Application of the theory of constraints to unveil the root causes of the limited market penetration of micro gas turbine systems

Journal Pre-proof Application of the theory of constraints to unveil the root causes of the limited market penetration of micro gas turbine systems Giuseppe Tilocca, David Sánchez, Miguel Torres-García PII: S0360-5442(23)01111-8 DOI: https://doi.org/10.1016/j.energy.2023.127717 Reference: EGY 127717 To appear in: Energy Received date : 15 October 2022 Revised date : 8 April 2023 Accepted date : 30 April 2023 Please cite this article as: G. Tilocca, D. Sánchez and M. Torres-García, Application of the theory of constraints to unveil the root causes of the limited market penetration of micro gas turbine systems. Energy (2023), doi: https://doi.org/10.1016/j.energy.2023.127717. This is a PDF file of an article that has undergone enhancements after acceptance, such as the addition of a cover page and metadata, and formatting for readability, but it is not yet the definitive version of record. This version will undergo additional copyediting, typesetting and review before it is published in its final form, but we are providing this version to give early visibility of the article. Please note that, during the production process, errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain. ©2023 The Author(s). Published by Elsevier Ltd. This is an open access article under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/). Journal Pre-proof Journal Pre-proof Application of the Theory of Constraints to unveil the Root Causes of the limited market penetration of Micro Gas Turbine Systems Giuseppe Tilocca, David Sánchez, Miguel Torres-García aDepartament of Energy Engineering, University of Seville, Camino de los descubrimientos s/n, Seville, 41092, Spain Abstract Micro Gas Turbines are small devices for on-site power and heat generation. Their high maintainability and fuel flexibility make them a suitable technology for transitioning to a greener economy. However, their commercialisation did not match the stakeholders’ expectations. The authors applied the Theory of Constraints -a methodology for the continuous improvement of systems- to the MGT industry introducing a structured and rigorous representation. The constraint - i.e. Root Cause - Analysis identified which entities sustain the cause-effect chain, eventually generating the Undesired Effects. The system constraints link to the specificity and effectiveness of commercialisation strategies and product innovation in agreement with evolutionary market theories. Moreover, the Theory of Constraints emphasises the presence of reinforcement loops that make targeting entities like high product costs ineffective. The missing piece to complete the puzzle is solving a logic block representing the product’s market competitiveness depending on economic and technical factors. This study suggests that combining marketdriven innovation and commercialisation is likely the only long-term solution to the lack of commercial success of the technology. However, the work also highlights limitations in the proposed methodology and solutions. To tackle these, the authors suggest and introduce numerical frameworks based on the Theory of Constraint. Keywords: microturbine; micro-gas-turbine; cogeneration; microgeneration; RCA; TOC. Preprint submitted to Energy April 8, 2023 Revised Manuscript with No Changes Marked Click here to view linked References 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof Nomenclature CapEx Capital Expenditure CHP Combined Heat and Power CLR Categories of Legitimate Reservation CRT Current Reality Tree CSF Critical Success Factor GHG Green House Gas ICE Internal Combustion Engine IO Intermediate Objective MGT Micro Gas Turbine NC Necessary Condition OEM Original Equipment Manufacturer OpEx Operating Expenditure R&DResearch and Development RCA Root Cause Analysis RCI Root Cause Identification SOA State of the Art TOC Theory of Constraints UDE Undesired Effect USD United States Dollars 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof 1. Introduction Micro gas turbines (MGTs) -or microturbinesare small, decentralised power and heat generation systems which are suitable for decentralised energy systems applications, thanks to their scalability. Recent research proved their capability to run on alternative carbon-free fuels like hydrogen without a noticeable increase in performance and other contaminants [1]. Therefore, MGT could potentially facilitate transitioning from the current centralised generation to a decentralised one, thus contributing to a low-carbon economy by 2030 and to carbon neutrality by 2050 [2]. Most microturbine products entered the market between the late 1990s and early 2000s. However, their deployment did not match the high expectations of the market and investors. This letdown was arguably due to the lack of cost-competitiveness against the established technology, i.e. reciprocating Internal Combustion Engines (ICE). This paper presents a comprehensive work within the NextMGT project 1to propose some corrective actions for the deployment of MGTs to the market. The corrective actions scheme implies identifying the root causes, evaluating the solutions and taking remedial actions [3]. 