Industry’s Future Hinges on Regulatory Action
Air conditioning, variable refrigerant flow markets pace U.S. market growth
ORLANDO, Fla. — The hot ticket at the recent Air-Conditioning, Heating, and Refrigeration (AHR) Expo was a seat at Building Services Research and Information Association’s (BSRIA’s) presentation on global HVAC trends. The research organization, which specializes in international heating, air conditioning, renewables, and building controls markets, provided findings from its recent comprehensive analysis of current and future global HVAC markets. Judging by the standing-room-only crowd, the topic piqued the interests of many.
When it comes to the heating market, the world is essentially split between the use of furnaces in North America and boilers throughout the rest of the world, noted Krystyna Dawson, senior manager, heating and renewables, BSRIA. Regardless of the equipment used, energy-efficiency legislation and lower oil and gas prices are increasingly shaping space-heating markets now and well into the future.
“Energy-efficiency legislation has been an important driver in Europe for a while, but, now, it has started to become more important in other parts of the world — notably in North America, where we are seeing the introduction of new efficiency standards,” said Dawson. “This has also caused a shift toward condensing technologies in many parts of the world.”
That is particularly the case where residential boilers are concerned. In Europe, noncondensing boilers accounted for nearly 30 percent of sales in 2014, but are expected to account for only 7 percent in 2017. This is due primarily to the Energy-related Product (ErP) directive from the European Union (EU), which banned the sale of noncondensing residential boilers in September 2015. Before the ErP took effect, sales of noncondensing boilers grew as manufacturers tried to get rid of stock, noted Dawson, but, since then, sales have increased only slightly.
In North America, sales of condensing boilers are growing slowly in the residential market; however, they are widely used in commercial applications. This is due to the fact that boilers with larger outputs have faster payback times, said Dawson, so it becomes more of a business decision as opposed to an environmental one.
In China, where there are no energy-efficiency regulations, the residential condensing boiler market is quite small, and the same is true for the commercial market, with condensing boilers still considered to be a niche product. In the U.K., which boasts the world’s largest market for gas-fired residential boilers, sales decreased by 2 percent last year, but the market is expected to pick up over the next few years.
Russia and China saw the biggest overall decreases in the sales of residential boilers in 2015. In Russia, this was due to economic sanctions while in China, the economic slowdown resulted in a very big decrease in new construction. “The boiler market decreased in China for the first time in 10 years by 8 percent,” said Dawson.
Even though the ErP is less than a year old, the EU is not done regulating the European heating market. The organization has started preparing a new scale of energy-efficiency guidelines for heat-generating systems, which may threaten gas-fired boilers, as they will have to achieve even higher levels of energy efficiency, said Dawson. “Manufacturers are thinking about how to deal with this issue, and while they’ve talked about hydrogen boilers, the technology that will replace condensing gas boilers has yet to be seen.”
As for renewable energy, lower oil and gas prices are affecting heating markets by deterring interest in these types of technologies, said Dawson. “Awareness is growing about how important renewables are, but because of the uncertainty of the economy, end users are unwilling to spend large amounts of money to buy renewables.”
Surprisingly, China has the world’s largest share of renewable technologies in the heating market due to its enormous solar thermal industry, particularly solar water heaters. In Europe, renewables account for just over 25 percent of the total heating market and are divided between solar thermals and heat pumps.
The global air conditioning market is struggling, though there are a few exceptions, said Anette Holley, general manager of AC&R consultancy, BSRIA. “The U.S. has been holding up well, but the European market has continued to struggle to get out of its recession. The market has been particularly affected by the slowdown in the Chinese economy, which is not surprising, because the Chinese market accounts for 42 percent by volume of the whole air conditioning industry.”
Until 2014, the air conditioning industry was actually doing quite well, said Holley, but the slowdown in the Chinese economy caused the worldwide market to drop 3 percent in 2015. “Because of the uncertainty we continue to see in the Chinese market, we expect sales in the air conditioning industry to remain flat for the next few years. The U.S. is expected to stay about the same, but, overall, we’ll be lucky to see 2-3 percent growth over the next few years.”
