Delta Energy & Environment Ltd Registered in Scotland: No SC259964 Registered Office: 15 Great Stuart Street, Edinburgh, EH3 7TS Delta Energy & Environment

Delta Energy & Environment Ltd Registered in Scotland: No SC259964Registered Office: 15 Great Stuart Street, Edinburgh, EH3 7TS

Delta Energy & Environment Ltd Registered in Scotland: No SC259964Registered Office: 15 Great Stuart Street, Edinburgh, EH3 7TS, UK

Heat Pump Research ServiceTechnology Innovation * Customer & Market Innovation * Policy Innovation

Technology Innovation: Domestic Hot Water Heat Pumps

5 August 2013

Contact: [email protected], +44(0)131 625 [email protected], +44(0)131 625 3332

Delta-ee Heat Pump Research Service 2August 2013Domestic Hot Water Heat Pumps

Contents

Executive Summary

Current market: Sales across Europe and main marketsKey playersProduct summary

Technology: Characterising and analysing the main DHW HP designs & concepts on the marketIntegration of DHW HPs with other technologies e.g. PVEfficiencies – testing standards, field trials & main factors affecting performance

Customer PropositionCurrent economic proposition for DHW HP compared with competing technologySensitivity of the DHW HP proposition to variability in economic drivers

Market Outlook:Addressable market and key opportunities Historic trends and future outlook in 3 key markets – FR, DE, PLEuropean DHW HP market size projection: 2017

Policy Outlook:National support schemesEU Policy

SCOPE OF REPORTThis report addresses the markets and technologies for Domestic Hot water Heat Pumps (DHW HPs) – heat pumps designed for the production of hot water only. These systems are also known as Heat Pump Water Heaters or Sanitary Hot Water Heat Pumps.

SCOPE OF REPORTThis report addresses the markets and technologies for Domestic Hot water Heat Pumps (DHW HPs) – heat pumps designed for the production of hot water only. These systems are also known as Heat Pump Water Heaters or Sanitary Hot Water Heat Pumps.


Executive Summary: Key Messages

Current European DHW HP market status

The market for DHW HPs today across Europe is 60-70,000 installs per year.

It is one sector of the HP market which has grown rapidly in the last 2 years with growth of over 30% per year in some markets – against a trend of a gradually declining market for space heating HPs.

France represents half of the European market for DHW HPs (>40k installs in 2012). Germany is the second biggest market at ~10,000 per year, while Poland, Italy, other Germanic markets (Switzerland, Austria) and the Benelux markets have all begun to show signs of growth (with sales of 1-5,000 / year).

Current products are predominantly monobloc systems with large (200-300L) water tanks, using internal air as the heat source, and using HFC refrigerants – most selling products are mainly produced by European manufacturers.

The retrofit market is the strongest for DHW HPs across Europe (in contrast to space heating HPs where new build dominates) - as much as 60% of installs in the main DHW HP markets such as France and Germany, are going into existing buildings – 50-70% of these are replacing electric water heaters, and the remainders are installed with existing (or in some cases new) boilers. The new build market is relatively strong and mainly driven by building regulations such as RT 2012 in France.

Why is the DHW HP growing?

A need to meet building regulations in new build (electric water heaters banned in France in new build).

Customer driver to reduce annual running costs of electric water heaters, oil boilers and solid fuel systems in existing buildings.

DHW HPs are a relatively low cost measure through which to achieve running cost (& carbon) savings.

Market outlook: What does the future hold?

The DHW HP market shows no sign of slowing down in growth in the immediate future.

The addressable market across Europe is vast - in the order of millions of homes rather than thousands.

Over the next five years, annual installations across Europe could at least double, reaching well over 100,000 per year – with retrofit seeing most growth.

France will likely remain the largest market; Germany could grow steadily – but there is a risk to the proposition caused by already rising electricity prices.

There is significant potential in Italy, Spain and Eastern Europe – with the right products. Benelux and the UK also offer further growth potential.

The future product range could widen to include more small systems (<100L tanks), splits, and those using external air as the heat source. There is a market need to developing a smaller, more compact DHW HP (with <100L tank), in order to maximise market opportunities.

Increased competition is likely to come from lower cost products emerging from Asia, and in particular China. There are at least 2-3 Chinese companies already gaining traction in Europe today with products which can achieve comparable efficiencies to European products.

The best opportunities for DHW HPs:

Installing in new build.

Replacing electric water heaters in the building stock.

‘Upgrading’ existing oil boilers (replacing the water tank with a DHW HP) or solid fuel systems.

Packaging a DHW HP with a new boiler.

‘Smart’ applications – capturing value from controlling the operating times for load management and/or integration with PV.


DHW HP market growth projection: 2012 - 2017

DHW HP market size: 2012 DHW HP market size: 2017

0-10s / yr 10 – 100s / yr 1,000 – 5,000 / yr 5,000 – 10,000 / yr 10,000 – 60,000 / yr >60,000 / yr

Sales of DHW HPs in Europe could as much as double from 60-70,000 per year in 2012 to well over 100,000 / year in 2017

KEY:


Executive Summary: Implications for manufacturers, utilities and policy-makers

Should manufacturers develop a DHW HP if they do not already have one?

Yes – DHW HPs offer a significant growth opportunity. Offering an OEM product prior to / during development of own product could also be an option to capture some of the market value sooner.

DHW HPs represent the most dynamic growth sector of the European heat pump market since 2010 – and there are no signs of the growth slowing for the next five years.

There is huge untapped potential across Europe for DHW HPs to replace electric water heaters and upgrade existing boilers.

Which DHW HP products offers the best market opportunities?

There is a gap in the market for small systems (with tank size of 80-100L) – a very small number of manufacturers offer such systems so competition is low, and the market potential in some markets is significant.

There is a strong and still growing existing market for larger systems (200-300L tanks) – though there are many manufacturers and the greatest competition here.

External air systems will grow market share – they offer greater flexibility in installation/physical fit, reduce internal noise, and usually count as renewable (meaning they should qualify for incentives).

Internal air systems are a good option in the right application, but the market is limited to homes with enough space, and they usually do not count as renewable. Noise inside the building can be an issue.

Integration of DHW HPs with PV offers a strong market growth opportunity and alternative route to market for DHW HPs.

Should manufacturers develop a DHW HP if they do not already have one?

Yes – DHW HPs offer a significant growth opportunity. Offering an OEM product prior to / during development of own product could also be an option to capture some of the market value sooner.

DHW HPs represent the most dynamic growth sector of the European heat pump market since 2010 – and there are no signs of the growth slowing for the next five years.

There is huge untapped potential across Europe for DHW HPs to replace electric water heaters and upgrade existing boilers.

Which DHW HP products offers the best market opportunities?

There is a gap in the market for small systems (with tank size of 80-100L) – a very small number of manufacturers offer such systems so competition is low, and the market potential in some markets is significant.

There is a strong and still growing existing market for larger systems (200-300L tanks) – though there are many manufacturers and the greatest competition here.

External air systems will grow market share – they offer greater flexibility in installation/physical fit, reduce internal noise, and usually count as renewable (meaning they should qualify for incentives).

Internal air systems are a good option in the right application, but the market is limited to homes with enough space, and they usually do not count as renewable. Noise inside the building can be an issue.

Integration of DHW HPs with PV offers a strong market growth opportunity and alternative route to market for DHW HPs.

What business opportunities do DHW HPs offer utilities?

Selling DHW HPs to customers via partnership with manufacturer / OEM as part of a portfolio of offerings available under a wider energy services package – DHW HPs offer the customer energy cost savings at a low upfront cost relative to many other microgeneration / renewable systems.

Business models to capture value from the use of DHW HPs for load management / PV-integration – hot water is arguably an easier load to control than space heating, so there are opportunities to control the operating times of DHW HPs to manage grid congestion. Where the DHW HPs is integrated with PV, the operating times can be controlled to maximise self-consumption of PV electricity at peak times. The value from self-consumption incentives can be captured by the end-user or by the utility (already an attractive proposition in Germany & increasing in other markets).

What business opportunities do DHW HPs offer utilities?

Selling DHW HPs to customers via partnership with manufacturer / OEM as part of a portfolio of offerings available under a wider energy services package – DHW HPs offer the customer energy cost savings at a low upfront cost relative to many other microgeneration / renewable systems.

Business models to capture value from the use of DHW HPs for load management / PV-integration – hot water is arguably an easier load to control than space heating, so there are opportunities to control the operating times of DHW HPs to manage grid congestion. Where the DHW HPs is integrated with PV, the operating times can be controlled to maximise self-consumption of PV electricity at peak times. The value from self-consumption incentives can be captured by the end-user or by the utility (already an attractive proposition in Germany & increasing in other markets).

How can DHW HPs contribute to meeting policy-maker targets?

DHW HPs can make a significant contribution to meeting energy efficiency and CO2 targets, through increasing the efficiency of the existing domestic heat sector – particularly displacing electric and oil.

DHW HPs are a lower cost option to meet targets than many competing technologies – the upfront cost is relatively low and running cost savings generally high, so the economic proposition is good even without incentives in many markets

DHW HPs can make a contribution to renewables targets (if they are counted as renewable – usually external air systems are)

How can DHW HPs contribute to meeting policy-maker targets?

DHW HPs can make a significant contribution to meeting energy efficiency and CO2 targets, through increasing the efficiency of the existing domestic heat sector – particularly displacing electric and oil.

DHW HPs are a lower cost option to meet targets than many competing technologies – the upfront cost is relatively low and running cost savings generally high, so the economic proposition is good even without incentives in many markets

DHW HPs can make a contribution to renewables targets (if they are counted as renewable – usually external air systems are)

ManufacturersManufacturers

UtilitiesUtilities

Policy-makersPolicy-makers


Executive Summary: Manufacturer and utility opportunities for domestic hot water heat pumps

New business opportunities for boiler companies

Upsell opportunity for existing boilers – replace the water tanks of aging oil boilers with a DHW HPs to give customer running cost savings

New customer proposition - sell a boiler packaged with a DHW HP

DHW HPs a low cost way to sensitise customers to a move away from traditional heating – and help you build the foundations for a bigger low carbon business

New business opportunities and new competition for heat pump companies

Huge market growth potential & market demand – stimulate growth in your heat pump business

Emerging competition from low cost Chinese manufacturers with increasing performances

Gap in the market for more compact DHW HPs – Ariston, Atlantic & Gorenje lead the way in offering products for this large untapped addressable market

New customer proposition & alternative route to market – sell a DHW HP integrated with PV

New business opportunities for energy retailers / energy services companies

Energy services offering: A low upfront cost product which can deliver energy cost savings to your customers = happy customers

Business models to capture new value from the use of DHW HPs in demand response / load management applications

Business models to capture value from integration of DHW HPs with PV

Network companies can prepare for future networks

DHW HPs represent demand side flexibility which is easier to control than space heating (hot water is an easier load to manage than space heating)

DHW HPs are a way to manage the grid impact of escalating PV installations

Understand how the switch from oil DHW production to DHW HPs will impact on the grid – avoid additional investment


Executive Summary: Which sectors and which markets offer the greatest opportunities? What is the customer proposition?

Which sectors are opportunities for DHW HPs?

Existing electric water heaters: Replacing with DHW HP

Existing oil boilers – Upgrading with DHW HPs (installing DHW HP to boost summer efficiencies)

New boilers – Upselling new boilers - offering a new boiler & DHW HP as a package

New build - Installing DHW HP to meet renewables or energy efficiency obligations under building regulations

Which sectors are opportunities for DHW HPs?

Existing electric water heaters: Replacing with DHW HP

Existing oil boilers – Upgrading with DHW HPs (installing DHW HP to boost summer efficiencies)

New boilers – Upselling new boilers - offering a new boiler & DHW HP as a package

New build - Installing DHW HP to meet renewables or energy efficiency obligations under building regulations

Which markets should be targeted for DHW HPs?

France is the biggest opportunity today and will continue to dominate (replacing electric water heaters)

Germany is a growth market in which there is significant potential (upgrading aging oil boilers)

Poland is an emerging and rapidly growing market (upgrading existing oil/solid fuel systems)

Italy is emerging and offers opportunities (particularly for smaller systems). Spain has a large addressable market for similar systems.

Belgium, Austria, The Netherlands, and Denmark have shown signs of growth in the past 3 years, and all offer some potential. The UK is not yet significant but will offer niche opportunities.

Which markets should be targeted for DHW HPs?

France is the biggest opportunity today and will continue to dominate (replacing electric water heaters)

Germany is a growth market in which there is significant potential (upgrading aging oil boilers)

Poland is an emerging and rapidly growing market (upgrading existing oil/solid fuel systems)

Italy is emerging and offers opportunities (particularly for smaller systems). Spain has a large addressable market for similar systems.

Belgium, Austria, The Netherlands, and Denmark have shown signs of growth in the past 3 years, and all offer some potential. The UK is not yet significant but will offer niche opportunities.

Customer proposition examplesThe two biggest opportunities for DHW HPs are to (i) replace electric water heaters, and (ii) ‘upgrade’ existing oil boilers. We give examples of how these propositions look in different types of market [for comparison, we assume a marginal upfront cost of €1,500 – see page 40]:

DHW HPs vs electric water heaters* – good proposition in most markets

FRANCE example:Annual Running Costs•Electric water heater = €724•DHW Heat Pump = €290running cost savings = €434/yrPayback = 3.5 years

GERMANY exampleAnnual Running Costs•Electric water heater = €1463•DHW Heat Pump = €585running cost savings = €878/yrPayback = <2 years

In both markets, even with a much lower DHW HP performance of 1.5 SPF, paybacks of under 5 years are possible.

*The comparison of electric water heater and DHW HP costs is dependent on assumed efficiencies. These figures represent performances including e.g. storage losses. See page 33 for more information.

GERMANY example (no HP tariff):Annual Running Costs•Oil boiler for DHW = €736•DHW Heat Pump = €585running cost savings = €151/yrPayback = 9.9 years

GERMANY example (with HP tariff)Annual Running Costs•Oil boiler for DHW = €736•DHW Heat Pump = €450running cost savings = €285/yrPayback = 5.3 years

DHW HPs vs oil boiler – A good proposition in many markets – especially where there are many old oil boilers with low summer efficiencies. High electricity prices are a challenge in some markets.

The proposition is highly sensitive to the electricity price, as exemplified by Germany. With a heat pump tariff, or with German electricity prices 2 €c lower as they were in 2012, paybacks come down closer to 5 years. It is also sensitive to the efficiency of the existing oil boiler for DHW, which may be significantly lower than we have calculated in these examples (possibly as low as 30%). For these boilers, DHW HPs are a very strong proposition. The key will be to identify & target the old oil boilers with the lowest DHW (summer time) efficiencies.