1.1. Background and literature review The deployment of microturbines has always been limited to niche applications [4] despite the claimed winning features of this technology. Often, stakeholders designate the higher equipment cost than established technologies to be the root cause for this limited market volume. However, the authors believe that this statement is tautological and lacks logical validity. The deficiency of sale volumes yields higher costs and overheads which, in turn, are the reasons for the low sales. This fact also emerged from the interviews with OEMs and other major stakeholders carried out by the authors and from an extensive literature search. This paper introduces the application of a methodical, replicable and rigorous process to identify the actual root causes of the problem and to provide 1Next Generation of Micro Gas Turbines for High Efficiency, Low Emissions and Fuel Flexibility -NextMGT project, a Marie Sklodowska-Curie - Innovative Training Network funded by the Horizon 2020 Programme of the European Commission under Gran Agreement No. 861079. NextMGT is a consortium of universities, research institutions and companies across Europe with complementary expertise in MGTs and related topics and a common will to unleash the potential of this flexible and versatile polygeneration system 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof objective conclusions to this long-lasting debate. To this end, the authors chose the Theory of Constraints (TOC) as the methodology to uncover the root causes of the unsuccessful development and commercialisation of MGTs; unfortunately, the academic literature on Root Cause Analysis as intended per Okes [3] and TOC for business(trade)-related processes is small. Zulbainarni and Khumaera adopted RCA to identify gaps and barriers in developing Sustainable Fisheries Business in Indonesia, applying the "five why’s" logic tree to map the cause-effect relationships [5]. Heravizadeh et al. describe a systematic methodology to detect and document the quality dimension of a business process [6] based on the traditional RCA to model the elements of a business process and its related goals, metrics, and issues for a particular case. Harich et al. apply the traditional RCA to sustainabilityrelated problems [7]. Although this is not a strictly business case, it still is an example of dealing with very complex problems depending on policies, regulations, macro and microeconomics, and their impact on local communities. Da Costa et al. published a novel diagnostic technique for the New Product Development based on recurring Current Reality Trees (the Root Cause Analysis tool from the TOC) [8] called diagile method. In their experience, Goldratt’s CRT [9] struggles to identify multiple root causes, a limitation unsuited for heterogeneous business processes like New Product Design. Finally, Dogget presented a statistical comparison [10] and a framework for the selection [11] of RCA tools, including the cause-effect-diagram and Current Reality Tree (Theory of Constraint). Both works concluded that each tree presents benefits and drawbacks. These works found ground in the literature and focused on the Root Cause Identification diagrams. In comparison, the paper presented here comprises a broader approach to RCA which, besides the root cause identification, includes the definition of the problem through a Gap Analysis (IO Map) and the analysis of the cause-effect chain. Furthermore, it sets the work for corrective actions, applying the methodology to an open problem. 1.2. Novelty and aim of the work Since their arrival in the market, MGTs have faced limited success. All the efforts to analyse and solve this situation proved ineffective with time. Most studies on MGT focus on cost reduction, techno-economic analysis or performance improvement alone. The literature on MGT does not include any holistic study that gives an objective and pondered analysis of the problem, followed by a long-term solution. This paper aims to fill this gap. The 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof authors hypothesise that there is a problem in the MGT market, which is not entirely relatable to cost. The methodology used in this work will validate this hypothesis and carry on the logical cause-effect analysis. According to the results shown in the document, using a systematic, replicable approach to this precise problem is believed to deliver the MGT industry with a valuable tool to reach market deployment in a more technicallydriven and rigorous manner, free of speculations. The authors hope this can guide the industry to join the quickly changing energy market in supporting the energy transition. 2. Micro Gas Turbines 2.1. Technology Literature defines microturbines as miniature gas turbines with rated power between 30 and 400 kWe[12]. Commercial microturbines range from 2 to 400 kWe, with pre-packaged systems comprising several parallel units surpassing 1 MWeof total installed electrical power [13, 14]. Micro gas turbines operate on the same thermodynamic cycle as larger gas turbines; nevertheless, some distinctions set them apart from them. Due to the low volumetric flow, MGTs primarily use single-stage centrifugal/radial turbomachinery for compression and expansion. This setup generates lowpressure ratios below 4.5:1. Additionally, being impossible to cool radial turbines -due to manufacturing limitations-, these machines feature low Turbine Inlet Temperature, around 950ºC. Conversely, larger turbines achieve pressure ratios higher than 20:1, and turbine inlet temperatures above 1600◦ [15]. These low-pressure ratios and turbine inlet temperatures limit the maximum thermal efficiency engines can practically achieve with a simple cycle configuration. Additionally, the smaller dimensions negatively impact turbomachinery efficiency [16], heat losses [17], and internal leakages [18], yielding a globally detrimental effect on engine performance. Consequently, MGTs always use a recuperative cycle to increase engine performance, even if this comes at the cost of a pricey and bulky recuperator to preheat combustion air. Additionally, microturbines operate at variable, high shaft speeds; this means that a permanent-magnet synchronous generator is needed to produce electricity at a variable frequency. Downstream, power electronics accommodate the power output to the grid requirements. 