Sales of HVAC equipment were somewhat flat in 2015, according to Air-Conditioning, Heating, and Refrigeration Institute (AHRI), which reported year-to-date combined U.S. shipments of central air conditioners and air-source heat pumps decreased by 0.6 percent, and shipments of gas warm air furnaces increased 2.9 percent. This compared to the previous year, when combined shipments of central air conditioners and air-source heat pumps increased 11.1 percent and shipments of gas warm-air furnaces increased 5.1 percent.
These figures come on the heels of evidence that the economy might be slowing down again. The latest report from the Bureau of Economic Analysis showed that the real gross domestic product (GDP) of the U.S. increased at an annual rate of only 0.7 percent in the fourth quarter of 2015. For the year, real GDP expanded by 2.4 percent, which is the same rate of growth that occurred in 2014.
“We are hopeful our members continue to see success in 2016,” said Stephen Yurek, president and CEO of AHRI. “Our industry’s trade show, the Air-Conditioning, Heating, and Refrigeration (AHR) Expo, has seen record-breaking numbers of both exhibitors and attendees in recent years, which we hope is indicative of continued growth.”
While the economy is always a concern, indicators for the year are fairly positive, said Gary Bedard, vice president and general manager for Lennox Residential, Lennox Intl. Inc.
“Job growth, consumer confidence, and pent-up demand all grew in January, which is a good sign for the economy going forward. In addition, the lower price of oil means consumers have more discretionary income, and debt levels are much better than they were several years ago. When these positives are added, with the need for more housing and the pent-up demand we’ve seen in the residential air conditioning sector, the fundamentals are solid for growth. That’s why we expect 2016 to be a year of modest economic growth with great opportunities for the HVAC business.”
One of those areas of opportunity is the growing market for ductless and variable refrigerant flow (VRF) technology, which is currently experiencing double-digit growth, said Dale Fields, director of residential and light commercial, LG Electronics USA. “In 2016, I expect residential to continue modest growth with new home construction on the rise. On the other hand, our technology sector has the capacity to outpace residential new construction, because our duct-free products are being used in many retrofit and remodel applications to upgrade existing properties. Multifamily applications will also likely continue to grow as they have over the past three years.”
Malcolm Persaud, senior marketing and development manager, Panasonic Air Conditioning Group, agrees that multifamily housing will continue to be strong this year. “We also believe there will be an increased interest in replacing equipment rather than repairing it, due to the fact that financing is less expensive today. Panasonic HVAC is looking into future financing options for our customers.”
With new construction permits growing more than 10 percent in 2015, there is hope the market will be even stronger in 2016, said Goncalo Costa, director of product management, Bosch Thermotechnology Corp. “We expect double-digit growth in residential and commercial/institutional markets, so we are highly focused on them. The multifamily housing market is also expected to grow in 2016, and we have organized a dedicated team to support the builder channel. However, turmoil in international markets may have an effect on growth in the U.S.”
Besides the economy and international turmoil, changes being made to the refrigerant market may also have an effect on the HVAC industry. This year will initiate another drop in the amount of R-22 that is available. The U.S. Environmental Protection Agency’s (EPA’s) final phasedown schedule regarding the production and importation of R-22 mandated an immediate drop from 51 million pounds allowed in 2014 to 22 million pounds in 2015, 18 million pounds in 2016, 13 million pounds in 2017, 9 million pounds in 2018, and 4 million pounds in 2019. No new or imported R-22 will be allowed in the U.S. on or after Jan. 1, 2020.
“In addition, the EPA has started to use the Significant New Alternatives Policy [SNAP] program’s change-of-status process [delisting] this year in a more heavy-handed manner than in the past 20 years,” said Patti Conlan, market manager, Arkema. “R-404A, R-507A, and several other high-GWP refrigerants will be prohibited in new supermarket installations starting Jan. 1, 2017, and in remote condensing units starting Jan. 1, 2018, although installed systems can continue to be serviced with their existing refrigerants, including R-404A and R-507A. Supermarket refrigeration systems can continue to use R-407A.”
More changes may be coming during the first half of 2016, said Conlan, when the EPA is expected to propose another round of SNAP delistings affecting other applications, like chiller, refrigerated food processing, dispensing, cold storage warehousing, and household refrigerator and freezer markets. “In addition, the EPA is updating the Section 608 Refrigerant Management Requirements affecting technician certification, refrigerant handling, and management.”
To prepare for upcoming SNAP delistings, manufacturers are working to bring the next generation of refrigerants to market, but they are encountering obstacles. The largest impediments are the existing national, regional, and local codes and standards as they relate to the use of flammable refrigerants, said Conlan. “Currently, the use of flammable refrigerants is generally limited to smaller-charge, self-contained systems. There is a major focus on developing lower-GWP alternatives to refrigerants used today, but many of those alternatives are flammable or mildly flammable for certain applications. Modifications to the codes and standards to finally permit broader use of mildly flammable refrigerants are not expected for several years, perhaps by 2023 or later.”
AHRI is tackling this issue by pledging up to $1 million to support research of alternative refrigerants. “We are excited to continue our refrigerant research, which is currently focused on the use of flammable refrigerants, since most replacements for high-GWP refrigerants are at least mildly flammable,” said Yurek. “The refrigerant research is crucial to our industry’s ability to comply with a future HFC phasedown framework under the Montreal Protocol.”
The eventual phasedown of HFC refrigerants is of particular concern to Lennox Residential, which is already developing products for the next generation of refrigerants. “We want to ensure our products deliver differentiated comfort, are safe to operate, and maintain our leadership role in efficiency, which is why we not only monitor, but actually work with federal and state agencies to shape a number of regulations, including efficiency standards, test procedures, consumer labeling, and refrigerant changes,” said Bedard.
For LG, one of the biggest challenges this year will be new market entrants, said Fields. “There are currently 14 companies reporting duct-free and VRF technologies through AHRI. With an established place in the industry, our challenge is to build support infrastructure to provide a superior customer experience for all of our stakeholders within the channel — distributors, contractors, and end users.”
LG also plans to increase the focus on its control platforms by offering easier integration and greater use of smart controllers. “Our vision is to seamlessly integrate with any building type, regardless of communication protocol,” said Fields.
Bosch also plans to focus on controls, as buying trends indicate customers are gravitating toward connected devices, said Costa. “With new technology comes the need for meaningful education for the installers and end users. The opportunity lies in that dialogue, engaging the customer and educating everyone on the benefits of high-efficiency, connected products.”
All in all, this should be an interesting year for the HVAC industry, noted Bedard. “Whether we’re talking about consumer behavior, building codes, energy regulations, new financial tools, new methods consumers have for purchasing HVAC equipment, or other trends, things are changing faster now than in years past. I think the biggest challenge we have is to stay on top of these developments and to continue to adapt and serve our to customers efficiently and effectively.”
Publication date: 3/14/2016