FRANCE example (no HP tariff):Annual Running Costs•Oil boiler for DHW = €708•DHW Heat Pump = €290running cost savings = €418/yrPayback = 3.6 years

UK example (no HP tariff)Annual Running Costs•Oil boiler for DHW = €636•DHW Heat Pump = €340running cost savings = €295/yrPayback = 5.1 years


Executive Summary: Identifying the top 6 market opportunities for DHW HPs

Top 6 growth opportunities for DHW HPs Driver Key markets

Installing in new build to meet building regulations

DHW HP help achieve either renewables or energy efficiency requirements*Cheaper & easier to install than e.g. solar thermal hot water systems

France (RT 2012 is outlawing direct electric water heaters)Germany (meeting minimum efficiency requirements)

Replacing electric water heaters in existing buildings

Running cost savingsCarbon SavingsBenefit from incentives / subsidies

France (12 million existing direct electric water heaters, 8 million of which in single-family homes, tax credits to support growth of DHW HPs)Italy (8 million existing homes with direct electric water heaters, incentive launched in 2013)Germany (3 million existing homes with direct electric water heaters)

DHW HP replaces water tank to ‘upgrade’ existing oil boiler (or solid fuel system) to boost hot water efficiencies - especially in summer

Running cost savingsCarbon SavingsComfort/ease of use (particularly for non-automated solid fuel systems)

Germany (7 million oil boilers, 50% of which are aging, pre-1995 installs). This model also employed in other Germanic markets e.g. Switzerland Other markets with oil will also offer opportunities e.g. France (large opportunity), UK Similarly, upgrading solid fuel heating in markets such as Poland offer an opportunity

DHW HP packaged with a new boiler as a replacement for an existing boiler

Running cost savingsCarbon Savings

Model already employed in Germany, France. Could work in many markets e.g. UK, Netherlands, Denmark – depends on installer upselling the boiler, or boiler companies offering packages.

Smart controls to enable integration with PV – and eventually smart grids

Benefiting from self-consumption incentives for PVOptimising heat storage to capture value from ‘smart operation’ in demand response

Germany (self-consumption of PV electricity is incentivised, “Smart-Grid Ready” label is in place)Italy (self-consumption could become)Markets where supply/demand matching will become critical soonest e.g. Germany, Denmark, France)

Smaller systems designed for homes where space is at a premium e.g. compact wall-hung systems with <100L tanks; systems with detachable HP module

Overcoming physical fit challenges in smaller homes / multi-family homesAllowing easier installation in e.g. attics

Italy (75% of homes are multi-family with collective space heating & individual electric water heaters with tanks of under 100L which could be replaced with compact DHW HPs), SpainBelgium, Netherlands, UK (space is at a premium, often no basements, installation commonly in the attic)

*DHW HPs are not considered “renewable” in all markets e.g. in Germany – DHW HPs in Germany can help meet energy efficiency but not minimum renewables requirements


Executive Summary: Accessing customers

How to access the market?

Replacing electric water heaters – has the biggest market potential, and to capture it, DHW HPs and their cost-saving benefits need to be visible to end-users

Upgrading existing oil boilers – capturing the significant market potential requires upskilling of and awareness-raising with existing oil boiler installers, who have the opportunity to sell a DHW HP during annual boiler inspections – running cost savings should be emphasised

Upselling new boilers - there is some potential to offer a new boiler & DHW HP as a package, dependent on the installer having the awareness and skills – emphasising ‘green’ / efficiency benefits are key.

Installing in new build – large market potential which depends on relationships with building developers and educating about how DHW HPs can meet building regulations. In the self-build sector, visibility of DHW HPs & their efficiency benefits is key.

Packaging with PV – significant market potential in some countries, & offers a new route to market via PV providers. – emphasising the economic benefits of the combination with PV is critical.

How to access the market?

Replacing electric water heaters – has the biggest market potential, and to capture it, DHW HPs and their cost-saving benefits need to be visible to end-users

Upgrading existing oil boilers – capturing the significant market potential requires upskilling of and awareness-raising with existing oil boiler installers, who have the opportunity to sell a DHW HP during annual boiler inspections – running cost savings should be emphasised

Upselling new boilers - there is some potential to offer a new boiler & DHW HP as a package, dependent on the installer having the awareness and skills – emphasising ‘green’ / efficiency benefits are key.

Installing in new build – large market potential which depends on relationships with building developers and educating about how DHW HPs can meet building regulations. In the self-build sector, visibility of DHW HPs & their efficiency benefits is key.

Packaging with PV – significant market potential in some countries, & offers a new route to market via PV providers. – emphasising the economic benefits of the combination with PV is critical.


Executive Summary: Ingredients for a strong DHW HP market

Ingredient Extent to which this ‘ingredient’ for success is fulfilled in today’s European market

Physical fit: There are sufficient buildings where DHW HPs could fit

Millions of homes already with electric water heaters + >200L tank, or with basements/garages, which have enough space for existing DHW HP productsMillions of homes with space restrictions which could fit the smaller DHW HPs

Product availability: there are enough DHW HPs available which can fit in existing buildings & perform

Many products on the market with 200-300L water tanks which can address part of the market (larger buildings)Very few products of smaller capacity (<100L) which can address the part of the market with space restrictions (e.g. large parts of Italy, Spain, France, UK)

Strong customer proposition: Energy price ratios support the DHW proposition

Against electric water heaters, DHW HPs can provide payback times of <5 years in most marketsAgainst oil & solid fuel, the best propositions are in markets with a large stock of old oil boilers/solid fuel systems with poor hot water / summer efficiencies. Paybacks of 4-7 years are achievable, though this is sensitive to both systems efficiencies and electricity price rises. Against gas, DHW HPs can provide savings in markets such as France, but do not pay back in most markets.

Incumbent technologies: There is high penetration of suitable technologies which can be replaced with DHW HPs – in particular electric water heaters or oil boilers

There are well over 10 million electric water heaters in Europe (annual installations in the order of 500k – 1.5 million per year in some of the biggest markets including France, Italy, Spain, and Germany)There are well over 10 million oil boilers in Europe, and several million which are aging (>3 million in Germany alone thought to be installed before 1995)In parts of Europe (particularly Eastern Europe) solid fuel heating systems are common (close to 2 million in Poland)

Awareness of DHW HPs amongst end-users and installers is high

Awareness of DHW HPs is growing, but in general, awareness is low amongst end-users (as is the case with space heating heat pumps). The rapid growth in France recently means that awareness is higher here than in any other market.

Policy framework supports DHW HPs

Policy support for DHW HPs is there, but is not consistent across Europe – in some markets DHW HPs are not counted as renewable (e.g. in Germany – where DHW HPs can be used to meet energy efficiency requirements but not renewables requirements, and DHW HPs do not receive the MAP subsidy), while in others (e.g. France and Italy), DHW HPs are considered renewable & incentives are available.At a European level, DHW HPs will look strong relative to competing technologies under Ecodesign and Ecolabelling, which should support market growth – though this will not create immediate opportunities.

This ingredient is met well in most of Europe’s main markets

This ingredient is partially met in most of Europe’s main markets, or is met well in around half the markets

This ingredient is not met well in most of Europe


Executive Summary: Unique Selling Points of selected key players in the European DHW HP market

Company Unique Selling Point & Future Outlook

Europe’s biggest market player in terms of sales (~50% of the French market, which itself accounts for ~50% of the European market), with a long history and experience in DHW HPs. Activities mainly restricted to France, however, and diversification to new markets and technologies will enable Atlantic to maintain their leadership position.

The widest range of DHW HP types on the market, and one of the longest active players. One of the few to offer systems with smaller water tanks (<100L) – so uniquely positioned to capture a sector of the building stock which most competitors cannot yet tackle (multi-family homes / homes with space restrictions).

Both have long history and experience in DHW technologies, and are amongst the leaders for DHW HPs in Germany & Germanic markets. Both are amongst the few who currently offer a package with DHW HP and PV – a particularly attractive customer offering in Germany. They are well-positioned to maintain and grow their position in the Germanic markets – diversification in technology offerings may be required to build market share in other markets.

A successful hot water heating & white goods manufacturer from Slovenia, with a strong brand, particularly in Eastern/south-eastern Europe. Gorenje is amongst the market leaders in Eastern/South-Eastern Europe for hot water heat pumps. It is now taking steps to build its brand in western Europe, and could create new competition for the incumbents.

Four of Europe’s biggest heating brands – their brand strength and large installer networks mean they are well positioned to upsell existing boilers with DHW HPs, or sell boiler + DHW HP as a boiler replacement package. They could capture a large share of the boiler upgrade/replacement market, especially in Germany.

The most significant Chinese player in Europe, which is already sold by several European brands. Several other Chinese companies are also selling in Europe (the market leader in Poland is a packager of a product which is likely to have come from China). These products have a growing presence in Europe – as efficiencies of at least some products are reaching levels comparable to European products, this indicates a potential new competition ground for European companies.

Unique on the European market as producers of CO2 DHW HPs. Sales numbers are low, and currently system prices are significantly higher than HFC equivalents, so this type of system does not pose a threat in today’s market. But if prices come down (likely in a 5 year timeframe), the efficiency benefits of CO2 could see companies such as Sanden become stronger competition for the incumbents.

Business focused on being an OEM supplier, and with partnerships in place with several major European players, they have a strong route to market. The future potential for this type of specialist OEM company is strong as an increasing number of European players aim to get quickly to market with a DHW HP, leap-frogging the product development stage.

A distributor rather than a manufacturer, Altech has secured a position amongst the top 5 DHW HP suppliers in France (selling a Midea product). Altech is the house brand of one of France’s largest wholesalers for heating supplies, which creates an automatic wide-reaching route to market. The success of such a company, which could for example be a gateway for many more imported products to Europe, indicates the growth of new competition grounds for the traditional heating brands in the future.

Companies with a water heating

background

Boiler companies

New entrants to the European

market

Focus on OEM to European heating

brands

Major distributor


Contents

Executive Summary






Appendix


Current Market: DHW HPs a growth engine for the European HP market

European DHW HP market growth, 2005-2012

Growth in DHW HPs over the past 3 years has been mostly driven by steep growth in France.

Growth in DHW HPs over the past 3 years has been mostly driven by steep growth in France.

1: Emergence1: Emergence 2: Rapid Growth2: Rapid Growth

Note on market data:•The “Europe total” reflects the official EHPA market figures (2013).•There is no historical data for Italy or Denmark

The German market has been relatively stable since 2009, with modest growth.

The German market has been relatively stable since 2009, with modest growth.

Newer markets are emerging, some of which are exhibiting strong growth >30% / yr.

Newer markets are emerging, some of which are exhibiting strong growth >30% / yr.

An annual installation rate closer to 70,000 / year across Europe could be more realistic, reflecting the view that official statistics do not cover all installations in all markets. In France, the 35,000 installations from 2012 may reflect only around 70% of the total sales volume, with the real figure in the range 40-45,000.

An annual installation rate closer to 70,000 / year across Europe could be more realistic, reflecting the view that official statistics do not cover all installations in all markets. In France, the 35,000 installations from 2012 may reflect only around 70% of the total sales volume, with the real figure in the range 40-45,000.

Total DHW HP sales in Europe of 60-70,000 units per year represents around 10% of the total market for heat pumps in Europe. The DHW HP sector has grown faster than any other heat pump type in the last two years.

Total DHW HP sales in Europe of 60-70,000 units per year represents around 10% of the total market for heat pumps in Europe. The DHW HP sector has grown faster than any other heat pump type in the last two years.


Current Market: The biggest DHW HP markets today across Europe

Market size 2012 National markets

>20,000 / year Biggest market - ~50% of Europe’s DHW HP salesFrance – 35,000 in 2012 (+~30% / year growth 2010-2012)

5,000 – 10,000 / year

Strong growth markets Germany – 10,700 in 2012 (+25% from 2011)Poland – 5,600 in 2012 (+38% from 2011, +>100% from 2010)

1,000 - 5,000 / year Moderate growth markets Most of the remaining growth in DHW HPs in Europe has come from:Belgium – 2,757 in 2012 (+60% from 2011)Denmark - ~1,000 in 2012Italy – 2-3,000 in 2012Switzerland – 1,300 in 2011Austria – 3,900 in 2012 (-9% from 2011)

10s - 100s / year Emerging markets The first DHW HPs are being installed in several other markets across Europe including Portugal, Spain, Czech Republic, Hungary, Netherlands, UK, Slovenia

0 - 10s Other markets – limited signs of sales to date, though products becoming available and selling in small numbers in e.g. SE Europe, Scandinavia – driven by a handful of companies

Sales of domestic hot water heat pumps in Europe, 2012Domestic hot water heat pumps represent a growth engine for the heat pump market: Initial figures indicate that total sales of domestic hot water systems were in the order of 60,000* units per year in 2012 – representing growth from 2011 in the order of 20% (and >30% growth in some countries). This growth is set against the context of a relatively subdued overall heat pump market since 2010 – the total heat pump market experienced a 9% decrease in sales from 2011-2012.

Sales of domestic hot water heat pumps in Europe, 2012Domestic hot water heat pumps represent a growth engine for the heat pump market: Initial figures indicate that total sales of domestic hot water systems were in the order of 60,000* units per year in 2012 – representing growth from 2011 in the order of 20% (and >30% growth in some countries). This growth is set against the context of a relatively subdued overall heat pump market since 2010 – the total heat pump market experienced a 9% decrease in sales from 2011-2012.

*The real European annual sales 2012 may be closer to 70,000 - the French market statistics are thought to cover only ~70% of the total market.

Current market status from 2012 sales figures: France the largest market


Current Market: Main players

Market size 2012 Description

>20,000 / yearBiggest market - ~50% of Europe’s DHW HP sales

5,000 – 10,000 / year

Strong growth markets

1,000 - 5,000 / year

Moderate growth markets

10s - 100s / year Emerging markets

0 - 10sOther markets – products becoming available

Europe’s biggest DHW HP markets and the main players

We highlight examples of some of the biggest players in the main markets.

Atlantic is the European market leader with ~50% of French sales, equating to ~25% of European sales.

Ariston and De Dietrich (BDR Thermea) are also amongst the market leaders.

Stiebel Eltron, Bosch and Dimplex have made the most impact in the Germanic markets., with Viessmann and Vaillant also significant.

Gorenje (from Slovenia) is growing strongly in Eastern / South-Eastern Europe

Chinese products are emerging in Europe – Midea is one of the biggest manufacturers, and is typically sold OEM by other companies in France and also across Europe. Hewalex in Poland is market leader there, selling a product thought to be of Chinese origin.


Current Market: Unique Selling Points of selected key players in the European DHW HP market

Company Unique Selling Point & Future Outlook

Europe’s biggest market player in terms of sales (~50% of the French market, which itself accounts for ~50% of the European market), with a long history and experience in DHW HPs. Activities mainly restricted to France, however, and diversification to new markets and technologies will enable Atlantic to maintain their leadership position.

The widest range of DHW HP types on the market, and one of the longest active players. One of the few to offer systems with smaller water tanks (<100L) – so uniquely positioned to capture a sector of the building stock which most competitors cannot yet tackle (multi-family homes / homes with space restrictions).