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof In addition to the foregoing considerations, control systems MGTs limit the maximum rotational speed to ensure constant Turbine Outlet Temperature (rather than Turbine Inlet Temperature) to ensure that the recuperator downstream of the turbine is not overheated. This control strategy generates a higher decline in electrical efficiency with higher ambient temperature compared to bigger gas turbines [19]. 2.2. Data sourcing The analysis presented in this work is supported by a comprehensive literature review, market research and communication with stakeholders. The study of the technical aspect relies on the specifications of a broad list of engines for on-site generation; thus, specifications of microturbines come from Ansaldo Energia, Bladon Turbines, Aurelia Turbines, MITIS, MTT, Flex Energy Systems, and Capstone Green Energy [20, 21, 22, 23, 24, 14, 13] whilst the sources for Internal Combustion Engines (ICEs) correspond to Adveco, MTU, Cummins and CAT [25, 26, 27, 28]. Cost data found in the literature are used to derive cost functions that are assumed to depend on the engine’s electric output. These functions are of the logarithmic type since these realistically match the scaling effect of power on the specific cost. •For ICEs, cost data come from several databases of the Environmental Protection Agency and the Energy Information Administration of the US Government, reporting the cost for a representative range of installed power; these data are then normalized to USD2022 [29, 30, 31, 32]. More specifically, installation and service costs have been estimated according to [29, 30, 31], whereas the equipment cost functions for genset, heat recovery and interconnect/electrical have been derived from [30, 29]. Exhaust gas-treatment data from the International Council on Clean Transportation for emission Stage V [33]. •For MGTs, equipment cost data have been taken from several references also, including some of the aforesaid and others from the Electric Power Research Institute [29, 30, 31, 32, 34] , as well as from private communications with different OEMs. The cost of the fuel compressor has also been estimated according to several sources [29, 30, 34], and that of the heat recovery has been derived from [29]. Contrary to ICEs, the interconnect/electrical parts of MGTs are included in the cost of the generator set [29]. This information is complemented by the specific cost functions developed by Galanti and Massardo for each MGT 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof component [16]. Finally, service costs have been estimated according to [29, 30, 31, 24]. The resulting cost functions for equipment and service are plotted in Fig. 1 and will be used as a reference in this study. This global representation of equipment and service cost functions is deemed sufficient for the general analysis provided in this work, despite the unavoidable scattering of source data. In this regard, estimates of installation costs are less reliable inasmuch as they are case-specific to a large extent. Some estimates of these installation costs could also be found by comparing [29, 30, 31, 24]. (a) (b) Figure 1: Comparison of the data gathered for micro gas turbines and reciprocating engines. Figure (a) plots the rated electrical efficiency declared by OEM, representing fuel costs. Figure (b) shows the equipment and service cost functions for both technologies. The interview with stakeholders guided and impacted this work significantly in applying the TOC principles. The list of interviewees includes different stakeholders, including OEMS, Distributors, Service Providers, companies and consortiums specialising in MGT R&D, Gas Turbines associations focusing on decentralised energy systems and micro gas turbines, experts (companies or individuals) on Energy markets and microgeneration; this information is presented in Table 1b. The OEM list includes almost all that are active in the Micro Gas Turbines market, where Capstone Green Energy has the largest share. Institutions previously involved in MGT design or developing a new product are also included. Gas turbine associations include 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof the European Turbine Network (ETN Global), an international association with over 120 members worldwide and covering the entire gas turbine supply chain; within ETN Global, the former Microturbine Working Group has been converted into the Decentralised Energy Working Group, de facto including the integration of micro and small gas turbines into complex energy systems for low-carbon applications. The European Micro Gas Turbine Forum is an association that unites many MGT manufacturers and distributors, mostly in Europe but not only. Finally, the experts’ interviews covered different aspects of microturbines’ current and potential deployment, including emerging markets, naval and special applications, regulatory framework and investment opportunities. 