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Heat Pumps: The Low-carbon Heating and Cooling System of the Future

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European governments are looking at heat pumps as the sustainable, long-term, low-carbon emitting solution for consumers’ heating and cooling needs, with governments committed to heavily subsidising heat pump installations. It has a target of approximately 20 million heat pumps units to be installed in the EU by 2026, and 60 million units by 2030.

Private companies are bullish on future growth and have announced USD4 billion worth of investments in factories throughout Europe. In the long term, heat pumps have the potential to replace air conditioners and boilers, becoming the all-in-one air treatment appliance.

Europe’s cooling needs will only increase

According to the UN, heat waves in 2024 are predicted to break records and continue to do so over the next five years. The weather will certainly be hotter, with a 98% chance that at least one of these years will be the warmest on record. As temperatures increase, consumers will need to cool their homes.

However, in Europe, air conditioners suffer from poor consumer interest, particularly in Western European countries. Air conditioners are perceived as impractical due to many reasons; ranked high among these are low usage rate, high energy consumption, and being aesthetically unsightly.

This has led to very low penetration rates. Euromonitor International’s Passport figures show that household penetration rates of air conditioners are in the low single digits in Northern Europe and less than 40% in Southern Europe. In Asia, penetration rates of air conditioners average above 60% and above 100% in countries such as China, Malaysia, and Japan.

Chart showing air conditioner penetration in Europe

The EU has a target of 60 million heat pump units to be installed by 2030

Heat pumps offer a unique value proposition. They not only heat the home and can replace a boiler, but they can also provide cooling during hot summer months, thus replacing an air conditioner.

Heat pumps are four times more energy efficient than gas and oil boilers

Source: Euromonitor International

Homes with a heat pump can also reduce their energy consumption by 75% according to the International Energy Agency (IEA), compared to a gas-fired boiler.

With significant heating and cooling needs expected, the EU commission has identified heat pumps as the low-carbon heating and cooling systems of the future, targeting 20 million heat pump units to be installed in the EU by 2026, and 60 million units by 2030. To put this into context, Euromonitor International’s Passport reports air conditioner sales for Western Europe at just under six million units in 2023. The current estimated sales of heat pumps are just above two million units in 10 key markets in Europe, according to the EHPA (European Heat Pumps Association).

Companies announce over EUR3 billion worth of investments

There is rising demand for heat pumps in Europe, partially driven by EU subsidies. This has led to leading heat pump manufacturers, as well as appliance companies, announcing plans to invest over EUR3 billion worth of investments in Europe.

At IFA 2023 in Berlin, the appliance industry’s biggest annual event, many of the leading appliance brands also took the opportunity to publicise their significant interest in heat pumps. To the appliance industry, heat pumps appear to be the next transformative product category, something that does not happen very often.Chart showing Selected Announced Investments in Heat Pump Production in Europe by Various Companies

Across the board, EU subsidies have stimulated take up in several pockets (such as Germany) and whilst heat pumps clearly have the potential to be the answer to Europe’s low-carbon heating and cooling system of the future, challenges such as consumer inertia, high up-front costs and hesitancy switching to the electric grid remain hurdles to achieving this vision.

If you are interested in furthering a discussion on Heat Pumps, please reach out to the author of the article.

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