“Our CHP orders have fallen off a cliff”

Michael  Brown of Delta-ee

I vividly remember being told these words during a telephone conversation I had with one of our clients in January 2009, a successful global player in CHP and distributed power systems.

We were discussing a renewal of a subscription to one of our information services and it quickly became clear he would not be renewing – his company was cutting costs dramatically.  This was about four months after the Lehman Brothers collapse and the world was reeling in the midst of a deep financial crisis.

When Delta-ee produces our CHP & distributed power market projections, we take into account a broad range of factors and drivers, most important of which are often future trends in energy policy, especially the promise of new incentives)  and in the relationship between fuel and power prices.  But back in 2009 / 10, it was clear that these drivers were largely irrelevant.  More or less everyone stopped buying anything that was non-critical, including on-site power systems.

This is an extreme example of the importance of macro-economic trends in shaping distributed power market activity.  Normally, the influence is more moderate, but we believe it’s still an important ingredient in the overall mix of market drivers that we research, and we routinely take macro-economic prospects into account when deriving sales forecasts for gas engines, gas turbines, CHP etc.  For example, when GDP growth rates are higher:

·         The financial condition of companies that are likely to invest in on-site generation is stronger

·         The confidence to invest is higher if future prospects look bright

·         Energy demand growth is higher, which can put pressure on energy prices and thus add value to efficiency measures like CHP

·         Policymakers are usually more confident to incentivise low carbon energy systems like CHP and biogas plants.  One of the main consequences of the economic crisis since 2008 has been the sharp reduction in policy commitment to measures that combat climate change.

And we are noticing in recent months that the economic sands are definitely shifting, and as a consequence we at Delta-ee are preparing to revise several of our country forecasts for the period 2014 - 2020.  To illustrate this, we have compiled the latest updated annual GDP growth data and forecasts from several sources including the IMF, the European Commission and the Economist and, averaging it all out, we get the following data for the years 2012 to 2015.

Delta-ee draws a few conclusions from this:

·         Both at the global level and in most countries, GDP growth rates are higher for 2014 and 2015 than they were for 2012 and this year.

·         There is no economic recession by 2014 and 2015.

·         Emerging markets continue to grow much faster than Europe and the US.

·         Even the sick economy of Europe is likely to begin to bounce back soon.  And the very sick economy of Italy may be back into growth, albeit very slow, in 2014.

·         Recent concerns about a major slowdown in some emerging markets - including the ‘fragile 5’ of Brazil, India, Indonesia, Turkey and S Africa – now look irrelevant.  After a couple of slow growth years, prospects look brighter in each of these countries.


Overall, a dramatically improved macro-economic picture from 6 months ago, and for that reason, cause for some real optimism among the CHP and distributed power market players around the world.

Michael Brown is a Director at Delta Energy & Environment (http://www.delta-ee.com), a specialist decentralised energy research and consulting company. For more information on global CHP and distributed power market trends, please contact Michael at michael.brown@delta-ee.com.

 

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