2.3. Market analysis summary Micro Gas turbines were introduced to the market between the late 1990s and early 2000s. Despite the initially high expectations and numerous orders, the interest in this product soon declined. Eventually, micro gas turbines found space mostly in small niche markets such as heat-driven cogeneration applications and microgeneration using fuels with reduced and variable low heating values, like sewage and flare gases [4]. This decline was arguably due to higher MGT capital and fuel costs, which were not offset by low maintenance costs. Figure 1 compares micro gas turbines’ technical and economic features with those of reciprocating engines obtained in Section 2.2. The plot shows that reciprocating engines achieve higher electric performance at significantly lower equipment costs than MGTs; the only advantage of the latter systems is lower service and maintenance costs. Capstone was one of the first companies to launch its microturbines product, leading the market from the beginning. Despite the high expectations, denoted by a record market capitalisation in 2001, the company has yet to reach profitability due to the large overheads; similar trends were observed for other companies in the market. This trend can be observed in Figure 2, which shows cumulative installations for cogeneration applications below 1 MW in the USA. The initial interest in MGTs soon ceased, giving way to a slow increase in the number of units installed (flatter curve) while the contrary occurred for reciprocating engines: the increasing number of annual installations (slope of the curve) in the last two decades. Several companies, such as Capstone Green Energy, Ansaldo Green Tech, Aurelia Turbines, MTT, and Flex Energy, offer commercial MGTs; this information is compiled in the micro gas turbine market report issued by Gonzalez 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof do not support the deployment of DG technologies sufficiently, particularly MGTs. •NC#2 MGTs represent a viable asset: product costs are high compared to competing technologies (NC#7) and reflect into the equipments costs. Moreover, the electrical efficiency of most MGTs in the market tends to be lower than that of typical ICEs, which raises the cost of fuel over the operating life of the equipment (Figure 5). Finally, in conventional applications, MGTs’ lower maintenance costs than ICEs cannot compensate for the high capital and energy costs. As a result, in most cases, MGTs may not represent a good investment compared to ICEs. Figure 5: Lifecycle cost for two representative power applications. The assessment considered a 100 kW MGT and a 100 kW ICE. The assumed working life is ten years with an operational availability of 95%. The equipment and maintenance/service cost functions are from Fig. 1; installation costs are from Section 2.2. The fuel prices considered are 25 and 50 USD/MWh, respectively. •NC#4 The features of MGTs make them the best technological candidate for given applications: MGTs feature some benefits like low maintenance, high-grade heat available and high heat-to-power ratio, low emissions, fuel flexibility and compactness. However, they 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof only allowed them to conquer small niches during the last two decades [44]. Specifically, high-grade heat and high heat-to-power ratios appeal only to selected applications: in reality, less than a fourth of industrial applications require mid-to-high grade heat [45], and most commercial and residential applications require low-temperature heat only. In most cases, ICEs maximise the profits for CHP applications [46]. As previously discussed, low emissions cannot become a true market advantage under the current regulatory framework. Concerning fuel flexibility, it is true that MGTs can run on many fuels, even with relatively low heating values but, despite this, most biofuel installations are still running on ICEs [47, 48, 49], whilst the cost-effectiveness of MGT running on hydrogen is yet to be proven. On this last point, Escamilla et al. [50] assessed Power-to-Power solutions adopting hydrogen and MGT, concluding that increasing the performance of MGT will be essential to attain acceptable round-trip efficiencies. Compactness is often considered a Gas Turbine benefit. However, this does not scale as well for microgeneration applications since, in practice, the cost and volume of recuperators and other bulky components can easily overcome this advantage. The authors found that, based on the specifications provided by OEMs, the size and weight of MGTs and ICEs are similar. Given these considerations, NC#4 is unsatisfied. •NC#1 MGTs State of the art technology can keep up with competition: this Necessary Condition is not satisfied, considering the conclusions for NC#2 and NC#4. Their causal relationship is further discussed in the next section. •NC#5 Margin: retail margins are estimated to be 20% in case of direct sale, 25% in case of a 5-year Firm Fixed Price sale and going up to 60% for a 5-year rental (this latter solution is being adopted by many MGT companies recently). These data correspond to the Capstone C1000 system [51], but it is assumed to represent most commercial products. Following the consideration for CSF#2, the cost structure and the number of sales seem to be the issue. Achieving high retail margins is possible, but this depends on how much customers are willing to pay and how many customers are willing to take the technology. In fact, retail margins depend on the expected units sold. In this case, the margins cannot guarantee profitability. For instance, for Capstone Turbine, gross margins were about 10%, way below the average levels 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof from the industry3. According to their Fiscal report [42], this is due to manufacturing overheads and direct material costs. •NC#6 Robust distribution channels: the RCI did not yield any correlation on poor distribution channels leading to undesired effects. The stakeholder interviews confirmed that distribution channels had expanded significantly during the last 20 years. From the website of the companies listed in Section 2.2, it also emerged that their distributors now extend to many regions worldwide. Moreover, distribution channels tend to scale with the industry, so comparing them with those of established technologies would be unfair. •NC#8 Commercialisation strategies and business models are optimised: the interviews confirmed that commercialisation strategies were sometimes not aligned with the product characteristics, particularly targeting a general market and aiming for volume proved to be a wrong long-term strategy. As a lesson learnt, current MGT distributors and OEMs acknowledge the value of focusing on specific niches. 