Transition to ‘new energy’ – what role for gas engines?

Transitioning towards ‘new energy’ is going to present new opportunities and new challenges within the distributed power sector. For example, is the growth of PV and energy storage an opportunity or a threat to ‘conventional’ distributed power technologies such as gas (piston) engines? Will gas engines see sales grow in the next five years as demand for ‘flexible’ generation increases? Or will combustion technologies increasingly come under pressure from renewable alternatives?

Recent analysis by Delta Energy & Environment (Delta-ee), a research consultancy specialising in distributed power and new energy markets, focuses on emerging opportunities for gas engines in the era of the energy transition.

Previous Delta-ee market analysis has generally considered the global gas engine market in terms of two main applications: combined heat & power and power-only (with further classification by fuel type (natural gas, biogas and other gaseous fuels)). But the transition to the era of ‘new energy’ (Figure 1) creates a number of new opportunities for gas engines and makes it necessary to drill a little deeper into specific applications. Delta-ee’s report Key and emerging applications for gas engines does just this.

Figure 2 shows some new gas engine applications emerging in the ‘new energy space’.

The new applications identified in Figure 2 are undoubtedly growing globally – data centres especially, at a very fast pace, as lifestyles and economies digitalise. It is estimated that data centres consume 3% of global electricity production. This share will only increase as the projected data centre growth rate increases still further between 2020-2030.

The focus of Delta-ee’s report is on the role gas engines can play within these applications rather than the growth of the applications themselves. For example, the expanding microgrids/hybrid solutions market could utilise a combination of other competing technologies such as energy storage, PV, wind turbines, diesel gensets, etc, without necessarily using gas engines.

In summary, our view on the potential role of gas engines in these emerging applications is:

• Datacentres (see Figure 3): Two ways to enter the market – one via gensets for backup generation (hybrids can play a role in this configuration) and the other in CCHP (combined cooling, heat and power (aka trigeneration)) schemes for data centres located next to potential heat loads (eg, within commercial buildings). USA and to a lesser extent Europe and China present good opportunities gas engines in hyperscale data centres.
• Microgrids / hybrid solutions (with gas engines): Growing market in USA, potential in other markets such as China and Japan.
• Diesel replacement: Displacing diesel engines for back-up generation is challenging in most countries today (with the exception of USA) because of cost considerations, gas availability in certain locations, and the shorter start-up times of diesel gensets relative to gas engines (although gas engine developers are working to close the gap and gas engine start up times are starting to match those of diesels). But diesel engines in continuous- operation applications can be readily displaced by gas engines if there is available gas supply, due to lower OPEX costs. Indonesia, for example, is a country where this has been happening on a large scale.
• Peaking/flexibility (Figure 4): Growing opportunity for recurring sales in the UK (spurred by the capacity market mechanism (albeit currently suspended following an EU court ruling in November 2018)) and the USA. The UK capacity market initially (unintentionally) incentivised a large number of diesel genset projects, but tightening emissions regulations and introduction of measures to reduce benefits accruing to embedded generation due to avoidance of transmission charges have reduced diesel take-up. There are also one-off IPP gas engine projects in countries with growing energy needs and increasing renewable penetration (eg, China, Latin America, Australia, Indonesia). Though, again, installation of gas engines is not the only option available to complement intermittent renewables generation. For example, Denmark is well served by interconnectors, while India is working on making its coal plants operate more flexibly.

In addition to these emerging applications, a key market application for gas engines discussed in the report is energy solutions using CHP. For this application, we considered gas engine sales that are driven by the need to save energy and are part of an energy solutions package with an ongoing energy service contract or multi-year financing contract. Countries or markets where this application is expanding show a strong push for energy efficiency, a mature CHP client base, existing mechanisms for supporting / financing energy saving interventions, and rising energy costs. 

How are OEMs reacting?

MAN Diesel & Turbo, manufacturer of reciprocating engines, gas turbines and steam turbines, has rebranded to MAN Energy Solutions in alignment with its product portfolio expansion to include hybrid, storage and digital service technologies. The strategic move comes with the expectation that:

• electricity will increasingly be generated using renewable sources or by distributed, flexible, power plants that use carbon-neutral fuels;
• energy storage is playing and will continue to play an increasing role;
• there’s growth potential in power-to-gas technology, which allows electricity generated from renewable sources to be converted into a gas fuel. But MAN Energy Solutions isn’t the only “engine” company moving into the new energy space. Since 2015, Caterpillar Inc has been partnering with First Solar and Fluidic Energy to offer microgrid solutions that incorporate solar PV, energy storage and back-up power generation using CAT gensets. They’ve been targeting sites with strong sunlight and limited or no access to electricity (eg, in Africa, Indonesia, South America, Australia, NZ, India and the Pacific islands).

In June, Wärtsilä announced that it will adapt some of its new thermal plants to run on synthetic biofuels and increase its focus on other renewable energies. This follows the introduction of its hybrid solutions, which integrate engines, solar PV, energy storage, and energy management software. Wärtsilä (through its acquisition of Greensmith Energy, a grid-scale energy storage solutions provider) has a partnership with Hyundai, the South Korean auto manufacturer, to develop second-life battery products and build a continuous, global supply chain spanning battery manufacturing, electric-vehicle sales, stationary storage deployment and end-of-life recycling. Wärtsilä has also signed a co-operation agreement with Schneider Electric on data centres, focusing on ‘hyperscale’ projects, with an electrical load of at least 10 MW.

Rolls-Royce Power Systems (which has Bergen engines and MTU-branded diesel and gas gensets within its product portfolio) is investing in start-up company Qinous GmbH, a provider of energy storage and control systems, and adding turnkey microgrids to its portfolio (Figure 5).

What’s driving these moves by gas engine market incumbents? Among the key factors are:

• falling technology costs of distributed power and renewable energy solutions;
• recognition of grid resiliency needs – to mitigate the risk of grid blackouts;
• market pull and shift away from high-carbon fossil fuels; and
• the complementary nature of the newly offered technologies to create additional value for the end-user (provision of balancing and ancillary services, integrating new technologies to optimise existing assets, to reduce energy consumption, additional revenue streams, etc).

Innio, a provider of established Jenbacher and Waukesha reciprocating engines, is a new entity – carved out of GE with the purchase of GE’s distributed power business by Advent International. Similar alliances and widening of the Innio product portfolio can presumably be expected in the not too distant future.

The company is already looking at renewably produced hydrogen as a potential fuel. Innio certainly sees itself as an enabler of the energy transition, and Advent has cited the “megatrends” of decentralisation, decarbonisation and diesel replacement as attractive features of the gas engine market.

New business model

The transition to the era of ‘new energy’ presents opportunities for gas engines, but it will not be business as usual. New business models are needed and the incumbent engine suppliers are recognising this.