genset DEVELOPMENTS - Market ANALYSIS
End-users lead the Euro market1 February 2008
The effect of end-user trends in the European diesel genset market as seen by market analyst Frost & Sullivan
There are some questions that constantly exercise the major players and their competitors in the European diesel genset market. What drives the market? What are the various opportunities available in the European countries? Is the region witnessing any specific trends? How are end-user preferences changing? What are the popular power output ranges? How will changing emission and noise regulations affect the market? Answers to these questions are assuming prominence, especially in mature markets, where new opportunities are difficult to come by. Given the maturity of the diesel genset market in Europe, companies are finding it difficult to increase their market share. So what are the future prospects of the genset industry? The answer to this question can be gauged by studying the various end-user trends that support the growth in the genset market. The broad categories include industrial, commercial and public/infrastructure.
The industrial segment is the principal user of diesel gensets. Manufacturing and processing sectors are major end-users, primarily for their power needs. The rise of the Eastern European industrial sector has been impressive, bolstered by the relocation of manufacturing facilities to low cost countries such as Poland, Czech Republic and Hungary. Although industrial growth in Western Europe is not high, growth in Eastern Europe is fuelling the overall market prospects for the market. The spurt in industrial activity can be attributed to increased foreign investment, low labour costs and proximity to various end-user markets including Western Europe. The automotive industry in Eastern Europe is witnessing increased levels of activity and statistics show that the annual production of cars in this region could be well over 3 million by 2010. As a result the region is a hotbed of activity and genset companies would do well to capitalise on the industrial opportunities that this region presents. On the other hand, industrial demand from Western Europe is weakening. But at present industrial demand from the zone is still high: Germany ranks highest followed by Spain, the UK, France and Italy.
The second most important user of diesel gensets is the commercial sector. Across Europe, statistics indicate that demand for electricity by data centres has increased by over 15 % over the last couple of years. This trend is expected to continue over the next 3-4 years and demand for gensets will positively impact overall market prospects. Western Europe provides significantly fewer opportunities from commercial infrastructure projects than Eastern Europe. For instance, in Poland, the construction of office, trading and warehouse space has greatly increased over the last few years. In general, the demand for office spaces is increasing across the region, especially in Poland, so a number of new project starts are expected, given the increase in demand from information technology companies and business process outsourcing firms. This trend is expected to continue over the next three years and augurs well for the genset market. While construction related work will boost prospects for prime power applications, the increase in office space helps to increase demand for stand-by units.
The retail market is also witnessing considerable expansion in the region. Major retail chains such as Tesco and Carrefour are continuously capitalising on the advantages of European Union expansion and are enlarging their operations in the Eastern European countries by setting up more stores. In Eastern Europe, residential construction is also expected to favour the growth of the genset market. In the past, the telecom sector generated significant demand for diesel gensets, but the current levels of demand are low in Western Europe. However in Eastern Europe, telecom infrastructure activities are contributing to a high level of demand.
Public infrastructure end-users
Another important end-user category is the public infrastructure segment. Even in Western Europe, demand from this segment is expected to increase over the next five years or so. For instance, in Germany, various public infrastructure activities related to airport and railway construction are helping to boost prospects for the diesel genset makers and suppliers. With Spain espousing a strategic plan to increase investments in its transport infrastructure, demand from this segment is expected to increase over the next few years. Likewise, the Eastern European region is also undergoing rapid modernisation of its public infrastructure. A significant quantity of European Union funds is expected to be invested in various activities o this kind related to construction of highways, railways, renovation of airports and seaports, and so on.
Production of gensets
Although the above mentioned factors provide impetus to growth in the market, growth rates are not high, pegged at between 2 and 3 %. On the other hand, Europe is a production hub for this kind of generation plant, and the United Kingdom in particular is a major export hub from which gensets are exported and re-exported to various parts of the world. Demand from different kinds of end-users across the world is stimulating growth in the production of gensets in Europe. Moreover certain parts of the Middle East, Africa and Asia with underdeveloped electricity grid infrastructure are resorting to distributed generation, which in practice usually means a clutch of diesel powered generating sets, to satisfy their growing electricity needs and the demand for increased electrification generally. Among the producers Italy and Spain are mass producing countries, with a majority of the production in the lower power ranges, while Germany caters to customised demand in the higher power range.
In terms of competition, demand for gensets in Europe is fulfilled both by international competitors and regional packagers. Hence international competitors, regional packagers and other small packagers that use engines from various sources and cater specifically to local demand are the three major types of player in the European market. What is interesting to note is the presence of a large number of competing players in countries such as Italy and Spain. There is a good number of international and regional packagers that cater for demand in these countries. Competition in Italy for instance is very fragmented and Italian companies such as Visa, Bruno and Coelmo have a significant presence in the market. Spain is less fragmented and the market is dominated by local players such as Himoinsa and Pramac. SDMO is the leading player in France as is FG Wilson in the United Kingdom.
Among the factors that end-users bear in mind before purchasing gensets are quality, reliability, lead time, price and brand name. Products that are ranked high for each of these parameters are sure to be well received by all categories of end-user alike.
Given the maturity of the European diesel genset market, it is expected to witness low but still very solid levels of growth. Growth in the Eastern European markets is expected to outpace growth in Western Europe because of tremendous industrial and commercial growth there. Frost and Sullivan estimate the size of the total European diesel gen-set market in 2006 at $958 million. It is forecast to grow at a compound annual growth rate of 3.2 % from 2006 to 2013.
Aarthi Balachandran is Research Associate for Frost & Sullivan's Energy and Power Systems group in London. For more information about Frost & Sullivan's Energy and Power Systems subscription or related research, send an e-mail to Chiara Carella, Corporate Communications, at [email protected] with the following information: full name, company name and full adddress, title, telephone number, and e-mail address. Requested information will be sent by email upon receipt.