5. Root cause identification and analysis: the current reality tree The current reality tree is one of the initial five thinking process tools for implementing the Theory of Constraints [10]. In the TOC, the CRT, also called the effect-cause-effect diagram [10], is a tool that helps the user find the cause-effect link between the problems and the so-called undesirable effects of the core problem. Doggett summarised different thoughts previously expressed in literature [38, 53, 54] by saying that the CRT aims to represent the current state of reality as it exists in a system [10]. The representation follows the most probable chain of cause-effect links, and, ultimately, it serves to identify a core driver, hence a shared cause, common to several symptoms. The CRT diagram can look very similar to Okes’s logic tree, but whilst the latter is based on general causality (question why?), CRT follows the CLRs (see Table 2); in particular, the cause sufficiency marks the major difference between the two diagrams. The CRT is created top-down, although it is read 3Average gross margins are 41% of revenue for the Power sector, 35% for the Machinery sector and 34% for the Electrical Equipment sector [52]. 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof from bottom to top [55] using the following construction: "If [cause], then [effect ]". 5.1. Symbols According to the categories of legitimate reservation in Section 3.3, the CRT -like many other Golddratt’s logic treespresents a proper symbology (CLR: Clarity). Rectangles with rounded corners represent Entities. Undesirable Effects are considered special entities (coloured boxes). Arrows connect entities: the tail points to the cause, whilst the tip points to the effect. Another difference with other RCA tools is the elliptic "and" connector [54, 38, 55]. It represents interdependent causes according to its relative reservation category (cause sufficiency in Table 2). It is equivalent to a logic "and" operator, meaning that the causes must all be present to generate the effect. As stand-alone causes, they are insufficient to cause any consequence. The "magnitudinal and", represented by a bow tie, is another example of insufficient cause. In these cases, the connected entities accumulate to worsen the effect [37], with the relative contribution of each cause -if knownoften written as a percentage close to its relative arrow. The logical "or" with additional cause reservation is represented in CRT with multiple arrows without the ellipse. If the additional causes are self-excluding, i.e. they cannot be present simultaneously, they are marked with an "or". Finally, the CRT also qualifies reinforcement loops. These can either positively or negatively magnify the effect of a cause. A thicker arrow that goes from one effect down to one of the deeper causes represents a reinforcement loop. 5.2. Building the Current Reality Tree Building the current reality tree is a top-down approach comprised of the following steps: 1. Placing the Undesirable Effects (UDE) and establishing the first causeeffect connections. 2. Ordering the entities following the correct cause-effect relationship. 3. Appending additional causes. 4. Defining the causal relationships according to the CLRs. The main reasons for not reaching the goal are the two Critical Success Factors. The UDE corresponding to CSF#1 (market size) becomes "The 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof Figure 6: Legend of the symbols in a CRT. number of sold units is insufficient" since, in practice, CSF#1 corresponds to the revenue of the units sold. The UDE corresponding to CSF#2 (profitability) is "MGT companies are not profitable" owing to gross margins not being sufficient. Indeed, the previous section highlighted that the fraction of revenue going into gross margin is below average in the distributed power generation sector, concluding that manufacturing overheads, direct material costs and low sales yield low gross margins. The manufacturing overheads are the costs incurred to run production facilities that are not linked directly to a product. Direct material costs are high because microturbines need expensive materials and components to achieve acceptable performance [56, 57]. This factor results from the high operating temperatures needed to increase the thermal efficiency of a Brayton cycle and from the need to adopt a recuperative cycle to enhance efficiency (the cost of the recuperator is a large contribution to capital cost). The other factor impacting gross margins is production volume to achieve economies of scale. Accordingly, the number of sales affects gross margins in relative (by affecting cost overhead, material and components costs) and absolute terms by reducing the actual values of revenue and margins. A report from the European Turbine Network [44] reveals the impact of sales volume on equipment cost