Both have long history and experience in DHW technologies, and are amongst the leaders for DHW HPs in Germany & Germanic markets. Both are amongst the few who currently offer a package with DHW HP and PV – a particularly attractive customer offering in Germany. They are well-positioned to maintain and grow their position in the Germanic markets – diversification in technology offerings may be required to build market share in other markets.

A successful hot water heating & white goods manufacturer from Slovenia, with a strong brand, particularly in Eastern/south-eastern Europe. Gorenje is amongst the market leaders in Eastern/South-Eastern Europe for hot water heat pumps. It is now taking steps to build its brand in western Europe, and could create new competition for the incumbents.

Four of Europe’s biggest heating brands – their brand strength and large installer networks mean they are well positioned to upsell existing boilers with DHW HPs, or sell boiler + DHW HP as a boiler replacement package. They could capture a large share of the boiler upgrade/replacement market, especially in Germany.

The most significant Chinese player in Europe, which is already sold by several European brands. Several other Chinese companies are also selling in Europe (the market leader in Poland is a packager of a product which is likely to have come from China). These products have a growing presence in Europe – as efficiencies of at least some products are reaching levels comparable to European products, this indicates a potential new competition ground for European companies.

Unique on the European market as producers of CO2 DHW HPs. Sales numbers are low, and currently system prices are significantly higher than HFC equivalents, so this type of system does not pose a threat in today’s market. But if prices come down (likely in a 5 year timeframe), the efficiency benefits of CO2 could see companies such as Sanden become stronger competition for the incumbents.

Business focused on being an OEM supplier, and with partnerships in place with several major European players, they have a strong route to market. The future potential for this type of specialist OEM company is strong as an increasing number of European players aim to get quickly to market with a DHW HP, leap-frogging the product development stage.

A distributor rather than a manufacturer, Altech has secured a position amongst the top 5 DHW HP suppliers in France (selling a Midea product). Altech is the house brand of one of France’s largest wholesalers for heating supplies, which creates an automatic wide-reaching route to market. The success of such a company, which could for example be a gateway for many more imported products to Europe, indicates the growth of new competition grounds for the traditional heating brands in the future.

Companies with a water heating

background

Boiler companies

New entrants to the European

market

Focus on OEM to European heating

brands

Major distributor


Current Market: Product summary (1/7)

System design& Heat Source

Markets (non-exhaustive)

Size (in litre)

Brand under which DHW HPs are sold

Distributor / Group Level

Manufacturer

MonoblocInternal air or external air (ducted)

200 / 260 / 270

MonoblocInternal air

250 / 260


300

On the following slides we present an overview of selected manufacturers and brands selling DHW heat pumps, the key markets in which these are being sold, and the type of systems being produced. While this is not a comprehensive list of all available products, it includes the biggest players in the main markets, so covers an estimated 70-80% of European sales, and is a representative sample.

NB: The analysis in the Technology section of this report is based on the products and companies presented here.

On the following slides we present an overview of selected manufacturers and brands selling DHW heat pumps, the key markets in which these are being sold, and the type of systems being produced. While this is not a comprehensive list of all available products, it includes the biggest players in the main markets, so covers an estimated 70-80% of European sales, and is a representative sample.

NB: The analysis in the Technology section of this report is based on the products and companies presented here.



System design




Manufacturer

MonoblocInternal air ducted

200 / 270

MonoblocInt. or ext. air (ducted)

MonoblocInt. or ext. air

(ducted)

SplitExternal air

220 / 270 200 / 300

MonoblocExternal air

SplitExternal air

“Split” *Int. or ext. air /

Direct Expansion

Variable (bundle sold with 300l

tank)

80 / 100 /110 / 120

200 / 250 150 / 200 / 300

* Monobloc HP unit separate from storage tank

Size (in litre)


MonoblocInternal air or external air ducted

270190 / 300


System design




Manufacturer

SplitExternal air

Size (in litre)



System design




Manufacturer

MonoblocHeating return


MonoblocInternal or external air

MonoblocHeating return

100 / 150300 100 / 150 300Size (in litre)



?Asian, likely China

MonoblocInternal air (ducted)



System design




Manufacturer ?Asian, likely China

300


200 200 / 300

MonoblocExternal air

270 270Size (in litre)


MonoblocInternal air (ducted) / External air (ducted)


(ducted)

“Split” *External air ducted


System designs




Manufacturer

150 / 200 / 300 100 / 220 / 300 270

* Monobloc HP unit separate from storage tank

Size (in litre)


Other European manufacturers / packagers:

Other Chinese manufacturers:MonoblocInternal air (ducted)


System design




Manufacturer

285Size (in litre)


Current Market: Chines products already on the market - an emerging threat to European manufacturers?

The Chinese Government has identified heat pumps as a key area for research and development. Efficiency of Chinese HPs is rapidly improving and for DHW HPs already on par with several European manufacturersChinese DHW HPs are currently sold by several well-known European HP manufacturers, although currently either not in their core markets or through their core brandsChinese OEM manufacturers open up market opportunities for many small European companies with various backgrounds, from installer companies to companies with a background in solar thermal or solid fuel boilers.A DHW HP imported from Asia (very likely China) is market leader in Poland and a product from China is amongst the top 5 DHW HPs sold in France

Example 1: MideaWith a turnover of $~17bln Midea has in only 45 years become the world’s 2nd largest household appliance manufacturer.

Through the distributor Altech/Saint Gobain Midea DHW HPs have become part of the five most sold DHW HPs in France. Several other companies are selling Midea DHW HPs in France and other European markets and world-wide, giving the Midea system the potential to be amongst the most sold DHW HP systems in the world. With normed efficiencies of 3.6(EN 255-3) and 2.98 (EN 16147,tap cycle L) the efficiency of the300 litre unit is well amongst the more efficient systems on the market.

The system is, amongst others, distributed by Bosch Thermo-technic (USA), NIBE group mem-ber KNV in Austria and Danfossin France.

Example 2: Unknown Manufacturer (China)Systems similar to the one depicted below are sold by many smaller companies in France, Germany, Switzerland, Poland and other important markets.

Being available from a very wide range of Chinese manufacturers or traders the systems open up market open up the opportunity for many small companies to sell DHW HPs under their own brand. Wholesale prices are around US-$ 1,000 for 300l systems, with order quantities starting from as low as one unit.

The system depicted to the rightis sold by the Swiss distributor Kibernetik. It has been tested bythe Swiss Heat Pump Test Cent-er Buchs with COPs of 2.9 (EN 16147, tap cylcle XL) and 3.3 (EN 255-3) respectively. Thesystem was there-fore awarded Swissquality label for DHW HPs.

Example 3: Unknown Manufacturer (likely China)Hewalex is a Polish solar thermal manufacturer and has started to sell DHW HPs in 2009. They are seen as being the market leader for DHW HPs in Poland today.

The system sold by Hewalex is imported from Asia. Although the manufacturer could not be identified we expect that the system is coming from China. Before Hewalex started to sell the system depicted to the right, the company was selling a unit similar in appearanceto the unit in example 2.

The same type of unit was also sold by the French company Hekia, which now also sells shownto the right.


Contents

Executive Summary






Appendix


Technology Overview: The Typical DHW HP sold in Europe today

A set of more than 50 systems and system configurations from a total of 15 manufacturers has been analysed in the scope of this report. These are sold by more than 40 brands. Systems were analysed based on those representative of the total market, and includes products from all the main players in the European market. The total number of different systems and configurations available is estimated to be more than 100. Despite this large variety in the market there is a clear tendency towards a set of common features in terms of heat source, size of the tank, HP capacity and refrigerants.

The typical heat pump in the European markets today is a monobloc system with an integrated storage tank of 200L or 300L. Internal air systems are the dominant heat source. The most common refrigerant is R 134a. There is little variation in system capacity, with the majority in the range 1.6-2.2 kW.

A set of more than 50 systems and system configurations from a total of 15 manufacturers has been analysed in the scope of this report. These are sold by more than 40 brands. Systems were analysed based on those representative of the total market, and includes products from all the main players in the European market. The total number of different systems and configurations available is estimated to be more than 100. Despite this large variety in the market there is a clear tendency towards a set of common features in terms of heat source, size of the tank, HP capacity and refrigerants.

The typical heat pump in the European markets today is a monobloc system with an integrated storage tank of 200L or 300L. Internal air systems are the dominant heat source. The most common refrigerant is R 134a. There is little variation in system capacity, with the majority in the range 1.6-2.2 kW.

* Incl. the split systems

Monobloc Split Integrated* Separate

System Configuration Water Tank Integration Water Tank Size (litres)

Heat Source Refrigerant Capacity

(CO2)


Technology Overview: Characterising the types of DHW HP systems on the market

System Configuration:

Hot Water Tank Integration:

Hot Water Tank Size:

Choice of Refrigerant:

Choice of Heat Source:

Split

Monobloc

Tank Separate

Tank Integrated

Large (>150-300L)

Small (80-150L)

HFC (mainly R134a)

Natural refrigerant (including CO2)

External air

Internal air

There are five main differentiators which can characterise the differences between the types of DHW HP systems available on the European market.

Differentiator Main technology options*

* There are some other more ‘exotic’ technology options on the market in addition to those presented, but these represent the options which cover the majority (>90%) of products on the market.

Number of products on the market today Future outlook (next 5 years)

Monobloc will still dominate but need for lower cost products will drive growth of split systems (many from China, & European manufacturers will launch splits developed themselves or OEMs).

Integrated hot water tanks will remain the preferred solution in most cases, but the greater flexibility in installation offered by separate systems will drive growth of non-integrated systems in some markets (e.g. where attic installation is common).

Larger tanks will continue to dominate in markets with sufficient space, driven by the potential for integration with PV and smart applications. There is strong potential for products with smaller tanks in several countries, but the market is currently limited by the availability of small enough products.

Systems using HFCs will still capture the majority of the market, with CO2 a niche concept. CO2 will grow if the high upfront costs come down, and there are sufficient trained, confident installers available.

There will be a place in the market for both internal air and external air systems. The greater availability of splits could grow the share of external air systems. There will also be a niche for alternative novel heat source systems.


Technology Overview: Analysing the advantages and disadvantages of each system characteristic (1)

System Configuration:

Hot Water Tank Integration:

Some advantages for splits in terms of physical fit

The advantages of splits are predominantly in physical fit: Part of the system is placed outside, and the internal unit is often wall-hung, taking up less space in the home. Because the fan is outside, there is reduced noise inside the home. However, the placing of the outside units of split systems may face regulatory restrictions in some markets / regions.

Monoblocs can be placed outside in some cases, with associated physical fit & noise reduction benefits - but this is not common in Europe (outside installation of monoblocs is popular in other markets such as Australia).

There are no significant differences in ‘ease of installation’ between monoblocs and splits if the installers are appropriately trained. However, splits require refrigerant handling qualifications which could be a challenge in some markets.

There is not sufficient evidence to differentiate monobloc and split configurations in terms of efficiency or upfront cost (although many split systems available on the European market are manufactured in China, and the prices and efficiencies for such products can be lower than the equivalent European products).

Separating the tank makes installation more flexible:

An un-integrated system which allows separation of the HP module from the hot water tank has one key benefit – it allows greater flexibility during the installation process. For example, if installing in an attic, the HP module and the tank can be transported to the attic separately, and assembled later – avoiding having to move a single larger, heavier unit.

An un-integrated system does not provide other clear benefits in terms of costs, physical fit or efficiency.

KEY

better worse

We compare technology options for each system characteristic in their performance against four critical market drivers:

Efficiency (does the technology option provide efficiency gains?)

Ease of installation (does this technology option mean installation process is easier/faster?

Upfront cost (is the technology option lower cost than the alternative?)

Physical fit (does the option save space or provide more flexibility in installation locations?)

Efficiency

Upfront cost

Physical fit

Ease of installation

If the line is further from the centre it indicates the system has an advantage for that driver.

Splits have an advantage in terms of physical fit

A separate tank can make the installation process

easier in some buildings


Hot Water Tank Size:

Choice of Refrigerant:

Choice of Heat Source:

A smaller tank is lower cost & opens market opportunities in space-restricted homes

A DHW HP with a smaller tank has the advantages that it takes up less physical space and is cheaper (a system with an 80L tank could cost in the range €1,500, while a system with a 200L tank is likely to cost in excess of €2,500). It can also access a large share of the European electric water heater replacement market.

A smaller tank may have some disadvantages in terms of efficiency: In larger properties, a smaller hot water storage tank means that the heat pump needs to cycle on & off more often to top up the tank – causing efficiency losses.

However, there are also efficiency benefits from a smaller tank - if it is emptied of hot water more often this helps to maintain a bigger temperature gap between flow and return, which can significantly increase performance. This advantage has to be balanced with having sufficient capacity (kW) to heat up the tank fast enough.

CO2 could provide efficiency benefits over HFCs, but it is not yet mature enough in Europe to challenge as a mass market product (post-5 year opportunity)

The benefit of CO2 as a refrigerant rather than the standard HFCs is its greater efficiency when producing high temperature hot water. There are also some environmental benefits related to the low Global Warming Potential of CO2 compared with HFCs (which will be an advantage as the European F-Gas regulation strengthens restrictions on the use of HFCs).

However, CO2 systems are significantly more expensive than HFC systems (and very few products are available in Europe).

CO2 may also presents some challenges in terms of installation practice - the higher working pressures of CO2 compared with HFCs create additional safety and installer training requirements for typical European HP installers today.

External and internal air both offer efficiency benefits dependent on the home

Regarding efficiency, there are pros and cons of systems extracting heat from both external and internal air: The temperature of external air is more variable than internal air, and can drop lower – which means efficiencies of the HP will be more variable. With internal air systems (particularly non-ducted systems), heat is extracted from inside the building, which can result in increased space heating demand and increased heat loss from the water tank – with overall efficiency losses. Internal air systems which are ducted can give efficiency benefits by utilising waste heat from e.g. showers and kitchens, to heat other rooms.

Regarding ease of installation, systems utilising internal air which require the use of ducts are more complex to install than non-ducted systems and outdoor air systems.

There are efficiency pros and cons of a large tank or a small tank

A smaller tank is lower cost and takes up less space

Traditional HFC systems are the lowest cost option

CO2 may give some efficiency benefits

CO2 could presents some installation challenges to

the typical HP installer

The ducting associated with many internal air

systems makes installation more complex

Technology Overview: Analysing the advantages and disadvantages of each system characteristic (2)


Technology Overview: Types of system using building internal heat source

Indoor air source, not ductedDHW heat pumps using the air inside the room where they are installed are a very common variant of DHW HPs.

PrincipleThey are installed in unheated but aerated rooms like cellars and garages. The minimum size of the room of installation is ~20m³. The cold air can be expelled from the building to the outside via a duct, resolving some of the disadvantages but also eliminating some of the advantages (see below).

