Since the fall of global oil prices the generator sets market has been extremely volatile. Emission regulations have contributed significantly to an already challenging market environment. In 2016, the estimated worth of the world market for generator sets was approximately $13.8bn. In 2017, revenue is forecast to decline approximately 3.6%.
Author: Greg Johnson, Senior Analyst, Capital Equipment & Machinery, IHS Markit
The regulatory environment for diesel off-road engines and therefore generator sets is becoming more challenging. In 2015 the market saw the final introduction of the US EPA’s tier four regulations in the United States for all diesel off-road engines over 560kW. In the three preceding years, these tier 4 regulations had been phased in for all diesel engines below 560kW. Tier 4 regulations limit emissions of CO2, PM and NOx, for some power ranges by up to 90% of previous standards. The cost of adding exhaust gas treatment such as selective catalytic reduction devices is anticipated to increase the cost of the final gen-set unit.
European regulations set similar ranges to those set by the US EPA. Stage 4 requirements in Europe have been in place for stationary engines since 2014. Of note, Stage five regulations have been confirmed for introduction in 2019. Most manufacturers interviewed believe that this will have a slight dampening effect on sales for generator sets. As each new tier of emissions regulation is enforced, the manufacturers R&D cost of meeting the new emissions standard increases. These costs must be passed on to the customer or absorbed thereby reducing supplier profit margins. With 2017 forecast to be a down year for global generator set sales, manufactures are currently absorbing the bulk of these cost increases.
Outside North America and Europe, the regulatory picture becomes more mixed. In Japan, the equivalent of tier four regulations is now in place up to 560kW. China is currently on the equivalent of EPA tier ½ for off-road regulations to allow its domestic manufacturers to hold market share in the country. In India, regulations have been in place since 2014 and are similar to those of EPA tier four. Gen-set suppliers indicate that they expect more regions and countries to adopt and enforce EPA tier four or five equivalent standards in the future. This ongoing development could potentially diminish generator set sales in emerging markets where these standards have yet to go into effect.