The 2008 recession hit the United States economy hard with 6 back to back quarters of GDP loss. In total 44 countries experienced a recessive period, defined as two quarters of negative GDP growth, ranging from 2 quarters (South Korea) up to 13 quarters (Ireland). Although the United States is not technically in a recession (which officially ended in June of 2009) to most Americans it still feels as if we are. Like the rest of the markets in the United States, the power generation industry was not spared during this recessive period. However, pre-recession growth is returning and there appears to be a bright future for the power generation industry which will be fueled by growth in emerging markets.
When reviewing the generator industry it is important to be aware that oftentimes the market is grouped in with electric motors. According to Global Industry Analysts, Inc., the electric motor and commercial generator industry is set to reach $73.2 billion dollars by 2015. The overall recovery cannot be attributed to one single factor in particular. Analysts speculate that development of new manufacturing lines, expansion of industrial infrastructure abroad and an increase in shipping goods are all contributing to the growth of the power generation industry.
Recession’s Impact on the Industry
The most prevalent end use applications for generators include industrial plants, manufacturing, construction, chemical applications, petrochemicals, agriculture, automotive, mining, oil and natural gas, telecommunication and healthcare. The overall demand for energy is closely related to the level of economic activity. Subsequently the recession resulted in lower energy consumption levels across the board in the manufacturing, commercial and construction industries. Reduced industrial activity directly corresponds to the decline of electric motor demand by end users. Electric motors are used heavily in industrial processing and are often powered by diesel generators.
Government Emission Regulations
The first wave of emission reduction standards for non-road diesel engines was introduced by the Environmental Protection Agency (EPA) in 1996. Non-road diesel engines could be classified as applications for construction or agriculture. The tiered program was implemented in 2007 and is to be phased in over a 4 year period ending in 2012. The tier rating structure (Tier 1-4; four being the strictest) is based upon the engine horsepower rating. The Tier system also regulates the amount of carbon monoxide, unburned hydrocarbons, and particulate matter produced from the engine. The majority of non-emergency engines are required to be Tier 4 compliant by the 2015. Emergency standby generators are exempt from new regulation as they usually are low hour units that are only used when primary power goes out. This means that stationary emergency units will be able to remain at a Tier 3 or a Tier 2 level. However, if the generator is used for prime or continuous power (non-emergency) then it will be required to be at Tier 4 compliance. This includes peak shaving and during storms.
The tier regulations apply to both non-road mobile generators as well as stationary units. There are two phase-in periods: Tier 4 Interim and Tier 4 Final. The interim phase is intended to be a gradual process to phase-in regulatory standards for manufactures. The interim phase begins in 2011-2012, with the Tier 4 Final Stage to be completed by 2015. Tier 4 Interim will affect 56 to 130+ bkW generator sets and the Tier 4 Final will require an additional 50% reduction in NOx emissions.
Depending on power range, most stationary diesel engines must meet emission requirements of Tiers 2, 3, or 4. The new tier regulations also present an opportunity for the industry to improve diesel engine performance and efficiency. Industry experts are expecting higher performance engines that decrease fuel consumption. Until manufactures can produce these engines in mass quantities there are bound to be some growing pains. Initially there will be limited availability of the new engines thus producing high initial costs, operating costs and maintenance costs. However, used generators will be grandfathered in depending on state and local laws. Industry experts are predicting that the majority of older genset engines will be grandfathered in and allowed to run out their normal life expectancy. Much older gensets may only have a market in other countries or be sold for scrap.
Increase in Global Demand
According to a comprehensive study by Exxon Mobile, global energy demand will be about 30% higher in 2040 than in 2010. This estimation is based upon the trend that economic production will more than double worldwide and the overall population will reach 9 billion people. Energy demand will eventually slow as economies mature and stabilize. By 2040, electricity generation will account for more than 40% of global energy consumption. Other trends include:
• The demand for coal will eventually decline due to emission regulations
• By 2040, 80% of fuel consumption will be oil, natural gas or coal
• Natural gas will replace coal as the second most widely used fuel source behind oil
• Demand for natural gas will rise 60% by 2040
The overall demand worldwide for diesel motors and used generators mixed with increased emissions regulations in the United States, has manufacturers looking overseas for emerging markets. The generator market is driven by the rapidly expanding global population and urbanization of cities throughout the world. Telecom, manufacturing, mining and construction sectors are fueling increased growth in the industry. The demand is strongest in Latin America, Middle East, East Asia, and Africa due to rapid growth and unreliable electric grid networks. Most individuals and businesses in 3rd world nations use backup generating systems on a regular basis.
Fuel source trends are moving more towards natural gas, propane, kerosene and compressed gas. Diesel fuel is still by far the most widely used fuel source especially in developing nations however, in the United States and Europe more wind, solar and biomass projects are being funded.
The most rapid industrialization across the world is taking place in India and China. The East Asian market is the fastest and largest region for commercial and residential generators. Only time will tell how the generator industry will respond to these emerging markets.