AdvantagesEase of installation (especially if plumbing pre-

existent), no installer intervention on the refrigerant cycle neededRoom where system is installed is cooled down (if

cold air not expelled from building) room can be used as storage roomCan use waste heat from other appliances in the room

(e.g. washing machines, tumble dryers, fridges, freezers, etc.)Dehumidifies the roomRelatively high source temperature good for

efficiency

DisadvantagesRoom is cooled down

insufficient insulation between heated and unheated area can lead to increased space heating demandcooling down the room of installation leads to increased thermal store losses and decreasing efficiency of the heat pumpInstallation outside the thermal envelope of the

building leads to increased thermal store lossesUnlikely to be treated as a renewable energy source

under building regulations in many states could be a major barrier – though should count towards efficiency requirements.

Return of the heating systemDHW HPs using the return of the heating system are currently not very common, with only a small number of systems being on the market

PrincipleThe heat pump uses the energy contained in the return of low temperature heating systems like underfloor heating.

AdvantagesVery high source temperature (20-25°C+) allows for

very high efficienciesSystem allows reduction of energy losses due to

circulation and distribution of DHW in multi family buildingsSystem allows for easy compliance with Legionella

regulations (e.g. in public or multi family buildings)

DisadvantagesSystem draws energy directly from the heating system

increases heat demand to be met by heating systemTreatment as renewable energy source under building

regulations questionable could be major barrier

Indoor air source, ductedDHW heat pumps using the air inside the building via ducts are less common than systems which are not ducted.

PrincipleThe system is ideally installed inside the thermal envelope of the building, warm air is extracted from other room inside the building. The cold air is usually expelled from the building to the outside.

AdvantagesCan be used in order to ventilate rooms with high

humidity and auxiliary heat production (e.g. bathrooms & kitchens)Uses waste heat from appliances like showers, hobs,

ovens, washing machines, tumble dryers, dish washers, fridges, freezers, etc.)Very high source temperature (20°C+) good

efficienciesInstallation inside the thermal envelope reduces

storage losses

DisadvantagesDraws calories from inside the thermal envelope of the

building, not only when this is wanted/needed – e.g. when the shower or the oven is on, but also when it is not wanted/needed increases the space heating demandComplexity of installation – the system is more

complex to install than a system which is not ducted, leading to higher labour and material costs as well as an increased interruption for the customer (only in retrofit)Unlikely to be treated as a renewable energy source

under building regulations in many states could be a major barrier – though should count towards efficiency requirements.

Account for the majority of the DHW HP market Novel application of DHW HPs


Technology Overview: Types of system using building external heat source

Outdoor air source, ductedDHW heat pumps using the air outside the building are usually very similar to systems using indoor air as heat source. The main difference, if any, is usually a defrost cycle for the evaporator.

PrincipleThis type of system is usually installed inside the thermal envelope of the building. Ventilation ducts draw air into the unit from outside, and expel air from the unit to the outside.

AdvantagesRelatively easy to install (especially if plumbing pre-

existent), no installer intervention on the refrigerant cycle neededInstallation inside the thermal envelope of the building

reduces thermal store lossesDucting the airflow decreases the noise levels inside

the building

DisadvantagesExposure to colder outside air temperatures

decreases efficiency of the heat pump; increases need for use of backup heater (in cold regions, if used throughout the year)Intervention on the building envelope higher labour

and material costs

Solar thermal direct expansionDHW HPs which use solar thermal collectors as evaporators are not very common on the market.

PrincipleThe heat pump unit is usually integrated in or installed near the thermal store. It is connected to a panel usually installed on the roof of the building via piping containing the refrigerant. This panel serves as the evaporator of the system, it draws its energy from various sources including direct insolation, the surrounding air and rain.

AdvantagesGood efficiencies when sun is shining

DisadvantagesComplexity of installation – the system is more

complex to install than the other systems and requires a refrigerant trained installer higher labour and material costs

Geothermal direct expansionDHW HPs which use a geothermal ground loop evaporator are also not very common on the market.

PrincipleIn a geothermal direct expansion system the refrigerant flows directly through the installed ground loop. It takes up energy directly from the ground, as opposed to a brine system, where the refrigerant does not leave the heat pump. This requires larger quantities of refrigerant.

AdvantagesGood efficiencies because of consistent heat source

DisadvantagesComplexity of installation – the system is more

complex to install than the other systems and requires a refrigerant trained installer higher labour and material costs

Outdoor air source, splitDHW heat pumps using external air as the heat source via a split installation currently only have a small market share - mainly because very few companies have this type of system on offer but also due to the higher complexity of the installation (installation requiring a refrigerant trained installer). It is a growing part of the market however.

PrincipleThe thermal store of this type of system is usually installed inside the thermal envelope of the building. The thermal store includes the condenser and is connected to the external part of the system via piping containing the refrigerant.

AdvantagesMajor noise sources (compressor & fan) are outside

the building decreased noise emissions inside the buildingInstallation of the thermal store inside the thermal

envelope reduces storage lossesPossible installation of the thermal store closer to the

extraction points allows to minimise distribution lossesFlexibility of installation / physical fit benefits because

part of the system can be outside

DisadvantagesExposure to colder outside air temperatures

decreases efficiency of the heat pump; increases need for use of backup heater (in cold regions, if used throughout the year)Complexity of installation – the system is more

complex to install than most monobloc systems and requires a refrigerant trained installer higher labour and material costs

Smaller proportion of total DHW HP market than indoor air, but growing sector

Novel applications of DHW HPs


Technology Overview: Refrigerants, current use and alternatives

HFCs & CO2, characterising the differences Using R744 (CO2) - The case of SandenSanden, a Japanese manufacturer with a strong background in automotive and commercial air-conditioning and refrigeration systems, is currently the only manufacturer in Europe having a DHW HP using R744 as refrigerant. Sanden’s AQUAECO2 has been derived from the group’s own range of EcoCute products sold in Japan (see below). It has been adapted to European market requirements and is manufactured in Sanden’s research and production facilities in Tinténiac, France. The system is currently sold in Sanden’s core market France via two partners, TecControl (as Sanden AQUAECO2) and ALDES (as Aldes T.Flow Activ). Estimated current sales are around 1,000 units per year but the company has set itself ambitious targets, aiming for 30,000 CO2 HP units to be dispatched from its factory by 2015. This figure includes CO2 HPs for space heating which we expect to be launched this year. In addition to this enlargement of the product portfolio the DHW system will also be brought to other middle European markets in the next two years via partner companies.Currently Sanden’s DHW HP is 1,000-2,500€ more expensive than comparable systems on the market (in terms of maximum tap cycle). This gap will have to be at least halved in order to reach the targets in 2015. The system’s physical size will also need to reduce as it is significantly bigger than equivalent HFC systems.

Using R744 (CO2) - The EcoCute in Japan

R 134a is the dominant refrigerant in today’s DHW HPs. Other choices are available and start to emerge on the market. This development could be greatly accelerated by the F-Gas Regulation currently discussed by European policy makers (see Policy Outlook from slide 49 for more info).

Source: JRAIA, Delta-ee

The EcoCute product range was first introduced in the Japanese market in 2001 and is a shared brand for all CO2-based DHW HPs in Japan. It was developed by a coalition of manufacturers and was supported by electric utilities and the Government through R&D funding, subsidies and strong marketing campaigns. The Ecocute saw strong growth for the first 10 years since market introduction. Now over 3.7 million units have been installed. Since the peak in sales in 2010 (566,000 units) the sales numbers have been declining at a little more than 10% per year (triggered by the Government stopping its subsidies for the EcoCute in 2010 and the changed energy landscape in Japan since Fukushima). Concurrently, significant steps have been made in increasing efficiency, with current systems reaching COPs in excess of 5 (A16/W17-65).

The most widely used refrigerant in DHW HPs in Europe today is R 134a. R 407c is used in the few geothermal direct expansion systems on the market and two systems using R 410a are on the market. Natural refrigerant alternatives like R 600(a), R290 and R744 (CO2) are still very rare. CO2 systems in particular are one of the most interesting alternatives to HFCs, offering some important advantages and potential long-term opportunities:

The key immediate advantage is that CO2 systems can produce high temperature hot water with better efficiencies than HFCs (because they work best with a wider temperature spread between heat source & sink) – this has associated running cost benefits.CO2 systems will avoid the restriction placed on HFCs by the F-Gas Regulation (see p. XX). But higher working pressures and low manufacturing volumes in Europe make these systems currently still significantly more expensive than HFC based systems to buy and install (more than twice the price of an equivalent HFC unit).

Uni

ts/y

ear

(100

0s)

EcoCute Annual Sales, Japan (2003-2012)

Why have Japanese Ecocute not been more successful in Europe?A handful of manufacturers have taken the first steps into Europe (most significantly Sanden, and previously Sanyo and now Denso) – but most Japanese manufacturers have not. Why?

Europe has not seen the level of support from utilities as was seen in Japan – in Japan this is made easier because electric and gas utilities are separated - electric utilities can clearly back electric technologies (e.g. promotion of ‘all-electric homes’ by Tokyo Electric Power Co).

There have been strong incentives in Japan to run Ecocutes so they can take advantage of low rate night time electricity tariffs, as well as Government subsidies – this is not so widespread or consistent in Europe.

Setting up the servicing & maintenance networks for CO2 heat pumps requires significant investment. Typical European HP installers are not trained to handle CO2, which has higher working pressures than HFCs.

Technology adaptations are necessary to enable Ecocutes to perform well in European climates, home types and with European hot water demand patterns. Japanese products need to be adapted in terms of capacity, tank size and control system, requiring investment.

How do differing hot water demand patterns in Europe & Japan affect DHW HP performance?Typical Japanese household hot water demand is significantly higher than in European households (& tends to be tapped in higher volumes). This means that the water tank is emptied of hot water & refilled with cold regularly, helping to maintain the high temperature differential between flow and return which is necessary for the best HP performance. A lower demand (& tapping lower volumes more frequently) means the tank is emptied less often and it is harder to maintain the temperature differential between flow & return – leading to poorer efficiencies.

How do differing hot water demand patterns in Europe & Japan affect DHW HP performance?Typical Japanese household hot water demand is significantly higher than in European households (& tends to be tapped in higher volumes). This means that the water tank is emptied of hot water & refilled with cold regularly, helping to maintain the high temperature differential between flow and return which is necessary for the best HP performance. A lower demand (& tapping lower volumes more frequently) means the tank is emptied less often and it is harder to maintain the temperature differential between flow & return – leading to poorer efficiencies.

# of

uni

ts

Main refrigerants used in DHW HPs


DHW Heat Pumps & PV – integration could be a game-changer for DHW HPs in some markets

With the levelised cost of electricity generation from photovoltaic installations reaching grid parity in more and more European countries it becomes attractive to increase the amount of PV electricity which is consumed directly by the owner of the PV system (e.g. in Germany, Italy and Spain). DHW HPs are one possible option to increase this self-consumption. Compared to the demand profile of space heating HPs a DHW unit has the advantage that the heat demand is relatively stable throughout the year, thus corresponding better with the production profile of a PV system (see below)

Technology Overview: Integration of DHW HPs with other technologies

DHW HPs and fossils boilers – an opportunity to increase poor summer efficiencies of existing space heating & hot water systemsMany systems (mostly those with above 300L tanks) are available with optional tubular heat exchangers which allow the integration of a second heat source into the DHW system. These systems sell particularly well in Germany and Poland, where the integration of a DHW HP with a second heat source is the most common application of DHW HPs.

Especially the integration of DHW HPs with oil boilers or solid fuel boilers (coal or wood) is attractive from a customer economics perspective, since these systems tend to have very bad efficiencies when used only for DHW production in the summer. By adding a DHW HP, the boiler can be switched off in summer completely, and used for space heating and some hot water in winter, with associated annual energy cost savings.

DHW HPs and solar thermal – niche marketThe integration of a DHW HP with direct solar thermal water heating is possible with some of the systems in the market. However, the systems are very high cost and there are few products available. Peak efficiencies of both the HP and the solar thermal coincide (in summer time), so the overall efficiency benefits are not so significant. An additional space heating system would typically be required.

Companies and partnerships currently most active in this field:

Companies and partnerships currently most active in this field:

+

+

+

+

MANUFACTURERS: Since the introduction of an incentive for the self-consumption of PV electricity in Germany in 2009 several HP players have emerged on the market for integrated solar PV + DHW HP offerings – initially mainly in Germany but now with offerings expanding into other markets. The systems use data provided by the inverter of the PV system in order to control the DHW HP. They typically react to an increase of PV production by increasing the target temperature in the storage tank, thus storing PV energy as heat for later use.

Increased interest in this type of system was noted at ISH2013, with both Stiebel Eltron and Vaillant signing cooperation agreements with SMA, the large German inverter manufacturer. Further, several DHW HP manufacturers are working on advanced controls which will enable intelligent integration with PV.

The combination of DHW HPs with other technologies – particularly fossil boilers and PV – widen the market opportunities and sales channels for DHW HPs, create attractive customer propositions, and can create new business opportunities for manufacturers and utilities.

Typical DHW demand and PV production profile for a year

UTILITIES: New utility business models are emerging in the integration of HP + PV, where the utility captures the value from controlling the operating times of the HP according to energy prices and to maximise self-consumption incentives .

The combination of DHW HPs with PV is gaining the interest of the HP industry, the PV industry and utilities:


Technology Overview: Assessing efficiencies of DHW HPs

DHW HPs currently on the market are tested according to two different standards, the old EN 255-3 (measuring the HP’s performance during one storage heating cycle) and the EN 16147 (measuring the HP’s performance over 24h, while hot water is drawn off according to a standardised profile). All new products should now be tested under the latter EN 16147, which is designed to give results more comparable to an SPF than a COP. Efficiencies achieved under EN 255-3 are up to 50% higher than efficiencies under EN 16147.Very little information exists on the performance of DHW HPs in the field, with the evidence available suggesting that seasonal performances falls short of the performance measured under EN 16147.

Comparing performance measured under EN 255-3 & EN 16147

The two graphs below show the distribution of efficiencies published by the analysed manufacturers according to EN 255-3 and EN 16147 split by type of heat source.

Some key factors of DHW HP efficiency

Required flow temperatureAs for space heating heat pumps, it is preferential to keep the temperature difference between source (e.g. air) and sink (required hot water temperature) as low as possible (with CO2 HPs the exception – providing better efficiencies with a higher temperature lift). Storage tank temperatures of 45°C rather than >60°C not only raise the efficiency of the HP, but also reduce storage losses. Lower flow temperatures will also, however, require a very careful sizing of the tank to the hot water demand, in order to prevent hot water shortages.

Minimising storage tank heat lossesStorage tank losses are typically in excess of 1 kWth per day – which could account for as much as 10% of the annual DHW demand. Tank insulation is the critical issue – typically tanks have 50-60mm of insulation. Tests carried out by DeJong, one of Europe’s leading tank suppliers, was able to achieve losses of <1 kWh / day only with insulation of 100mm. Installation of the tank inside the thermal envelope of the building, near the point(s) of use, can also help to minimise losses.