for MGTs. In this case, 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof an additional cause reservation is the most suitable way to represent these effects since each cause is sufficient to create the effect; nevertheless, the same entities are present in the bottom part of the tree. Their causal relationship will be rediscussed further in this section. The poor sales result from two independent causes: wrong commercialisation strategies and an atomised market comprised of many niches. Even targeting a large market, inappropriate commercialisation strategies still hinder market penetration and conversely, companies may improve sales by appropriately targeting small niche markets. Nevertheless, if the niches are small and have little growth potential, better strategies will not substantially increase sales; this becomes even more so if the market is fragmented and heterogeneous. This last entity explains the lack of success of general volume-based market strategies used in the early years of MGTs commercialisation and also the challenges experienced in the recent shift towards more focused commercialisation. Following the cause-effect relationship, the market is small and comprises many niches because of two insufficient causes. Investing in energy for onsite generation is not a primary interest, AND the state-of-the-art technology cannot keep up with the competition (Undesirable Effect of NC#1). The first item, influenced by macro drivers and barriers, relates to the market size. The latter depends on the ability of the product to penetrate the market, so it belongs to the micro world. The chain would break if i) the on-site generation market expanded, with MGT being able to keep its market share, or ii) MGTs increased the market share against the competition without a global market expansion. Following the branch on the left-hand side, the low interest for energy investment has two independent causes. One is the inadequate regulatory push toward distributed generation technologies (this entity is the Undesirable Effect of NC#3). The second factor is that investing in energy requires longer-term commitment, economically or practically (i.e., utilisation-wise). This lack of push towards DG technologies and MGTs is a combination of insufficient causes. The existing regulatory frameworks are heterogeneous and do not promote reducing emissions below certain levels, except for CO2[47]. Such is the case of NOx, widely recognised as a dangerous emission [58], that yields about 90% of the damage to human health amongst all emissions of ICEs [59, 60]. This explains why the consequences of using biogas are three times stronger than NG, given their higher NOx emissions, and this effect on human health is particularly relevant in urban areas [61]. Unfortunately, 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof most regulatory schemes give no competitive advantage in having the lowest emissions. From the considerations in the previous paragraph, it becomes evident that encouraging the adoption of the cleanest technology overall could see MGTs improving their competitiveness [62], since these engines help reduce the emissions of NOx and other harmful contaminants thanks to lean premixed or flameless combustion technologies both for conventional [63] and biofuels [64]. On the other hand, the unwillingness to invest in energy constitutes a substantial barrier since reducing energy costs requires a strong commitment that might not yield significant economic benefits. For instance, a study carried out in the UK found that potential users of microgeneration rejecting the adoption of these technologies were pushed back by high capital costs, long payback periods, scarcity of trustworthy information, and operational concerns [65]. These conclusions align with "An EU Strategy for Energy System Integration" issued by the European Commission [66] for local energy sources not being efficiently and sufficiently exploited because of: low market awareness, hesitation of businesses to enter a company outside their core activity, absence of appropriate regulatory and contractual frameworks to manage pricing, cost management, and planning. Indeed, companies tend to be reluctant to cut energy costs since it is not their core business and does not yield significant economic benefits if they do not translate into higher margins (i.e. if they come at the expense of higher capital costs or lower reliability). For electricity generation, Spark Spread (SS) is a metric commonly used to evaluate the economic feasibility of energy costs [67, 68, 69]: a higher SS implies more extensive operational costs and profit margin (an alternative though equivalent definition for CHP has been derived by Smith et al. [70]). Low Carbon Dioxide emissions are also critical for market deployment. If MGTs had the lowest CO2emissions, they could become the preferred choice in a market pushing strongly to reduce CO2. Unfortunately, the carbon footprint is directly linked to efficiency. For the aforementioned reasons, state-of-the-art MGTs cannot inherently contribute to decarbonising the grid in most EU countries, as shown in Figure 7, neither for power-only or CHP applications. In this plot, GHG savings for CHP applications are relative to the separate electricity and heat production, taking electricity from the grid and using a natural gas boiler to produce heat: 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof (GHGIntensity)MGT = (GHGIntensity)NG 1 ηel − HP ηboiler (1) Where the GHG intensity of natural gas is GHGIntensity)NG=180 gCO2/MWh, and the Boiler efficiency is ηbolier = 90%. The electrical efficiency of MGTs ηel is taken from