US HVAC Market: Digitalization accelerating in the US HVAC-R SectorNovember 2021

Digitalization, defined here as the use of digital information and technologies to transform business processes, affects all industries. At its deepest, digitalization and the broader digital transformation that it produces even changes the nature of business. For several years now, BSRIA has followed its ramifications in the HVAC-R sector’s offering in the US and globally, specifically for BACS, controllers and field devices. Whether structural or simply bolt-on, we see these changes accelerated by the current pandemic, and likely even more so with the return to growth. 

From the field up, it is first about digitizing and connecting signal inputs, although there are still a lot of legacy systems out there today with connected (or unconnected!) analogue sensors. Even among connected sensors, about two-thirds of sales in value in the US commercial sector are analogue wired sensors (with significant variations across the building stock). Yet, there is a movement towards more connectivity this year, particularly on Bus-connected devices, aided both by a market shift in commercial construction towards the higher end and by increased demand for IAQ overall. IoT sensors start from a very low base, but with a broader product offering, are poised for double-digit growth. 

In terms of end uses, those sensors will collect a wider range of physical characteristics, notably IAQ, occupancy, lighting or safety-related ones, converging into the same BACS system. This convergence is naturally facilitated with connected systems, wired or wireless, overlayed or integrated. CO2 detectors, which already grew at close to a two-digit rate pre-pandemic, saw peak growth rates this year, and this will be continuing. This is particularly true in some verticals like schools, with US federal and state funding targeted for improved ventilation. Other digital sensors are geared more towards equipment performance per se, energy efficiency, reliability and resilience (all O&M, with remote capabilities). 

Field devices at large get more sophisticated. The driving of yet more data and movement is expected as the market rebounds. For controllers, the IP uptake rate expectedly goes down the closer to the field we are in: we project a continued uptake rate for each controller category in the next 5 years.

Convergence of building management functions

At the BACS system level, digitalization ties into developments in data storage, data analytics and as mentioned already in the convergence of building management functions (all possible in the Cloud). The needs for operational efficiency, be they on the supply side (including aftersales service and parts) or the user side (cold chain efficiencies, comprehensive building data management and dashboards, user feedback and awareness) will drive this evolution. 

Beyond the product offering, digitalization also reshapes and streamlines business transactions, with improvements on supply chains, the sales cycle and the customer experience (e.g., e-commerce). Publicly traded HVAC-R companies report their digital progress to their investors. OEMs most likely stand to benefit, as they would expand their offering, along with the IT industry, such as Big Tech and systems integrators. Utilities will also be interested in using that big data, as part of their overall grid planning and increasingly, their DER (Distributed Energy Resources) management. The nature of contracting for installers could also profoundly change.

Digitalization culminates in announcements of digital twin initiatives, with the HVAC-R industry conceptually following other industries (e.g., jet engines life cycle for aeronautics), where new revenue streams or even new business models have appeared (pay-per-hour, as a service). Perhaps one of the earliest developments in advanced AI features will be in training, with the lack of skilled labour a serious limitation, not only short-term. 

The digitalization of the HVAC-R industry is thus still largely nascent, and many questions remain like in everything involving big data: how are the data used and who owns them? What about the added cybersecurity risks, and some privacy concerns? What standards will emerge (e.g., BACnet Secure Connect for secure communications between buildings and the Cloud)? Is resilience improved or deteriorated? And how should established and new players act on those trends in each of their HVAC-R segments? At BSRIA, we will continue to follow those developments closely.