Optimizing the system for HW demand patterns: Maximising the difference between flow & return TAs for space heating heat pumps, the lower the return temperature to the condenser relative to the flow temperature, the more efficient it can be. With DHW HPs, this is particularly affected by the tapping pattern – how often hot water is taken, and in what volumes. Typically the best performances are achieved by DHW HPs where hot water is taken in large volumes, because this allows the tank to fill from the bottom with colder water, giving lower return temperatures. This is one reason why lab tests on DHW HPs may give better performance than field tests. Lab tests under EN 16147, carried out over 24h, can give good results the first time the tank is heated up, because there is a big differential between flow & return. When the HP is then used to top up the hot water on a continuous basis, the temperature differential between flow & return is lower, leading to gradually declining efficiency. The implication is that there is a balance to be found between tank size (smaller tanks will be emptied of hot water more quickly) and the HP capacity (higher capacity HP can heat the tank fastest). The control system is critical as it defines how the HP responds to heat demand & tapping patterns.

Some key factors of DHW HP efficiency

Required flow temperatureAs for space heating heat pumps, it is preferential to keep the temperature difference between source (e.g. air) and sink (required hot water temperature) as low as possible (with CO2 HPs the exception – providing better efficiencies with a higher temperature lift). Storage tank temperatures of 45°C rather than >60°C not only raise the efficiency of the HP, but also reduce storage losses. Lower flow temperatures will also, however, require a very careful sizing of the tank to the hot water demand, in order to prevent hot water shortages.

Minimising storage tank heat lossesStorage tank losses are typically in excess of 1 kWth per day – which could account for as much as 10% of the annual DHW demand. Tank insulation is the critical issue – typically tanks have 50-60mm of insulation. Tests carried out by DeJong, one of Europe’s leading tank suppliers, was able to achieve losses of <1 kWh / day only with insulation of 100mm. Installation of the tank inside the thermal envelope of the building, near the point(s) of use, can also help to minimise losses.

Optimizing the system for HW demand patterns: Maximising the difference between flow & return TAs for space heating heat pumps, the lower the return temperature to the condenser relative to the flow temperature, the more efficient it can be. With DHW HPs, this is particularly affected by the tapping pattern – how often hot water is taken, and in what volumes. Typically the best performances are achieved by DHW HPs where hot water is taken in large volumes, because this allows the tank to fill from the bottom with colder water, giving lower return temperatures. This is one reason why lab tests on DHW HPs may give better performance than field tests. Lab tests under EN 16147, carried out over 24h, can give good results the first time the tank is heated up, because there is a big differential between flow & return. When the HP is then used to top up the hot water on a continuous basis, the temperature differential between flow & return is lower, leading to gradually declining efficiency. The implication is that there is a balance to be found between tank size (smaller tanks will be emptied of hot water more quickly) and the HP capacity (higher capacity HP can heat the tank fastest). The control system is critical as it defines how the HP responds to heat demand & tapping patterns.

ADEME laboratory & field trials

The French Environmental and Energy Agency ADEME carried out several tests of DHW HPs in 2009 (laboratory tests, 3 units) and 2010-2012 (field tests, 13 units). Laboratory tests were carried out following the EN 255-3 and a method close to EN 16147. The laboratory test showed that COPs following the method close to EN 16147 were 36-54% lower than efficiencies following the EN 255-3 methodology.

The field test suggested that seasonal efficiencies in the field were even up to 100% lower than the respective normed COPs (under EN 255-3) of the systems. The main reasons for this were thermal store losses, inadequate installation and oversizing of the system as compared to the actual domestic hot water demand. Despite these rather negative results the tested systems were still 2-3 times more efficient than comparable direct electric water heaters.

ADEME laboratory & field trials

The French Environmental and Energy Agency ADEME carried out several tests of DHW HPs in 2009 (laboratory tests, 3 units) and 2010-2012 (field tests, 13 units). Laboratory tests were carried out following the EN 255-3 and a method close to EN 16147. The laboratory test showed that COPs following the method close to EN 16147 were 36-54% lower than efficiencies following the EN 255-3 methodology.

The field test suggested that seasonal efficiencies in the field were even up to 100% lower than the respective normed COPs (under EN 255-3) of the systems. The main reasons for this were thermal store losses, inadequate installation and oversizing of the system as compared to the actual domestic hot water demand. Despite these rather negative results the tested systems were still 2-3 times more efficient than comparable direct electric water heaters.

Legionella preventionThere is a trade-off between efficiency and health and safety concerns regarding Legionella. Low flow of around 40/45°C are ideal for Legionella growth, so DHW HPs should therefore have an anti-Legionella function which heats up the tank to temperatures of at least 50°C for a few hours or ≥60°C for a few minutes. Several older systems on the market are only able to achieve flow temperatures of 50-55°C in HP mode and rely on the back-up heater for the anti-legionella treatment. In order to minimise the use of the back-up heater and thus to increase efficiency the HPs used in DHW HP systems should be able to reach flow temperatures of ≥60°C.

Legionella preventionThere is a trade-off between efficiency and health and safety concerns regarding Legionella. Low flow of around 40/45°C are ideal for Legionella growth, so DHW HPs should therefore have an anti-Legionella function which heats up the tank to temperatures of at least 50°C for a few hours or ≥60°C for a few minutes. Several older systems on the market are only able to achieve flow temperatures of 50-55°C in HP mode and rely on the back-up heater for the anti-legionella treatment. In order to minimise the use of the back-up heater and thus to increase efficiency the HPs used in DHW HP systems should be able to reach flow temperatures of ≥60°C.


Contents

Executive Summary






Appendix


Customer Proposition: What are DHW HPs competing against?

* market-dependant

In order to assess the proposition for domestic hot water heat pumps, the incumbent technologies need to be assessed. This is different in each market. We analyse on the next slide the proposition for DHW HPs in four different types of European market – France, Germany, Poland and the UK. Here we highlight the major incumbent technologies for domestic hot water production in the European market:

New build Retrofit Selected important markets

Electric water heaters

New build regulations pushing out electric WH in some countries (France), & DHW HPs are a strong alternative

DHW HPs can provide significant savings over direct electric systems in retrofit

Oil boilers Not significant in new build Tend to have poor efficiencies in the summer – DHW HPs can boost efficiency

Gas boilers

Dominate the new build sector in many markets when combined with solar. DHW HP could be an alternative to solar to achieve renewable share (if they count as renewable)

Gas boilers are the incumbent heating system in many markets. DHW HPs may give running cost and carbon savings relative to a boiler alone in a market such as France where electricity price is low.

Solid fuel stoves

Not significant in new build Coal/firewood have poor efficiencies in summer & require end-user effort to re-fuel the systems – DHWs a more efficient & more comfortable alternative

Top three incumbent technologies in Europe which are assessed against DHW HPs in the model on the next page

NB: Solar Thermal is the obvious competitor for DHW HPs when considering new lower carbon technologies displacing the incumbents. Solar Thermal is popular in markets such as Germany, where it is commonly installed, for example, alongside a gas boiler in new build. The advantage which DHW HPs have over solar thermal is their low upfront cost, which makes them potentially better suited to the retrofit sector. Depending on subsidy rates for solar thermal and DHW HPs in different markets, the running cost benefits of DHW HPs over solar thermal may vary. The following analysis considers the proposition for DHW HPs displacing existing incumbent technologies, so we focus on the comparison with gas, oil and electric heating.

NB: Solar Thermal is the obvious competitor for DHW HPs when considering new lower carbon technologies displacing the incumbents. Solar Thermal is popular in markets such as Germany, where it is commonly installed, for example, alongside a gas boiler in new build. The advantage which DHW HPs have over solar thermal is their low upfront cost, which makes them potentially better suited to the retrofit sector. Depending on subsidy rates for solar thermal and DHW HPs in different markets, the running cost benefits of DHW HPs over solar thermal may vary. The following analysis considers the proposition for DHW HPs displacing existing incumbent technologies, so we focus on the comparison with gas, oil and electric heating.


Customer Proposition: Running costs & CO2 emissions in key markets

ASSUMPTIONS: Efficiencies of competing technologies for hot water productionThe results of the modelling above are highly dependent on the assumed efficiencies of each system. There is not a significant amount of field data available to show realistic seasonal efficiencies for hot water production, particularly for gas and oil boilers. We explain the assumptions below, and test sensitivities on the following slide.DHW HP = 2. An SPF of 2 is at the lower end of efficiencies measured under EN 14167, the new European norm for DHW HPs (see slide 33). There have been very few field tests of DHW

HPs apart from the ADEME trial in France (also highlighted on slide 20). We investigate sensitivities of the modelling to efficiency on the following slides.Oil boiler = 0.6. There is little data available on realistic performance figures for oil boilers specifically for hot water production. It is understood that efficiencies in summer, when the

system is only being used for hot water, are significantly lower than in winter. Field tests in the US on oil boilers indicated summer efficiencies as low as 25%, whilst anecdotal evidence suggests figures in the range 40-70%. This analysis is focusing on the proposition for DHW HPs to displace hot water production from old oil boilers, and not the best performing new oil boilers. Therefore an efficiency of 60% is considered ‘optimistic’ and the real case may be lower. For any DHW HP installation, the summer performance of the existing oil boiler should be understood as well as possible in order to quantify the achievable savings.Gas boiler = 0.7. An Energy Saving Trust field trial on gas condensing boilers in the UK (2009) showed summer efficiencies ranging from 15% to 85%, with the greatest concentration of

measurements at 50-80%. Therefore 70% is considered realistic. We do not expect DHW HPs to compete effectively with gas in most markets. Direct Electric Water Heater = 0.8. An efficiency of 80% for direct electric water heaters is relatively optimistic. The industry view in France (ADEME) is that 60% is in fact realistic for

existing systems. As with the case of oil boilers, this analysis represents the case for replacing existing electric water heaters with DHW HPs. It is possible that newer systems may give a higher performance, but in reality, very few would achieve an efficiency close to 1, as manufacturers claim.

ASSUMPTIONS: Efficiencies of competing technologies for hot water productionThe results of the modelling above are highly dependent on the assumed efficiencies of each system. There is not a significant amount of field data available to show realistic seasonal efficiencies for hot water production, particularly for gas and oil boilers. We explain the assumptions below, and test sensitivities on the following slide.DHW HP = 2. An SPF of 2 is at the lower end of efficiencies measured under EN 14167, the new European norm for DHW HPs (see slide 33). There have been very few field tests of DHW

HPs apart from the ADEME trial in France (also highlighted on slide 20). We investigate sensitivities of the modelling to efficiency on the following slides.Oil boiler = 0.6. There is little data available on realistic performance figures for oil boilers specifically for hot water production. It is understood that efficiencies in summer, when the

system is only being used for hot water, are significantly lower than in winter. Field tests in the US on oil boilers indicated summer efficiencies as low as 25%, whilst anecdotal evidence suggests figures in the range 40-70%. This analysis is focusing on the proposition for DHW HPs to displace hot water production from old oil boilers, and not the best performing new oil boilers. Therefore an efficiency of 60% is considered ‘optimistic’ and the real case may be lower. For any DHW HP installation, the summer performance of the existing oil boiler should be understood as well as possible in order to quantify the achievable savings.Gas boiler = 0.7. An Energy Saving Trust field trial on gas condensing boilers in the UK (2009) showed summer efficiencies ranging from 15% to 85%, with the greatest concentration of

measurements at 50-80%. Therefore 70% is considered realistic. We do not expect DHW HPs to compete effectively with gas in most markets. Direct Electric Water Heater = 0.8. An efficiency of 80% for direct electric water heaters is relatively optimistic. The industry view in France (ADEME) is that 60% is in fact realistic for

existing systems. As with the case of oil boilers, this analysis represents the case for replacing existing electric water heaters with DHW HPs. It is possible that newer systems may give a higher performance, but in reality, very few would achieve an efficiency close to 1, as manufacturers claim.

We assess the economic and carbon saving proposition for DHW HPs relative to the three most important incumbent technologies, gas, oil and electric . We use energy cost and carbon intensity figures to represent four different types of market: France & Germany (the two biggest markets for DHW HPs), Poland (one of the fastest growing market) and the UK (the biggest heating market in Europe, which may present some emerging DHW HP opportunities).

The key opportunity for DHW heat pumps is displacing electric water heaters – and as illustrated below, they will of course always make cost and carbon savings

The second biggest opportunity for DHW HPs in Europe is installing alongside existing oil boilers to boost summer efficiencies. The strength of the proposition for DHW HPs varies depending on energy price ratios and grid carbon levels in different markets, but in the analyses representing the UK, France, Germany & Poland below, DHW HPs achieve running cost savings over oil in all cases – representing a strong opportunity. However, rapidly rising electricity prices relative to oil in some markets could reduce the running cost savings - in Germany, the recent increase in electricity rates is making the proposition for HP more challenging. In most markets, DHW HPs give carbon savings over oil, but high grid carbon intensity in Poland means that carbon savings are poorer vs. oil. As carbon intensity reduces, the proposition will improve.

In most markets DHW HPs will struggle to compete with gas on running cost or carbon savings , as with space heating heat pumps – with the possible exception of a market such as France, where electricity prices and carbon emissions per kWh are lower relative to gas than in other markets.

We assess the economic and carbon saving proposition for DHW HPs relative to the three most important incumbent technologies, gas, oil and electric . We use energy cost and carbon intensity figures to represent four different types of market: France & Germany (the two biggest markets for DHW HPs), Poland (one of the fastest growing market) and the UK (the biggest heating market in Europe, which may present some emerging DHW HP opportunities).

The key opportunity for DHW heat pumps is displacing electric water heaters – and as illustrated below, they will of course always make cost and carbon savings

The second biggest opportunity for DHW HPs in Europe is installing alongside existing oil boilers to boost summer efficiencies. The strength of the proposition for DHW HPs varies depending on energy price ratios and grid carbon levels in different markets, but in the analyses representing the UK, France, Germany & Poland below, DHW HPs achieve running cost savings over oil in all cases – representing a strong opportunity. However, rapidly rising electricity prices relative to oil in some markets could reduce the running cost savings - in Germany, the recent increase in electricity rates is making the proposition for HP more challenging. In most markets, DHW HPs give carbon savings over oil, but high grid carbon intensity in Poland means that carbon savings are poorer vs. oil. As carbon intensity reduces, the proposition will improve.

In most markets DHW HPs will struggle to compete with gas on running cost or carbon savings , as with space heating heat pumps – with the possible exception of a market such as France, where electricity prices and carbon emissions per kWh are lower relative to gas than in other markets.