two engines in the market [20, 22] and the heat-to-power ratio HP is computed as the rated thermal power divided by the rated electric output. The authors assumed that the application could recover all the heat available for each configuration, representing the best-case scenario. Even in this favourable case, there is no apparent reduction in GHG emission compared to the independent production of power and heat in most countries and the EU27 average4. Again, this is due to two insufficient causes: most applications run on conventional fuels, AND MGTs have lower electric efficiency than other technologies (ICEs and Fuel Cells). This block is an example of negative reinforcement: if most applications run on carbon-rich fuels and have low electric efficiency, CO2emissions are higher. This entity leads to the Undesirable Effect of NC#3: the small MGT market cannot lobby and push towards more fair and convenient regulatory frameworks, which often align with the established technologies [71]. The Undesirable Effect of NC#1 "SOA technology cannot keep up with the competition" is a direct consequence of "MGTs do not represent a viable asset", which is a sufficient cause to generate the effect. In turn, this is because the "MGTs features do not meet the needs of the applications". However, this is not a sufficient cause. The entity "MGTs do not represent a viable asset" does not only depend on the product features for the application needs, but it is also a function of economic and financial parameters. The main factors influencing economic and financial performance are "Capital Costs (CapEx) are high" and "Operating costs (OpEx) are high". The combination of capital and operating costs generates savings and profits; it impacts all economic indicators. In this case, the standard logical connectors like the cause sufficiency and additional cause cannot be used. The so-called "magnitudinal AND", de- 4The emission levels are average values. In practice, there are daily and hourly variations due to the change in the energy mix necessary to follow the variable demand. There could be times when adopting CHP and on-site thermal generation would reduce CO2 emission. 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof Figure 7: This chart compares European greenhouse gas (GHG) emissions for Primary Electricity Generation (PG) and CHP burning natural gas (NG) using an MGT. The data is calculated for two MGT models using their rated electrical efficiency (30% and 40% respectively) and the thermal output specified by the original equipment manufacturers (OEMs) [20, 22]. fined in Section 5.1, is the most appropriate connector instead. Here, the contributions of the connected causes accumulate to create and worsen the effect. A bow tie represents the "magnitudinal AND" (Fig. 9); in addition, the relative contribution of each cause -if knownis often written as a percentage close to its relative arrow crossing the bow tie. In this case, the supplement of each cause strictly depends on the specific application and is not known a priori. For instance, the high capital cost might be the most relevant component in a particular case, whilst the profitability of the investment (combination of CapEx and OpEx) or the heat requirement could be the ones for other instances. Each case and application is different, and this dependency represents a barrier to resolving the more general Current Reality Tree based on a wide sphere of influence. 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof The sufficient reason for the high equipment cost is the Undesirable Effect of NC#7: high product costs. In this case, the logical connection combines additional and insufficient causes. The high overhead cost is a sufficient cause. Conversely, the cost structure and cost of components are two insufficient causes; removing one of the two is sufficient to remove the effect. Unfortunately, the cost structure is inherent to MGTs. Trying to remove this cause by having all components designed and manufactured by the OEM could introduce additional expenditures. Furthermore, insufficient sales volume is the principal entity influencing product costs because low sales negatively reinforce overhead, material and components costs. This complex causal relation highlights that pointing at equipment costs as the root cause does not make logical sense. Effectively, the primary way to reduce costs is to sell more and vice versa. These considerations lead to a complex causal relationship, which can be simplified as shown in Fig. 8. This analysis will start again from the "OpEx is high" entity. OpEx is acceptable when it is i) lower than the saving or profits, ii) lower than other technologies or iii) repaying the CapEx in an acceptable timeframe. None of these three predicted effects is generally satisfied. Following this consideration, the high OpEx depends on two insufficient causes. The energy costs are high, AND the larger maintenance intervals do not significantly reduce service costs. This latter entity is possibly trustworthy for most general applications exemplified in Fig. 5. However, it might fail in cases of higher maintenance costs, like in remote and dispersed applications. Generally speaking, service costs depend on the number of services and on their unitary costs; for MGTs, given that the planned maintenance intervals are considerably longer than for competing technologies, the low number of services drives service costs. Unfortunately, despite this inherent advantage, it is also true that some products suffered from low reliability and low availability of spare parts [72, 73, 74], which eventually resulted in more frequent maintenance of