Is The Market For Heat Pumps In Commercial Buildings Heating Up?

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Is The Market For Heat Pumps In Commercial Buildings Heating Up?

The key statistic that buildings contribute around 40% of global greenhouse gas emissions is a well-known anchor from which to think about decarbonization. Energy efficiency can only take buildings so far towards a net zero future, so a huge focus is building electrification to take advantage of the gradual decarbonization of the grid energy mix (in many, but not yet all, countries). The good news, according to the IEA, is that the transition toward zero carbon building operations is reliant on technologies already available on the market. Heat pumps are one such technology that will be key to propelling the shift toward sustainable heating and cooling of buildings. Using electricity to transfer residual heat from the ground, water or air into a building can be more than four times as efficient as fossil fuel alternatives and better value over the asset’s lifetime. Yet the barriers are well-known and pretty steep: high upfront costs, split incentives between tenants and landlords, and a lack of installers have deterred many building owners from investing.

The tide is beginning to shift, though, as governments introduce policies intended to boost the uptake of heat pumps. Financial support to reduce upfront costs is now available in more than 30 countries, while policies such as the US Inflation Reduction Act offer tax incentives to businesses that install heat pumps. Across the pond in the EU, the REPowerEU plan has set ambitious targets to scale up the deployment of heat pumps by increasing the number of installers and manufacturing capacity. More aggressive building regulations and energy efficiency policies are also contributing to global increases in uptake.

In parallel with policy tools, energy price volatility over the last year improved the financial case for heat pumps. In Europe, heat pump sales reached record highs in the first half of 2022 compared to the same period in 2021, as rising fossil fuel prices increased the cost-saving potential of heat pumps significantly. Energy prices have since cooled, though vulnerabilities in the energy system have been laid bare, demonstrating that heat pumps offer not only a route to reducing energy expenditure but also a step toward improved energy security through reduced reliance on imported fossil fuels.

Heat pumps are also no longer a fair-weather technology. Over the last decade, innovations in heat pumps have improved their efficiency, particularly for cold weather applications, broadening the markets in which they are viable. Northern European countries with cold climates have the highest rates of adoption for heat pumps, thanks largely to these R&D advances dovetailed with previously referenced policies. Further developments, such as using CO2 as a refrigerant, are also coming to the market.

Commercial buildings only account for a small proportion of all heat pump sales globally, and there is still some way to go to address cost barriers and upskill installers. Still, the business case is at an inflection point and building owners should revisit whether a heat pump is accessible in their market. Verdantix expects heat pump deployment to increase exponentially over the next five years as the impact of policy intensifies, engineer and installer education improves, and firms come under increasing pressure to meet ambitious net zero targets.

To find out more about how the landscape of energy management technologies in commercial buildings is developing, see the Verdantix Energy Management Technologies Tech Roadmap.

Please also check out our related webinar Exploring The Energy Management Technology Roadmap.

Ben Readman

Industry Analyst

Ben is an Industry Analyst in the Verdantix Smart Buildings practice. His current research agenda focuses on ESG strategies and technologies for real estate, and corporate real estate technology investment strategies. Ben Joined Verdantix in 2021, having previously worked as a researcher at CECAN and as a sustainability officer for the NHS. He holds a Masters in Environmental Strategy from the University of Surrey and a BA in Geography from the University of Birmingham.