What’s the future of diesel in the generator sets market?
"The more things change, the more they stay the same." This adage can be applied to many aspects of life, but it is also an apt description of the dominance of diesel fuel within the overall industrial generator sets market. Diesel fuel has been the life-blood of the vast majority of industrial generator sets for decades; however, natural gas and other alternative fuels are gaining traction. Despite the overall global trend toward cleaner burning and more environmentally friendly (non-diesel) fuels, diesel will remain the leading fuel type used in the global generator sets market for many years to come.
According to a recently published study by IHS, the generator sets, or ‘gen-sets,’ market totaled just under $16 billion in revenues in 2013 and is forecast to reach nearly $23 billion in 2018. Gen-sets using diesel fuel accounted for the vast majority of total sales in the market in 2013, with $12.1 billion, or approximately 75.6% of revenues, as well as 81.6% of units shipped.
While the diesel generator set market is forecast to lose some market share to natural gas and alternative fuel gen-sets, it is still predicted to experience moderate growth at a 6.2% CAGR over the forecast period. One of the factors working against diesel gen-sets is the increasing stringency of emission regulations occurring globally. In order to meet emission standards in regulated countries, diesel fuel gen-sets are now required to run on ultra-low-sulfur diesel (ULSD). The US Environmental Protection Agency has passed regulations that require a 97% reduction in the sulfur content of diesel fuel, from 500 parts per million (ppm) down to 15 ppm. ULSD fuel is more expensive than standard diesel fuel due to the additional processing needed to remove the sulfur. Despite this hindering factor, diesel fuel gen-sets are still in high demand as they offer several advantages compared with other fuel types such as a longer engine lifespan, lower maintenance costs, and safe fuel storage. As a result, diesel gen-sets share of the overall market in terms of revenues is forecast to fall only 4.5%, to 71.1%, in 2018.
Natural gas and alternative fuel gen-sets made up the remaining 24.4% of market revenues in 2013. The natural gas gen-set market, which accounted for around 20% of total market revenues at just over $3.1 billion in revenues in 2013, is forecast to experience the fastest growth of all fuel types within the market at an 11.9% CAGR through 2018, yet this will only slowly erode a small share of diesel fueled gen-sets.
Alternative fuel gen-sets totaled just over $800 million in revenues in 2013, which accounted for approximately 5.1% of total market revenues, yet, similar to natural gas gen-sets, are projected to experience high growth (a CAGR of 8.2%) over the next five years. Examples of alternative fuels include solid waste landfill gas, agricultural waste biogas, flare gas from oil drilling, seam gas from mining coal deposits, and biodiesel. Historically, waste gases have been under-utilized and instead vented or flared into the atmosphere. Alternative fuel generator sets offer added value particularly in remote areas where the supply of diesel or natural gas is limited. In other instances, alternative fuel captured from existing waste gas sources and used with a gen-set to produce electricity can significantly reduce the total energy costs of the end user.
The growth of natural gas and alternative fuel gen-sets have led some to speculate that the market will see a rapid shift away from diesel fuel in the near term. While this scenario is technically possible, it is highly unlikely given the continued growth of diesel gen-set sales and the relatively small market sizes of natural gas and alternative fuel gen-sets. Assuming the modest growth projections listed above for diesel gen-sets, natural gas and alternative fuel gen-sets would each have to grow by approximately 175% annually in order to account for just 50% of the global market in 2018. Therefore, diesel gen-sets will retain their dominant position within the generator sets market through 2018 and likely for several years beyond.
IHS defines a generator set as a packaged combination of a reciprocating engine and an electric generator, often referred to as an alternator, used for the purpose of producing electricity in commercial and industrial applications.
Greg Johnson is an analyst with IHS Technology. He is part of the Rotating Machines and Controls group and he focuses on the low, medium, and high power generator, wind generator, generator set, and fractional horsepower motor markets. IHS is a content partner of CFE Media. Edited by Joy Chang, Digital Project Manager, CFE Media, firstname.lastname@example.org.