Even though China experienced a 10 percent drop in air conditioning sales in 2015, it is not the only country where the market is struggling. Sales of systems were down 12 percent in Australia, 34 percent in Russia, and 33 percent in Brazil.
“Up until a few years ago, Brazil was booming as it prepared for the World Cup and the Olympics, but the market there has completely crashed,” said Holley.
There are a few countries that experienced growth in the air conditioning market last year, including the U.S., which was up 9 percent; India, which grew 6 percent; and Saudi Arabia, which increased 19 percent.
As for the type of air conditioning products being sold around the world, the U.S. largely remains a ducted market while ductless mini splits are the most popular systems in Asia, Europe, and Latin America. Due to the impact of the Chinese economy, the global mini-split market contracted 4 percent in 2015; however, in the U.S., single ductless mini-split systems were the best-selling air conditioning products last year, said Holley. “Mini splits are becoming more popular in the U.S. with sales of just under half a million units last year. It’s still a small market, but it’s doing quite well.”
The ducted split system, usually combined with a furnace, remains the equipment of choice in the U.S. The 10 million-unit market is used almost exclusively in the North American residential market. “The U.S. is a mature air conditioning market, but, due to new construction, we are expecting to see growth in this market over the next few years,” said Holley.
Inverter technology is becoming more prevalent, thanks to regulations around the world, which are driving sales of high-efficiency equipment. “In Europe, the inverter market is mature and has been driven that way through legislation,” said Holley. “The Chinese market does not have the same investment in inverter technology, but, still, over half the market is expected to be inverters. In contrast, the U.S. is running way behind other parts of the world. We estimate that less than 10 percent of split sales include inverter technology.”
Variable refrigerant flow (VRF) systems are doing well around the world and are one of the few products whose sales continue to increase, said Holley. “In 2015, we estimate the global market was about 1.4 million outdoor units, which is a 10 percent increase. But, sales are expected to remain fairly flat in 2016, partly due to the Chinese economy. In fact, 62 percent of global VRF sales occur in China.”
VRF sales continue to grow in the U.S. In 2015, about 32,000 outdoor units were sold, said Holley, but the market is becoming more mature. “There is a danger that it will plateau in terms of growth. In addition, there are barriers in terms of perception as to what VRF can do, and sales are fairly concentrated in just a few regions, including California, Texas, and the East Coast.”
VRF sales are also eroding sales of other cooling products, including packaged terminal air conditioning [PTAC] units, traditional ducted split systems, and rooftop units. VRF systems are often chosen over other systems because they are seen as being more energy efficient, easier to zone, better able to handle variable loads, smaller in size, and easier to install, said Holley. “In the U.S., VRF systems are often used in multifamily housing, office, school, and hospitality settings.”
The chiller market has continued to struggle over the last few years, due to the slowdown in new construction and renovation projects. In addition, many commercial projects are now favoring VRF systems, which is leading to further erosion in chiller sales. “The global chiller market fell about 4 percent in value, primarily due to the slowdown in China,” said Holley. “We estimate the chiller market will be down about 10 percent in China, and it’s not likely to see any positive growth over the next few years. The Chinese chiller market is three times the size of the North American market, so it does have a huge impact on the global market. The U.S. is the second biggest chiller market in the world with sales around $1 billion, and it has fared pretty well.”
Overall, it seems the next few years will feature a good deal of uncertainty in air conditioning markets around the world, noted Holley, as concerns persist about everything from the Chinese economy to energy regulations in the U.S. to the ongoing European recession to political uncertainty in Russia. On a positive note, the U.S. appears to be one of the few countries whose heating and air conditioning markets are still doing fairly well. For those reading this report, that is very good news indeed, she said.
Information provided by BSRIA. For more information, contact Raphael Chalogany, business development manager, North America, BSRIA, worldwide market intelligence, at 312-753-6800 or firstname.lastname@example.org.
Publication date: 3/14/2016