A Decade for Heat PumpsOctober 2020

by Krystyna Dawson, BSRIA Commercial Director.

BSRIA WMI (Worldwide Market Intelligence) has released updated forecasts for key HVAC products which consider the impact the current pandemic has had on the markets.

While I will leave detailed analysis of countries’ numbers to companies’ market strategists, it is worth reflecting on the picture the numbers reveal on a global scale.

In Q2 of this year, when lockdowns have brought to a near-halt trading in many countries, first assessments of their impact on economies and markets have started to appear. They were grim, with market declines expected to reach between 20 and 25% for the whole of 2020.

Today, even though the second wave of the pandemic is rising, it has become clear that for heat pumps, COVID -19 has acted like an elastic band, holding the markets for a brief moment only to let them go off with more energy after.

BSRIA research indicates that the pre-COVID compound average yearly growth rate (CAGR) for the global heat pump market fared at some 8% between 2020 and 2024. Following a thorough review of markets’ driving forces and likely post COVID challenges, BSRIA research indicates that the global market is expected to grow at a CAGR of between 9% and 11%, depending on how progressive the China policy will prove in the next five year plan and beyond.

The outlook for Europe alone is good as well with the compound average yearly growth rate for the years between 2020 and 2024 between 10.5% and 13%.

It’s a kind of magic? – not really.

2020 will prove to be challenging as strong drawbacks like delays in new construction, lack of access to installation sites, and reduced spending budgets were holding back sales in spring to an extent that will be difficult to offset in the remaining months of the year. Countries’ market performance is likely to vary strongly but declines towards 2019 sales levels are to be expected on a global scale.

However, the pandemic, with its dramatic economic and societal changes, has triggered a shift in many countries' governments’ thinking. Green economic recovery packages have been launched, of which many include good incentive programs for energy efficient renovation of buildings. On a regional level, the recently launched EU “Renovation Wave Strategy” is worth mentioning as an important long-term game-changer. Together with consumers’ growing focus on both climate change issues and comfort of their own homes, they are set to drive sales of heat pumps to existing buildings like never before.

For many years it has been clear that energy efficient upgrading of existing buildings is a major part of the climate change fight, but while discussions about the best type of intervention were ongoing, the actions were slow to be seen. The pandemic has caused two factors to play together at the same time: governments provision of significant financial stimulus met with the public's willingness to take it and embark on a process to upgrade their homes. Emphasis on fighting Climate Change and thus related green recovery are powerful drivers and where money is available, home upgrades gather pace.

Moreover, with travel restricted by the pandemic, families have used their holiday funds to carry out home improvements.

Many other factors are contributing to the positive outlook for heat pumps:

Legislative requirements, electrification of buildings, “greening” of electricity, better awareness, information, and availability of heat pumps, but also insurgence of new business models that propose “heat as a service”; they all drive consumers’ interest.

The four-year outlook for heat pump markets post-COVID has therefore improved. Governments' commitments and consumer interest are good news and, if sustained, will provide a solid base for a true “decade of heat pumps”. However, there are other factors that need to be focused on too for this to happen.

Financial ability to buy a heat pump is key to market growth but so is the availability of a sufficient number of well-qualified installers. Customers need reassurance of being able to get a skilled professional at a reasonable cost when the need arises. Those are still lacking in many countries and government as well as industry intervention is needed to rectify the issue.

Time is money or rather margin for installers, of which many do not still see a viable business in installing heat pumps, as their installation is often complex and prone to numerous interventions. Besides, ease of installation and maintenance are of importance for installers as well as for a homeowner.

Energy prices are another factor that impact upon ultimate consumer satisfaction. While electricity is getting “greener”, its price for the domestic end user hand increased continually over the years, making it difficult to provide a credible long-term business case for heat pumps.

In Europe, the average electricity price for a residential consumer was 20.5 cents per kilowatt hour in 2019, against the average price of 16.8 cents per kilowatt hour 10 years ago. Although the cost of renewable energy generation is decreasing, its delivery to consumers is getting more costly and the residential electricity price outlook does not point towards a change in this trend.

Delivery of “heat as a service”, variable electricity tariffs and efforts to curtail taxes seen in some countries in 2019, help mitigate this trend, but they are by far an uncommon approach in Europe, which is the second most important heat pump market worldwide.

Without a doubt, heat pumps are among key technologies able to help transition towards net zero carbon buildings. Legislation increasingly supports their use in new build, and financial incentives promote their use in the accelerating retrofit market. The battle is however not won yet. Governments' commitment needs to meet customer demand on a larger scale. It is set to grow but care needs to be given to nurturing customer confidence and trust that both increase when the delivery of this technology’s big promise of providing climate friendly, affordable, easy to manage  thermal comfort is ensured by a wide range of trusted professionals. Structured training programs but also experience and knowledge sharing platforms are needed to build this. Governments and the industry need to look at heat pumps from a wider perspective, not just as a technology that helps deliver the net zero carbon target but also one that needs to deliver customers satisfaction.  Just a dream? Not really. With the common target fixed, collaboration can make it happen.