€/ye

ar

Annual running costs

kg C

O2 /

year

Annual CO2 emissions

DHW HPs have lower

savings in DE vs oil than in other markets

Good savings for DHW HPs against oil in FR, PL & UK

minimal or no savings for DHW

HPs vs gas in most markets

DHW HPs the best carbon saving tool

High PL grid carbon = more challenging for

DHW to make savingsclear savings over oil (but no savings

over gas)


Customer Economics: Sensitivities of the DHW HP proposition to changing economic variables

The strength of the customer proposition for DHW HPs is a function of:

Market specific energy price ratios

DHW HP efficiency

Competing technology efficiency

Upfront cost for DHW HP

Marginal upfront cost relative to competing technologies

Payback times

Over the following slides we assess how variations in these factors can affect the proposition for DHW HPs in different types of markets and for different competing technologies today and in the future.

Key Messages: Future Outlook – The biggest battle for DHW HPs is against oil

The existing oil boiler market presents both a large reward for DHW HPs, but also a challenging battle ground, where the proposition is highly sensitive to small fluctuations in efficiencies and energy prices (the replacement market for electric water heaters is of course a more straight-forward opportunity).

There is a risk from the expected electricity price rises in Europe, if they rise faster than oil prices – as seen in Germany, the DHW HP economic proposition is highly sensitive to small increases in electricity price – a €0.02 increase in electricity price can bring the payback time for DHW HPs against oil down by 5 years.

Careful targeting of the customers with oil boilers which have poor summer / DHW efficiencies will be essential.

DHW HPs already achieve efficiencies capable of giving a strong proposition against oil in some countries (e.g. SPF >1.75), but in markets where the battle is closely fought (e.g. Germany), performances above an SPF of 2.5 will be essential.


Customer Economics: Exploring sensitivity to variations in electricity price

Sensitivity to electricity price variation: The case of DHW HPs vs. oil boilers in GermanyRising electricity prices in Germany are making the proposition for heat pumps increasingly difficult. The outlook is that electricity prices will certainly rise for the next few years as renewables expand in Germany. To test the magnitude of influence these price increases have on the proposition, we compare annual running cost savings for a DHW HP compared to oil – a key battle ground in Germany. We assess four different electricity price scenarios (in all cases, the marginal upfront cost for the DHW HP is €1,500, HP efficiency is 2 and oil boiler efficiency is 0.6).

indicative current price in Germany with HP tariff

electricity price in Germany without tariff

~8 years = maximum payback length?

DHW HPs a stronger proposition DHW HPs a weaker proposition

ImplicationsThere are many other variables defining the point at which DHW HPs become a strong proposition against oil (i.e. relative efficiencies of the systems, oil price). But it is clear in the case of Germany, that the proposition is highly sensitive to small variations in electricity price. With a heat pump tariff, available in some regions, the proposition can look positive against oil. Without a tariff, the proposition is challenging – and will look best with high performing DHW HPs or poorly performing oil boilers. There is a vast stock of aging oil boilers in Germany which could benefit from DHW HPs reducing running costs, but careful targeting of the right

customers will be essential.Elsewhere in Europe (e.g. UK, France, Poland), the savings for DHW HPs relative to oil are much clearer, with paybacks of 5 years achievable.

ImplicationsThere are many other variables defining the point at which DHW HPs become a strong proposition against oil (i.e. relative efficiencies of the systems, oil price). But it is clear in the case of Germany, that the proposition is highly sensitive to small variations in electricity price. With a heat pump tariff, available in some regions, the proposition can look positive against oil. Without a tariff, the proposition is challenging – and will look best with high performing DHW HPs or poorly performing oil boilers. There is a vast stock of aging oil boilers in Germany which could benefit from DHW HPs reducing running costs, but careful targeting of the right

customers will be essential.Elsewhere in Europe (e.g. UK, France, Poland), the savings for DHW HPs relative to oil are much clearer, with paybacks of 5 years achievable.

payback time


Customer Economics: Exploring sensitivity to variations in efficiency

pay

bac

k ti

me

for

DH

W H

P (

year

s)


relatively low performing HP is still a good proposition

against oil

low and medium performing boilers

good target for DHW HP

pay

bac

k ti

me

for

DH

W H

P (

year

s)

DHW HP SPF (constant oil boiler efficiency of 0.6)

Oil boiler efficiency(constant DHW HP efficiency of 2)


only the highest performing DHW HP or lowest

performing boilers create a good proposition for DHW

HPs against oil

Sensitivity to oil boiler and DHW HP efficiency

There are a relatively wide range of recorded and published seasonal efficiencies for DHW HPs, with field trials in France indicating that below 2 could be normal, while EN 16147 measurements reach 3 and above. For oil boilers, hot water efficiencies are not well quantified, but indications point to a range of 40-80%.

To test the impact of these variations on the customer proposition for DHW HPs against oil, we assess running cost savings and payback times under different performance scenarios, using price inputs from Germany (high electricity price) and the UK.

Implications

Relatively small variations in efficiency of the DHW HP or the boiler can dramatically reduce or increase the payback time.

Poorest performing DHW HPs (<1.5) do not pay back. Such systems will only pay back against electric water heaters, or possibly against oil in a market such as France with low electricity prices.

In a market with a high price differential between electricity and oil (e.g. Germany), only DHW HPs with SPF >2 displacing relatively poorly performing oil boilers create an opportunity. In Germany there is a large stock of aging oil boilers which may have such low efficiencies – targeting these will be key.

In markets with a lower price differential between electricity and oil (e.g. UK), poorer performing DHW HPs (1.75) can still pay back against oil – with an increasingly strong proposition as oil boiler efficiencies reduce.

DHW HP SPF (constant oil boiler efficiency of 0.6)

Oil boiler efficiency(constant DHW HP efficiency of 2)


Customer Economics: Upfront cost

Upfront cost for DHW HPs vary significantly, mainly driven by the size of the storage tank. Unlike for space heating HPs the capacity of the heat pump is of a lesser importance to the price of the systems, because the range of different capacities is very small. We present the range of prices below, according to tank size (uninstalled prices). As electric water heaters are the strongest competition for DHW HPs, we include the price range for these systems for comparison. The highest cost DHW HPs are those using natural refrigerants*, the price ranges for which are also presented below (they are higher cost because (1) they use different components than R134a DHW HPs, resulting in higher component costs; (2) they are mainly first generation systems, resulting in higher development and manufacturing costs, and (3); they are currently manufactured in smaller quantities).

Upfront cost for DHW HPs vary significantly, mainly driven by the size of the storage tank. Unlike for space heating HPs the capacity of the heat pump is of a lesser importance to the price of the systems, because the range of different capacities is very small. We present the range of prices below, according to tank size (uninstalled prices). As electric water heaters are the strongest competition for DHW HPs, we include the price range for these systems for comparison. The highest cost DHW HPs are those using natural refrigerants*, the price ranges for which are also presented below (they are higher cost because (1) they use different components than R134a DHW HPs, resulting in higher component costs; (2) they are mainly first generation systems, resulting in higher development and manufacturing costs, and (3); they are currently manufactured in smaller quantities).

Prices for DHW HPs using R134a Prices for DHW HPs using natural refrigerants

Legend:Legend: DHW HP prices Indicative direct electric water heater prices (FR & DE)

150L external air system, R600a, FR

150L external air system, CO2, list price, FR

300L, internal air + 2nd heat source, DE

80-120L, internal air, IT

300L, internal air, Chinese product (Midea) FR

up

fro

nt

cost

(eu

ros)

*NB Systems optimised for the use with controlled building ventilation systems also have considerable price surcharges compared to unducted internal air units (up to 2,000€).


Customer economics: Payback periods against direct electric water heaters – an obvious winner for DHW HPs

Payback periods for DHW HPs against direct electric water heaters are of course positive in both countries. Paybacks in France are slightly longer than in Germany, due to the lower electricity prices and corresponding lower running cost savings.

Payback periods for DHW HPs against direct electric water heaters are of course positive in both countries. Paybacks in France are slightly longer than in Germany, due to the lower electricity prices and corresponding lower running cost savings.

300L, internal air, Chinese product

300L, internal air, European product 300L, internal air,

European product


Customer economics: Payback periods against oil boilers – a closer fought battle ground

300L, internal air, European product300L, internal air,

European product300L, internal air, Chinese product

The sensitivity of the proposition for DHW HPs against oil in Germany has been highlighted on the previous slides – the increasing price differential between oil and electricity driven by increasing electricity prices creates challenges for HPs.Poorest performing DHW HPs (e.g. SPF 1.5) do not pay back. With higher efficiencies pay backs can be achieved, but sub-10 years is only achievable for the lowest cost products (not above ~1,500 euros – when the DHW HP is being used to ‘upgrade’ the existing boiler, the marginal cost is the total cost of the HP).

The sensitivity of the proposition for DHW HPs against oil in Germany has been highlighted on the previous slides – the increasing price differential between oil and electricity driven by increasing electricity prices creates challenges for HPs.Poorest performing DHW HPs (e.g. SPF 1.5) do not pay back. With higher efficiencies pay backs can be achieved, but sub-10 years is only achievable for the lowest cost products (not above ~1,500 euros – when the DHW HP is being used to ‘upgrade’ the existing boiler, the marginal cost is the total cost of the HP).

Due to the very low electricity prices and high oil prices the payback of DHW HPs on oil is very positive. Even at full upfront cost of 1,500€ – 2,500€, i.e. when replacing a well functioning DHW tank, the payback period is only between 5-7 years on an SPF of 1.5 and between 3.6 and 6 years for an SPF of 2

Due to the very low electricity prices and high oil prices the payback of DHW HPs on oil is very positive. Even at full upfront cost of 1,500€ – 2,500€, i.e. when replacing a well functioning DHW tank, the payback period is only between 5-7 years on an SPF of 1.5 and between 3.6 and 6 years for an SPF of 2


Contents

Executive Summary






Appendix


Market Outlook: The addressable market and key opportunities in the two biggest markets today (FR, DE), and two future growth markets (IT, PL)

France* Germany* Italy Poland*

DHW HPs sold ~35,000 in 2012 10,700 in 2012 ~2-3,000 in 2012 5,600 in 2012

Current market for DHW HPs

New build: 20-25,000 DHW HPs / year, DHW HPs the technology of choice in new build, driven by building regulations (requiring minimum renewable share)Retrofit: 10-15,000 DHW HPs / year. Primary market is replacing direct electric water heaters, driven by customer need for energy cost savings

New build: 2-3,000 / year - DHW HPs usually sold alongside a new boiler, to meet energy efficiency requirements.Retrofit: 7-8,000 / year in retrofit – primarily replacing water tank of existing oil boiler to boost summer efficiencies. Secondary market replacing existing gas or oil boiler with a new boiler + DHW HP, & replacing direct electric water heaters – in both cases driven by customer need for energy cost savings

New build: <1,000 - new build is a small market for DHW HPs – strong competition from gasRetrofit: 2,000 / year, replacing direct electric, often alongside collective gas space heating solutions in multi-family homes – driven by customer need for energy cost savings

New build: 1-2,000 / year Retrofit: 3-4,000 / year, replacing dedicated hot water systems, & boosting efficiencies of coal and oil boilers – driven by customer need for energy cost savings

Addressable market(biggest opportunity in bold)

12m homes with electric water heaters, 8m of which in single family homes (50% of SF homes)3.8m oil boilers (9m gas)650,000 boiler installs / year (100,000 of which oil/solid fuel)340,000 new builds / year (54% single family)

4m electric water heaters>6m oil boilers (~3m pre-1995)>10m gas boilers (~3m pre-1995)<600,000 boiler replacements / year (100,000 oil/solid fuel)100,000 new builds / year (60% single family)

8m electric water heaters1.8m oil boilers/(<15m gas)~500,000 boiler replacements / year (~80,000 oil/solid fuel)220,000 new builds / year (20% single family)

1.9m electric water heaters1.9m solid fuel (coal/wood)250,000 oil boilers (1.8m gas)380,000 boiler replacements (180,000 solid fuel, 5,000 oil)160,000 new builds / year (49% single family)

Biggest market opportunities for DHW HPs (biggest opportunity in bold)

Biggest market: existing single family homes with electric water heaters (replace with DHW HP)Secondary market: new build marketSecondary market: existing single-family homes with aging oil boilers

Biggest market: existing single-family homes with aging oil boilers (upgrade with DHW HP)Secondary market: existing single-family homes with aging gas boilers (replace with new gas boiler + DHW HP)Niche market: homes with electric water heaters

Biggest market: existing multi-family homes with gas communal space heating & individual electric water heaters (replace with DWH HPs)Secondary market: single family homes (preferably not on gas)

Biggest market: existing homes with coal and wood heating or oil boilers (upgrade with DHW HP)

The technology opportunity

Monoblocs and increasingly splits will have market opportunities. The market will remain mainly for systems with larger tanksLow costs and good performance required. End-users more cost-sensitive than in Germany – payback times of 4-5 years required.

Monobloc, floor-standing, large tank (200-300L), designed for installation in a garage or basementsSlightly higher upfront costs accepted for high performance products (payback 6-7yrs acceptable as long as running cost savings are visible)

Multi-family home solution: wall-hung, with small tanks of 80-100L. Very compact monobloc or splits (where external unit can be installed on balconies - though this is not allowed in all regions).Single-family home solution: Monobloc with larger tankLow upfront cost is critical

Monobloc with large tank fulfils current needs, but to tackle the electric water heater replacement market, smaller tanks an advantage.Low upfront cost is critical. Performance does not need to be “Rolls Royce” – but sufficient to give running cost savings

*Historical trends and market projections for these states analysed in further detail on the following slides. Italy not included because of limited availability of historic sales figures.


Market Outlook: FRANCE - Biggest opportunity is replacing electric water heaters

1. Market emergence: 2006-2008

The market began to emerge for DHW HPs on the back of growth in the overall HP market in France, and as more DHW products became available – driven by increasing oil prices.


The market began to emerge for DHW HPs on the back of growth in the overall HP market in France, and as more DHW products became available – driven by increasing oil prices.

2 Market boom: 2009-2012

Against the backdrop of a significant drop in the French market for combined space heating HPs, the market for DHW HPs exploded from 2009-2012.Growth in retrofit was driven by strong customer economics (DHW HPs

provide running cost savings over electric water heaters & oil even without incentive), the availability of relatively low cost products, Growth in new build was driven by the RT2012 building regulation

(many developers were preparing in advance)


Against the backdrop of a significant drop in the French market for combined space heating HPs, the market for DHW HPs exploded from 2009-2012.Growth in retrofit was driven by strong customer economics (DHW HPs

provide running cost savings over electric water heaters & oil even without incentive), the availability of relatively low cost products, Growth in new build was driven by the RT2012 building regulation

(many developers were preparing in advance)

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SOURCE: AFPAC, EHPA, Delta-ee (2013), *Forecast

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Most important players in FranceMost important players in France

Historic & projected DHW HP market growth 2005-2017

Leaders: 1. Atlantic 2. Ariston 3. De Dietriche

Atlantic is the market leader with ~50% of the sales. Ariston & De Dietriche are also strong (~2 and 3 in the market). Many other European HP brands are present in France e.g. Bosch. Daikin is not active on the DHW HP market despite competing strongly with Atlantic for the market leader position in the overall HP market.

