BG Group’s micro-CHP arm shuts due to high cost

Difficulties in reducing production costs to a "viable level" have prompted BG Group to give up on its attempt to develop a domestic combined heat and power unit. But Baxi and Whispergen - the other leading micro-CHP developers - deny they are having similar problems.

BG Group closed its Microgen subsidiary in February after seven years of trying to develop a micro-CHP unit for domestic use. It was reported to have invested over £40 million in the venture.

Centrica had been trialling several of its units, and intended to sell them once they were commercially available.

Micro-CHP units are the size of conventional boilers, but generate electricity along with heat so have the potential to substantially reduce a home’s carbon emissions. They are usually based on Stirling engines powered by natural gas.

BG Group’s attempts to develop a unit have been repeatedly hit by delays. In 2002 it announced a product would be launched by the end of 2003, but this deadline quickly slipped to the end of 2004, before being dropped completely (ENDS Reports 330, pp 33-34 , and 347, pp 49-50 ).

The company decided to close Microgen after a year-long search for a manufacturer capable of bringing the product to market failed. "No one could find a way of reducing production costs to a viable level," a spokesman said.

ENDS understands production costs were £1,500 above those of a conventional boiler.

"As a company whose experience is not in manufacturing, we needed a partner," the spokesman said. "It made little sense to keep going without one."

In contrast, both WhisperGen and Baxi, who also use stirling engines, say their plans are on-track.

Baxi formed a partnership with Microgen last year to manufacture units with Microgen’s technology.

"Microgen’s demise doesn’t say anything about the rest of the industry," said Ciaran Murphy of Baxi. "I admit we have a window of opportunity - two or three years - before the government will lose patience with the industry, but we are on course to bring a system to market in 2008."

Baxi started trials of three units in November, and intends to add ten more in April. "By the middle of the year, we should understand how much more development is required for the unit to be ready."

The company expects it to cost twice as much as a standard boiler. However, it claims its micro-CHP will be capable of saving £100-150 a year on energy bills giving a 7-10 year payback.

WhisperGen is similarly optimistic. "To suggest that because one company - which did not have a commercial product offering - ceases business, [micro-CHP] is not viable in the UK is silly," said Mike Small. "There is a viable market once manufacturing volume thresholds are achieved. The issue is how to break open the market with only low product volumes which are expensive to manufacture."

The New Zealand-based company has been "working over the past 12 months to establish the necessary manufacturing relationships and redesign the product for mass manufacture," Mr Small said. He expects to make an announcement about a deal "by the middle of the year".

Mr Small admits that WhisperGen has "been forced to compromise" with its product to keep the price down. "We have not attempted to produce the most efficient Stirling engine in the world, but rather one which can be manufactured in high volume at market price."

"Similarly, we could make our system lighter or glossier or wall mountable…but the additional costs associated with doing these impacts on our financial proposition."

In spite of this, it has already sold 1,500 units to Eon. Eon is contracted to purchase a minimum 80,000 units over four years "once the WhisperGen is manufactured by a mass manufacturer at a mass manufactured type price."

According to David Sowden, chief executive of the Micropower Council, three other companies are looking to develop micro-CHP in the UK: Serious Power, Ceramic Fuel Cells and Energetics. There are "around 30" in Europe.

The Department of Trade and Industry is shortly to conduct research on demand for micro-renewables and micro-CHP. It is considering the need for targets, as required by the Climate Change and Sustainable Energy Act (ENDS Report 377, p 47 ).

Mr Sowden says predictions on micro-CHP’s potential should not be made before this work is completed.

The Carbon Trust will also shortly publish results of its trials into the carbon savings achieved by micro-CHP. It issued interim results in 2005 that suggested savings were poor, but these were heavily criticised by industry (ENDS Report 371, p 19 ).