the engines. Moreover, the unitary service costs for MGTs tend to be higher than for reciprocating engines, a well-known technology, inasmuch as MGTs need to be serviced by a highly specialised workforce directly, often belonging to the OEMs; this last entity is, in addition, negatively reinforced by the low sales volume. Energy costs are dominant for many applications, which are higher for MGTs than ICEs, given their lower efficiency. Moreover, most commercial MGTs experienced little to no evolution in terms of performance in the last two decades, as opposed to the continuous performance enhancement of ICEs, 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof Figure 12: CRT decision block. in resolving the general CRT and, thus, in finding a unique solution to the problem. At the same time, investing in innovation to reduce operating costs and improve the product can harm capital costs. Some recent works targeted these two limitations of the TOC study by proposing numerical approaches that aim to resolve the magnitudinal AND connector, evaluate the current status of the technology for specific applications and advice on optimal innovation paths. Such methodologies represent an innovative way to turn the qualitative TOC analysis into a quantitative method. More specifically, Tilocca et al. recently created a Key Performance Indicator to combine technical, economic, environmental, and operational factors into a single figure of merit to benchmark competing technologies in the same market [78]. This indicator is the sum of several weighted penalty factors, each representing the contribution of each cause into the Magnitudinal AND. The work demonstrated the potential of the TOC to identify and analyse particular market niches quantitatively and to provide useful insights on some economic and technological aspects of the micro gas turbine industry. One of the limitations of this approach was the arbitrariness in assigning weights to different entities. In a follow-up work published in 2023, the same core group of authors presented an evolution of the methodology grounded in the Theory of Constraints [79]. This new Key Performance Indicator still combines technical, economic, and operational factors according to the end-user requirements. However, this time, the arbitrariness of penalty weights has been removed since the new penalty function emulates the TOC principle of causal sufficiency and additional causality. Moreover, the effect of uncertainty deriving from technical and economic elements has 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof also been included to perform a probabilistic-based evaluation of the best technology for a given application. This has been applied to the practical case of a Power-to-Hdrogen-to-Power energy storage system in a rural energy community under the ’Hydrogen in Rural Energy Systems (HyRES)’ project. The reference location is South Cornelly, Bridgend County (South Wales), a village comprising 220 family houses and a nursing house. The concept combines hydrogen produced locally from a portfolio of renewables (including wind and photovoltaic) and batteries. The analysis presented therein applies to the backup power sub-system only. This study underlines the potential of MGTs incorporating specific innovative features to mitigate global constraints (technical and environmental) cost-effectively, thus opening up new market opportunities for the technology. 7. Conclusions This paper is part of a broader effort to analyse the deployment of MGTs from technological and commercial standpoints. The authors utilised the Theory of Constraints (TOC) to comprehensively solve complex business and technology-related problems. The first step in this approach is to identify system constraints through root cause analysis, which helps pinpoint the high-level causes of the problem at hand, such as the failure of MGTs to meet market expectations. The TOC employs a set of strict rules known as the Categories of Legitimate Reservation to maintain objectivity in problem-solving, in contrast to more traditional RCA tools that prioritize creative problem exploration. Through the IO map and Current Reality Tree, the TOC accurately represented causal chains and defined cause-effect relationships, thereby systematizing several negative reinforcement loops that have hindered the industry’s efforts to improve MGT competitiveness over the past two decades. After analyzing potential solutions, the authors concluded that focusing on market-driven innovation is the most effective approach. Nevertheless, this investment must consider the economic feasibility of opening specific market niches. It is important to note that there is no one-size-fits-all solution. As the Magnitudinal AND connector inside the Current Reality Tree logical representations indicates, innovation strategies must be tailored to specific markets and not aimed at the global scale. Another limitation is the conflict 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Journal Pre-proof Journal Pre-proof between improving performance and technological features through innovation, and potentially hindering other entities like the already high capital costs. To address these limitations, the authors developed and presented -in separate worksquantitative models that transform the TOC methodology into a framework for evaluating the impact of innovation strategies on overall product competitiveness. These models confirm the potential of MGTs as an effective mitigation technology for a low-carbon economy, considering their technological, environmental, and economic benefits. 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