The market for on-site generation on an industrial scale will change over the next five years, but natural gas will remain a major factor even though its proportional share of combined heat/power (CHP) systems will decline, according to a report by Colorado-based Pike Research, “Industrial Distributed Generation.”

More than 80% of what the Pike study labels as “industrial distributed generation” (IDG) is CHP, and the vast majority of that involves gas-fired reciprocating engines and turbines, or heat recovered from a gas-fired plant process. Over the next five years, however, Pike projects that in any growth scenario from slow to fast, CHP’s share of the IDG market will decline to between 53% and 73%, but it will still be the majority of the on-site generation.

Filling the void will be a variety of alternatives that Pike characterizes as “nascent and evolving markets,” including aggregated generation, 1 MW or larger fuel cells (with or without CHP), 1 MW or larger renewables built by the end-user, biomass/biogas, and data center CHP.

Despite the proliferation of data centers and what Pike called its “near-perfect” candidacy for CHP, data centers are not expected to move significantly toward IDG, the Colorado energy research firm’s report concluded. Eventually, Pike thinks that new attention to distributed generation’s potential “cost-saving and reliability increasing” qualities will “likely drive a great deal of new activity.”

“The economic climate has the most influence on the rate of growth of IDG markets, whether mature or evolving,” said Pike’s report, noting that current national economic uncertainties caused this report to be restricted to a five-year period through 2016 and the use of three scenarios (‘fits-and-starts,” low growth and optimistic).

“The scenarios themselves are not predictions, but narratives, translating to a set of conditions that should capture the most probable outcomes across the forecast period.”

At the top of the list of key drivers of IDG’s future growth is what Pike labeled “natural gas price uncertainty.” Risk management, hedging and market reforms are also on the list, and in the West, the “evolution” of California Gov. Jerry Brown’s statewide goal of 12 GW of locally generated electricity by 2020 is also cited as a potential catalyst for a lot more IDG.

“Although incentives have facilitated growth in some sectors of this market, the state of the economy, uncertainties in natural gas prices and diminished access to capital are deterrents to growth, particularly for CHP installations,” said the Pike report, noting tongue-in-cheek that the market for on-site industrial sector power is dominated by “concepts that predate the utility industry.” Nevertheless, the report said third-party providers are creating what Pike said is a “new class of large-scale units” into industrialized blocks of power.

©Copyright 2011Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.