by Region, World Markets: 2013-2018... 58 Chart 6.4 Annual Natural Gas Genset Installations Capacity by Power Class, World Markets: 2013-2018... 59 Chart 6.5 Annual Natural Gas Genset Installation CAGRs by Power Class and Region, World Markets: 2013-2018... 60 77
Chart 6.6 Annual Natural Gas Genset Revenue by Region, World Markets: 2013-2018... 62 Chart 6.7 Market Share of Cumulative Natural Gas Genset Revenue by Region, World Markets: 2018... 62 Chart 6.8 Annual Natural Gas Genset Revenue by Power Class, World Markets: 2013-2018... 63 Figure 4.1 Commercialization Status of Natural Gas-Fueled Distributed Generation Technologies... 36 Table 2.1 Applications and Markets for Gas-Fired DG Technologies... 5 Table 2.2 Estimated Genset Market Share by Fuel and Lower Power Classes, United States: 2012... 15 Table 2.3 Estimated Genset Market Share by Fuel and Higher Power Classes, United States: 2012... 16 Table 2.4 Example Emerging Opportunities for Natural Gas Gensets... 17 Table 2.5 Estimated Losses per Hour of Grid Failure... 22 Table 4.1 Major Constituents of Gaseous Fuels... 34 Table 4.2 Advantages and Disadvantages of Natural Gas Reciprocating Engine Gensets... 36 Table 4.3 Reciprocating Engine Types by Speed (Available MW Ratings)... 38 Table 5.1 Snapshot of Natural Gas Genset OEM Market... 47 Table 6.1 NG Genset Capital Cost Estimate by Power Class, World Markets: 2013-2018... 61 78
Section 11 SCOPE OF STUDY Navigant Research has prepared this report to provide current direct and interested stakeholders with an analytical overview of the natural gas (NG) generator set (genset) market. The report covers company, policy, and technology developments related to reciprocating internal combustion engine gensets of less than 15 kw to 6,000 kw utilizing gaseous fuels, including NG, propane, biogas, landfill gas, and synthetic biogas (syngas). The report s purpose is not to provide an exhaustive technical assessment of NG genset technologies. Rather, it offers a strategic assessment of current market positioning, issues that the market is facing, and a projection assuming business-as-usual (BAU) scenarios. Navigant Research strives to identify and examine new market segments to aid its readers in the development of their business models. To this end, information on key companies involved in the NG genset market is provided. In addition, the report covers the major geographic regions and includes a detailed discussion on the opportunities for combined heat and power (CHP) utilizing NG gensets in four key countries. The forecast period for this report extends out to 2018. SOURCES AND METHODOLOGY Navigant Research s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Navigant Research s analysis is primary research gained from phone and in-person interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community. Additional analysis includes secondary research conducted by Navigant Research s analysts and its staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report. These primary and secondary research sources, combined with the analyst s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Navigant Research s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients. Navigant Research is a market research group whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. Navigant Research is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets. 79
NOTES CAGR refers to compound average annual growth rate, using the formula: CAGR = (End Year Value Start Year Value) (1/steps) 1. CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well. Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2013 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 80
Published 1Q 2013 2013 Navigant Consulting, Inc. 1320 Pearl Street, Suite 300 Boulder, CO 80302 USA Tel: +1.303.997.7609 http://www.navigantresearch.com This publication is provided by Navigant Research, a part of Navigant Consulting, Inc. ( Navigant ), and has been provided for informational purposes only. This publication is intended for the sole and exclusive use of the original purchaser under terms and conditions agreed to by the parties. This publication may not otherwise be reproduced, recorded, photocopied, distributed, displayed, modified, extracted, accessed, or used without the express written permission of Navigant. Navigant makes no claim to any government data and other data obtained from public sources found in this publication (whether or not the owners of such data are noted in this publication), and makes no express or implied warranty, guaranty, or representation concerning the information contained in this publication, its merchantability, or its fitness for a particular purpose or function. Any reference to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply an endorsement, recommendation, or favoring by Navigant. Navigant does not assume, and hereby disclaims, any liability that may result from any reliance on or use of any information contained in this publication, or for any loss or damage caused by errors or omissions in this publication. If you do not have permission from Navigant covering this publication, please refrain from accessing or using this publication. Please contact Navigant at research-info@navigant.com to obtain permission to use this publication. 2013 Navigant Consulting, Inc. Notice: No material in this publication may be reproduced, stored in a retrieval system, or transmitted by any means, in whole or in part, without the express written permission of Navigant Consulting, Inc. 81