Opportunity for DHW HPs in the French market

New build: Building regulation RT2012 mandates that a system more efficient than an electric water heater must be installed for hot water production - DHW HPs are the primary choice.

Retrofit market: The biggest market is for replacement of electric water heater with DHW HPs, leaving the existing space heating systems as they are.

Retrofit market: DHW HPs are also being installed with boilers: (i) either as part of a package with a new boiler as replacement for existing boiler (pushed by boiler companies), or (ii) replacing the water tank of the existing boiler to boost efficiencies.

Heating systems for DHW production in existing single family homes – electric heaters dominates

Most important DHW HP technologies in France

Monobloc dominates with 70%; 30% split. Proportion of splits could increase in the future.Typically installed in garage/basement, using mainly

internal but also external air. Share of external air likley to increase. 200-300L tank is typical – but smaller tanks emerging

Most important DHW HP technologies in France

Monobloc dominates with 70%; 30% split. Proportion of splits could increase in the future.Typically installed in garage/basement, using mainly

internal but also external air. Share of external air likley to increase. 200-300L tank is typical – but smaller tanks emerging

high growth

scenario

low growth

scenario

It is likely that 2012 sales are in fact several 1,000 installations per year higher than the official figures, which may exclude as much as a quarter of the market (a realistic number may be above 40,000/yr).

Future Outlook: 2013-2017

Sales of DHW HPs show no sign of slowing down in the next 2-3 years, so we expect significant growth. Under a low growth scenario, the growth will be mainly in the new build

sector driven by building regulations. Under a high growth scenario, significant in-roads will be made in

retrofit against oil and gas as well as electric, potentially supported by greater regulation on replacement heating systems and incentives.There will be consolidation and refinement of existing products over

the next 2-3 years, resulting in lower cost more efficient products. Increasing competition from lower cost Chinese products will further drive down product prices – and as better & more efficient Chinese products emerge, drive innovation in the market.


Sales of DHW HPs show no sign of slowing down in the next 2-3 years, so we expect significant growth. Under a low growth scenario, the growth will be mainly in the new build

sector driven by building regulations. Under a high growth scenario, significant in-roads will be made in

retrofit against oil and gas as well as electric, potentially supported by greater regulation on replacement heating systems and incentives.There will be consolidation and refinement of existing products over

the next 2-3 years, resulting in lower cost more efficient products. Increasing competition from lower cost Chinese products will further drive down product prices – and as better & more efficient Chinese products emerge, drive innovation in the market.

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Just over 50% of single family homes had electric water heaters in 2010 (~8 million homes) – a huge addressable market for DHW HPs.

EDF R&D 2012


Market Outlook - GERMANY: Biggest opportunity is upgrading existing oil boilers


Products began to become available in Germany in the early 2000s. Since 2007, the trend in sales has mirrored closely the trend in the overall heat pump market, with

a market boom in 2008, and decline caused by the economic crisis.


Products began to become available in Germany in the early 2000s. Since 2007, the trend in sales has mirrored closely the trend in the overall heat pump market, with

a market boom in 2008, and decline caused by the economic crisis.


Steady growth is expected to continue in Germany, with sales reaching 14-16,000 / year over the next 5 years – with drivers much the same as for the past 2 years, but with an increasing customer need to reduce energy costs in retrofit. Most growth will come from retrofit, with the new build market remaining relatively flat due to a lack of regulatory drivers. Under the higher growth scenario, PV self-consumption incentives could have a significant positive impact.The lower growth scenario takes into account the risk to the DHW HP economic proposition

caused by the already steeply rising electricity prices (even if the risk is only perceived by customer) - particularly when tackling the oil boiler market.


Steady growth is expected to continue in Germany, with sales reaching 14-16,000 / year over the next 5 years – with drivers much the same as for the past 2 years, but with an increasing customer need to reduce energy costs in retrofit. Most growth will come from retrofit, with the new build market remaining relatively flat due to a lack of regulatory drivers. Under the higher growth scenario, PV self-consumption incentives could have a significant positive impact.The lower growth scenario takes into account the risk to the DHW HP economic proposition

caused by the already steeply rising electricity prices (even if the risk is only perceived by customer) - particularly when tackling the oil boiler market.

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SOURCE: EHPA, Delta-ee (2013), *Forecast

Most important players in GermanyMost important players in Germany


The market leaders in DHW HPs are Dimplex, Stiebel & Bosch. Viessmann and Vaillant are also significant. Several smaller players such as Ochsner, Alpha InnoTec, plus several selling OEM from e.g. Vesttherm.

Opportunity for DHW HPs in the German market

New build: DHW HPs do not count towards minimum renewables requirements, but do count towards meeting efficiency measures

Retrofit market (1): One of the biggest application for DHW HPs in Germany today (could be 50% of the market), and the biggest future market is to upgrade existing, aging oil (& some gas) boilers - replacing the water tanks with a DHW HP, and achieving efficiency gains (particularly in summer time).

Retrofit market (2): Replacement of electric water heaters offers a good market opportunity in Germany – there are >3million electric water heaters installed today which could technically be replaced with DHW HPs. This sector is an important application today, though there is a need for products with smaller tank sizes.

Retrofit market: There is an opportunity for DHW HPs in the boiler replacement market – boiler companies offer packages where a DHW HP + new boiler together are installed as replacement for an existing boiler. There are ~600,000 boiler replacements / year in Germany, >100,000 of which are oil / solid fuel, and could be sold alongside a DHW HP.

Most important DHW HP technologies

Today, predominantly monobloc systems with large 200-300L tanks are installed in garage/basementLarge monobloc products will continue to

capture most of the market opportunity, but monoblocs with smaller tanks (<150L) will open up new sectors of the electric water heater replacement market.

Most important DHW HP technologies

Today, predominantly monobloc systems with large 200-300L tanks are installed in garage/basementLarge monobloc products will continue to

capture most of the market opportunity, but monoblocs with smaller tanks (<150L) will open up new sectors of the electric water heater replacement market.

Installed base of boilers in German domestic stock – large number of aging oil (and gas) systems

Germany has a high proportion of heating systems installed pre-1995 – particularly oil boilers. These are a prime target for DHW HPs, which can boost poor summertime boiler efficiencies.

nearly 3m gas boilers >18 yrs old

>3m oil boilers >18 yrs old

0 boiler installed base (millions) 17

Steady growth: 2010-2012

The 2 years from 2010 have seen steady growth of close to 10% / year, mostly in retrofit – against more subdued growth in the overall heat pump market. Growth has been driven mainly by (i) the increased customer awareness of heat pumps in

general; (ii) the relative low cost of DHW HPs compared to other measures; (iii) customer requirement for running cost savings; (iv) the need to meet building energy efficiency standards; and (iv) trusted German boiler companies ‘upselling’ boilers with DHW HPsGrowth has not been policy-driven - there are no regulatory drivers for DHW HPs, which do not

receive the MAP investment subsidy and do not count as renewable in building regulations.

Steady growth: 2010-2012

The 2 years from 2010 have seen steady growth of close to 10% / year, mostly in retrofit – against more subdued growth in the overall heat pump market. Growth has been driven mainly by (i) the increased customer awareness of heat pumps in

general; (ii) the relative low cost of DHW HPs compared to other measures; (iii) customer requirement for running cost savings; (iv) the need to meet building energy efficiency standards; and (iv) trusted German boiler companies ‘upselling’ boilers with DHW HPsGrowth has not been policy-driven - there are no regulatory drivers for DHW HPs, which do not

receive the MAP investment subsidy and do not count as renewable in building regulations.

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high growth

scenario

low growth

scenario22

1133

BRG, Delta-ee 2012


Market Outlook - POLAND: Biggest opportunity is upgrading solid fuel systems


The Polish market for DHW HPs started to grow modestly in 2007/2008, driven by steep rises in fossil fuel prices during that period, and products becoming available.


The Polish market for DHW HPs started to grow modestly in 2007/2008, driven by steep rises in fossil fuel prices during that period, and products becoming available.


Good customer economics especially in rural areas with a high share of coal and oil fired heating & DHW systems are the main driver for growthAn increasing awareness of customers for the technology is also supporting

the developmentAn increasing number of market participants have entered the market,

making the technology more visible and easier to access.


Good customer economics especially in rural areas with a high share of coal and oil fired heating & DHW systems are the main driver for growthAn increasing awareness of customers for the technology is also supporting

the developmentAn increasing number of market participants have entered the market,

making the technology more visible and easier to access.


Growth is expected to continue over the next few years driven by continued consumer need to reduce energy bills – particularly for inefficient solid fuel systems. DHW HPs can reduce energy bills and reduce the hassle associated with re-filling un-automated solid fuel systems.The high growth scenario is based on the assumption that the Polish

renewable energy law currently being discussed will positively impact the development, driving sales in both retrofit applications and new build.The low growth scenario is based upon less policy support, so that growth

will be limited to the upgrade of low efficiency coal and oil.


Growth is expected to continue over the next few years driven by continued consumer need to reduce energy bills – particularly for inefficient solid fuel systems. DHW HPs can reduce energy bills and reduce the hassle associated with re-filling un-automated solid fuel systems.The high growth scenario is based on the assumption that the Polish

renewable energy law currently being discussed will positively impact the development, driving sales in both retrofit applications and new build.The low growth scenario is based upon less policy support, so that growth

will be limited to the upgrade of low efficiency coal and oil.

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SOURCE: PORT PC, EHPA, Delta-ee (2013), *Forecast

Most important players in PolandMost important players in Poland


Poland’s biggest selling products are Chinese:Hewalex is one of the key market leaders, selling an

OEM product of Asian origin, likely Chinese.Galmet is also an important player - a coal stove

manufacturer selling another product from Asian origin (again likely Chinese).European products are also selling from Buderus, NIBE-Biawar, Ochsner, Stiebel Eltron and Viessmann.

Opportunities for DHW HPs in the Polish market

Retrofit market (1): The biggest applications for DHW HPs in Poland today, and the biggest future market is to upgrade existing coal, wood and oil systems, achieving efficiency gains in summer and other end-user benefits (comfort and reduction of hassle). Rural areas (away from District Heating) aes are the main target sectors which have growth potential.

Retrofit market (2): There is also an opportunity to replace the existing stock of electric water heaters (1.9m units) with DHW HPs – if there are products with small tanks of <100L.

New Build market: there may be niche opportunities from green-leaning developers and self-builders, but there are no regulatory drivers for DHW HPs in new build.

Most important DHW HP technologies in Poland

Mainly systems using external air or ambient air inside non-heated building parts (cellars, garages), with large tanksIn future, smaller tanks will open opportunities to replace

electric water heaters.

Most important DHW HP technologies in Poland

Mainly systems using external air or ambient air inside non-heated building parts (cellars, garages), with large tanksIn future, smaller tanks will open opportunities to replace

electric water heaters.

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high

gro

wth

scen

ario

low growth

scenario

Total heating park: Oil, gas & solid fuel in Poland

Solid fuel is the dominant heating fuel in Poland, and 70% of these systems (~1.3million) are used for DHW production. This is the target market for DHW HPs. Existing systems can be upgraded, or DHW HPs can be installed alongside new systems (184,000 new installs per year).

# of installations

1.3m of which are used for DHW production

BRG, Delta-ee 2012


Market Outlook - EUROPE: Sales of DHW HPs across Europe could double by 2017

KEY: Market size 2017

>60,000 / year

10-60,000 / year

5,000 – 10,000 / year

1,000 - 5,000 / year

10s - 100s / year

0 - 10s

Sales of domestic hot water heat pumps in Europe could well exceed >100,000 / year by 2017Sales of DHW HPs could double across Europe in the next 5 years. The majority of this growth is likely to come from France (already by far the largest market), but with room for growth in markets such as Poland, Italy, Spain and Germany, and some smaller markets emerging more strongly. We highlight below some key markets of interest.

Sales of domestic hot water heat pumps in Europe could well exceed >100,000 / year by 2017Sales of DHW HPs could double across Europe in the next 5 years. The majority of this growth is likely to come from France (already by far the largest market), but with room for growth in markets such as Poland, Italy, Spain and Germany, and some smaller markets emerging more strongly. We highlight below some key markets of interest.

France: >80,000 / yearRapid growth of past 3 years likely to continue, if at a slightly slower rate, with regulation in new build placing DHW HPs at the forefront of new build DHW solutions. In retrofit, a vast stock of electric water heaters could be replaced, and cost-saving benefits will attract consumers. Further opportunities are to upgrade existing oil boilers – driven by cost saving requirements of customers, and upselling by boiler companies. Sales could well exceed 80,000 / year by 2017.

France: >80,000 / yearRapid growth of past 3 years likely to continue, if at a slightly slower rate, with regulation in new build placing DHW HPs at the forefront of new build DHW solutions. In retrofit, a vast stock of electric water heaters could be replaced, and cost-saving benefits will attract consumers. Further opportunities are to upgrade existing oil boilers – driven by cost saving requirements of customers, and upselling by boiler companies. Sales could well exceed 80,000 / year by 2017.

Spain: >5,000 / year Little growth has been seen so far, but a large market for electric water heaters (>600,000 installs per year and an installed stock of ~6 million) indicate a strong addressable market for DHW HPs. Spain is beginning to attract the interest of some of the biggest players (e.g. Atlantic, Ariston), but growth will depend on availability of small systems (90% of electric water heaters in Spain have <100L tanks), and the macro driver of Spanish recovery from the economic crisis.

Spain: >5,000 / year Little growth has been seen so far, but a large market for electric water heaters (>600,000 installs per year and an installed stock of ~6 million) indicate a strong addressable market for DHW HPs. Spain is beginning to attract the interest of some of the biggest players (e.g. Atlantic, Ariston), but growth will depend on availability of small systems (90% of electric water heaters in Spain have <100L tanks), and the macro driver of Spanish recovery from the economic crisis.

UK: 2-4,000 / year Sales of DHW HPs today are very low with only a handful of products available in the UK. Despite the UK being the biggest heating market in Europe, the preference for gas combi boilers for DHW production and space heating limits the DHW HP opportunity. However, a stock of >1 million oil boilers and 150,000 oil boiler replacements per year points to an opportunity for upgrading/upselling oil with DHW HPs. Over the next 5 years, sales of a few thousand per year could be possible, buoyed by the overall strong growth in the UK heat pump market expected to 2017.

UK: 2-4,000 / year Sales of DHW HPs today are very low with only a handful of products available in the UK. Despite the UK being the biggest heating market in Europe, the preference for gas combi boilers for DHW production and space heating limits the DHW HP opportunity. However, a stock of >1 million oil boilers and 150,000 oil boiler replacements per year points to an opportunity for upgrading/upselling oil with DHW HPs. Over the next 5 years, sales of a few thousand per year could be possible, buoyed by the overall strong growth in the UK heat pump market expected to 2017.

Italy: 5-10,000 / yearA small but quickly emerging market for DHW HPs today, with a strong domestic manufacturer and several key players targeting the market. Growth will be driven by product availability (e.g. strength of Ariston, consumer awareness of HP), as well as incentive support and PV self-consumption incentives. Sales could reach >5,000 per year and close to 10,000 if sufficient smaller products are available to replace electric water heaters with storage capacities of 80-100L in small / multi-family homes.

Italy: 5-10,000 / yearA small but quickly emerging market for DHW HPs today, with a strong domestic manufacturer and several key players targeting the market. Growth will be driven by product availability (e.g. strength of Ariston, consumer awareness of HP), as well as incentive support and PV self-consumption incentives. Sales could reach >5,000 per year and close to 10,000 if sufficient smaller products are available to replace electric water heaters with storage capacities of 80-100L in small / multi-family homes.

Germany: 15,000 / yearSteady growth driven mainly by retrofit sector, requirement to reduce energy costs & upselling/upgrading of existing oil boilers. Regulation unlikely to drive DHW HPs but the economic proposition and new business models associated with integration of DHW HP and PV (driven by PV self-consumption incentives), as well as other smart applications, will stimulate engagement from utilities, manufacturers and end-users.

Germany: 15,000 / yearSteady growth driven mainly by retrofit sector, requirement to reduce energy costs & upselling/upgrading of existing oil boilers. Regulation unlikely to drive DHW HPs but the economic proposition and new business models associated with integration of DHW HP and PV (driven by PV self-consumption incentives), as well as other smart applications, will stimulate engagement from utilities, manufacturers and end-users.

Poland: >10,000 / yearPoland was one of the fastest growing DHW HPs markets in Europe last year, with sales already exceeding 5,000 per year. under our high growth scenario – where policy support helps market growth – we can see sales exceeding 10,000 per year by 2017. There is a large potential market to upgrade existing sold fuel systems (1.3million installed base), and DHW HPs are one of the lowest cost options to improve running costs from solid fuel in Poland. The market requires less “Rolls Royce” products than a market such as Germany, opening the door to potentially a large number of products from e.g. China, which will still give savings over sold fuel. Market growth in Poland is likely to be mirrored to some extent in other eastern Europe markets with dependence on solid fuel.

Poland: >10,000 / yearPoland was one of the fastest growing DHW HPs markets in Europe last year, with sales already exceeding 5,000 per year. under our high growth scenario – where policy support helps market growth – we can see sales exceeding 10,000 per year by 2017. There is a large potential market to upgrade existing sold fuel systems (1.3million installed base), and DHW HPs are one of the lowest cost options to improve running costs from solid fuel in Poland. The market requires less “Rolls Royce” products than a market such as Germany, opening the door to potentially a large number of products from e.g. China, which will still give savings over sold fuel. Market growth in Poland is likely to be mirrored to some extent in other eastern Europe markets with dependence on solid fuel.


Contents

Executive Summary






Appendix


Policy Outlook: National incentives, regulations and support schemes

Italy DHW HPs can qualify

for the incentive scheme Conto EnergiaDHW HPs do count as

renewable

Italy DHW HPs can qualify

for the incentive scheme Conto EnergiaDHW HPs do count as

renewable

FranceDHW HPs do now qualify for tax incentive (though

they did not when it was first introduced)DHW HPs are the option of choice for replacing

outlawed direct electric heaters under building regulation RT 2012 There is a possibility that regulation as seen in RT

2012 could come into the retrofit sector over the next 5 years,

FranceDHW HPs do now qualify for tax incentive (though

they did not when it was first introduced)DHW HPs are the option of choice for replacing

outlawed direct electric heaters under building regulation RT 2012 There is a possibility that regulation as seen in RT

2012 could come into the retrofit sector over the next 5 years,

GermanyDHW HPs do not count as renewable so

cannot be used to meet renewable targetsBut they can count towards meeting

efficiency requirements. DHW HPs do not receive the MAP

subsidy.

GermanyDHW HPs do not count as renewable so

cannot be used to meet renewable targetsBut they can count towards meeting

efficiency requirements. DHW HPs do not receive the MAP

subsidy.

UKDHW HPs are relatively insignificant to date in the

UK, so there has been no direct policy support. DHW HPs not mentioned in the recent RHI

announcement, but not explicitly excluded. Details of the RHI are yet to be finalised but it is due to commence in spring 2014. It is unlikely that internal air systems will qualify, but external air systems may.

UKDHW HPs are relatively insignificant to date in the

UK, so there has been no direct policy support. DHW HPs not mentioned in the recent RHI

announcement, but not explicitly excluded. Details of the RHI are yet to be finalised but it is due to commence in spring 2014. It is unlikely that internal air systems will qualify, but external air systems may.

PolandThere is no specific

policy support for DHW HPs in Poland. The Renewable Energy

Law currently under discussion may provide some support post 2014

PolandThere is no specific

policy support for DHW HPs in Poland. The Renewable Energy

Law currently under discussion may provide some support post 2014

SpainThere is no specific policy support for DHW HPs in

SpainBut there is little support for any small scale

microgeneration technology, and the picture may change as economic recovery continues

SpainThere is no specific policy support for DHW HPs in

SpainBut there is little support for any small scale

microgeneration technology, and the picture may change as economic recovery continues

The customer proposition for DHW HPs is generally less dependent on subsidies and incentives than for many other renewable technologies, because the upfront cost is relatively low. There are variations in the way different markets view the technology, and the extent to which they will give it the same support as to other renewables.

The customer proposition for DHW HPs is generally less dependent on subsidies and incentives than for many other renewable technologies, because the upfront cost is relatively low. There are variations in the way different markets view the technology, and the extent to which they will give it the same support as to other renewables.


Policy Outlook: EU Energy Label – not a driver for DHW HP until after 2017

The Energy Label could influence customer decision-making by encouraging purchase of more efficient hot water systems – but not before 2017.

Energy Label: Background & Impact

The EU Energy Label Regulations for domestic appliances determines the rate at which the least efficient products are phased out of the market, and drives uptake of more efficient products. The Regulations have proven to be a successful tool to encourage the purchase of more energy efficient domestic appliances like dishwashers or fridges. Even with a price increase for more efficient products, items like fridges are relatively low cost products. Now that the labelling scheme is being implemented in (higher cost) heating and hot water systems, will it have the same impact on consumer decision-making? The key question is whether consumers will pay a premium to buy, for example, an A+ rated DHW HP instead of a B rated electric water heater. Upfront cost is the most challenging hurdle for renewables/microgeneration to overcome. Minimising the marginal cost of DHW HP will be critical to maximise the benefits of the Energy Label.

The final Energy Label Regulation of “water heaters, hot water storage tanks and packages of water heater and solar device” is expected to be published in the Official Journal of the EU in September 2013, after several years of negotiations and lobbying: Requirements for hot water heaters, including DHW HPs

From September 2015 onwards a packaging label comprising the energy efficiency classes A-G would be mandatory on each of the above mentioned devices. Labels differ in their layout (e.g. the HP label shows annual energy consumption for different climate zones) but the scale and efficiency classes are the same for all water heaters. A second label for “packages of water heater and solar device*” with categories A+++ - G is introduced. Heat Pumps will be able to reach the A category.

From September 2017 onwards a packaging label comprising the energy efficiency classes A+ - G is introduced for water heaters. Heat Pumps will be able to reach the A+ category but not the A++ or A+++ category. These are reserved for packages including solar devices*, even if HPs fulfil the primary energy criteria for the label classes.

The efficiency of all systems is going to be tested against a standardised tap cycle. This cycle differs slightly from the cycle under the current EN 16147. The tap cycle of the norm will therefore be revised and adjusted to the European Regulation. This was supposed to have been finished by the end of June 2013. The planning could not be maintained and it is currently unclear when exactly the new version of EN16147 is going to be published. A smart function can be used in order to improve the efficiency rating of the system.

* “‘solar device’ means a solar-only system, a solar collector, a solar hot water storage tank or a pump in the collector loop, which are placed on the market separately”, from the draft Regulation

How will DHW HPs be rated in the Energy Label compared with the competition?

Until 2017, the maximum Energy Label rating will be “A”. This means that until 2017, heat pumps of any sort will not be differentiated from boilers as more efficient, because the most efficient gas boiler will also be able to reach an A.

From 2017 onwards the introduction of the A+ label (which can only be reached by renewable systems) will allow the heat pump to substantially differentiate themselves.

For DHW HPs, even though current tests under the EN 16147 indicate that future product generations of DHW HPs might be able to reach the 150% primary energy efficiency necessary for an A++ label, ultimately, DHW HPs will not be able to get a better label than A+ - the A++ and A+++ categories are reserved for packages of water heater and ‘solar device’.

COPs needed to reach the primary energy efficiency thresholds for the different label classes can be found in the Appendix at the back of this report.


Policy Outlook: EU Policies - Ecodesign & F-Gas Regulation: Are They Game Changers?

The Ecodesign of Energy Related Products Directive

The EcoDesign Regulation for water heaters has been under discussion in parallel with the Energy Label Regulation for this product category. Whereas the Energy Label’s aim is to promote energy efficiency via customer pull, the EcoDesign Regulation is establishing minimum energy efficiency requirements for products and is designed to drive increasing efficiency of products through time.

Relevant to DHW HPs, amongst the products covered by the Ecodesign Directive are combined space and water heaters (Lot 1) and water heaters and hot water storage tanks (Lot 2).

The Ecodesign Regulation for Lot 2 is expected to be published in the European Official Journal in the 3rd quarter 2013. The regulation will come into force 20 days thereafter and will unfold its effects in two steps: From two years after the regulation enters into force, water heating energy

efficiency of water heaters must not drop below a set minimum value, or they cannot be sold in Europe (‘L’-rated unit this is 30%, or 27% including the ‘smart’ bonus). From four years after, the set minimum value is increased (for ‘L’ rated unit

this increases to 37% or 34% including ‘smart’ bonus).

Implications for DHW HPsDHW HPs should remain in the market place, while some less efficient

electric water heaters may no longer be sold. In the long-term, this will open up the electric water heater replacement market.The addition of the ‘smart’ bonus may drive the interest of more

manufacturers in development of smart-ready products – such as the DHW HP already presented by Viessmann.Because of the time-scales involved in implementing this Directive fully,

the impact is unlikely to be felt on the market in the next 3-4 years, but manufacturers will have to work to ensure that their DHW HPs can give a strong enough performance to meet the requirements.

For more details on the calculations, see Appendix.

The F-Gas Regulation

The Regulation on fluorinated greenhouse gases (F-Gases) is one of the most contentious policy developments for heat pumps being discussed at a European level.

Due to the significant global warming potential (GWP) of F-Gases, the European Union plans to reduce emissions from these gases by 60% in 2030 (compared to 2005 levels). In order to achieve this goal, a phase down of the use of F-Gases until 2030 has been proposed. Hydrofluorocarbons (HFCs), which are the most common group of refrigerants used in today’s heat pumps, air-conditioning and refrigeration devices, are also falling under this proposed phase down.

Implications for DHW HPsIf implemented in its current state, the F-Gas Regulation would affect DHW HPs in several ways:

There is on-going debate about a currently proposed ban on the pre-charging of heat pumps, potentially coming into force 3 years after the entry into force of the regulation. All equipment using F-Gases would have to be charged at the point of use by a certified F-Gas installer. Hermetically sealed systems are excluded from this rule, but the definition of hermetically sealed system is currently unclear, exposing DHW HPs to the risk of having to be filled on site. This would add considerable time, installation cost, and create risks of refrigerant leakage.All stationary heat pump equipment using F-Gases will have to be installed

by certified F-Gas installers, whether it is hermetically sealed or not. This could pose a major hurdle to the uptake of DHW HPs in markets where certified F-Gas installers are not common – and it would raise the cost for installation.The F-Gas Regulation would create a clear advantage for DHW HPs using

natural refrigerants such as CO2, which will be exempt from all the restrictions faced by HFCs. A greater strengthening of the restrictions under F-Gas could cause a significant shift in the heat pump industry towards products such as the CO2 DHW HP.


Contents

Executive Summary






Appendix


Energy Label classes for an L rated DHW HP (average climate, smart = 0, Pstby of 0.05):

in 2015 in 2017ηwh ≥ 150% for a Qref/Qelec of ≥3.6214: --> Energy Label is: A A+ηwh ≥ 115% for a Qref/Qelec of ≥2.7988: --> Energy Label is: A A+ηwh ≥ 82% for a Qref/Qelec of ≥2: --> Energy Label is: A Aηwh ≥ 75% for a Qref/Qelec of ≥1.8423: --> Energy Label is: B BEnergy Label classes for an L rated DE WH (average climate, smart = 0): in 2015 in 2017ηwh ≥ 37% for a Qref/Qelec of ≥0.905: --> Energy Label is: C Cηwh ≥ 34% for a Qref/Qelec of ≥0.814: --> Energy Label is: D Dηwh ≥ 30% for a Qref/Qelec of ≥0.698: --> Energy Label is: E Eηwh ≥ 27% for a Qref/Qelec of ≥0.615: --> Energy Label is: F Fηwh < 27% for a Qref/Qelec of <0.615: --> Energy Label is: G GEnergy Label classes for an L rated fossil fuel boiler (average climate, smart = 0, Qelec = 0.5kWh): in 2015 in 2017 ηwh ≥ 90% for a (theoretical) Qref/Qfuel of 1: --> Energy Label is: A Aηwh ≥ 75% for a Qref/Qfuel of ≥0.8156: --> Energy Label is: A Aηwh ≥ 50% for a Qref/Qfuel of ≥0.4631: --> Energy Label is: B Bηwh ≥ 37% for a Qref/Qfuel of ≥0.3255: --> Energy Label is: C Cηwh ≥ 34% for a Qref/Qfuel of ≥0.2957: --> Energy Label is: D Dηwh ≥ 27% for a Qref/Qfuel of ≥0.2287: --> Energy Label is: E E

Calculation methodology for the system efficiency, for a glossary and the full set of formulas please refer to the annex.

Appendix 1: EU Energy Label – calculation methodology

products only achieving these labels will be phased out


Appendix 2 – Glossary for the Energy Label & EcoDesign Calculations

ηwh = 'water heating energy efficiency' means the ratio between the useful energy provided by a water heater or a package of water heater and solar device and theenergy required for its generation, expressed in %

Qref = 'reference energy' means the sum of the useful energy content of water drawoffs, expressed in kWh, in a particular load profile

Qfuel = 'daily fuel consumption' means the consumption of fuels over 24 consecutive hours under the declared load profile and under given climate conditions, expressed in kWh in terms of GCV

CC = 'conversion coefficient' means a coefficient reflecting the estimated 40 % average EU generation efficiency referred to in Directive 2012/27/EU of the European Parliament and of the Council; the value of the conversion coefficient is CC = 2,5

Qelec = 'daily electricity consumption' means the consumption of electricity over 24 consecutive hours under the declared load profile and under given climate conditions, expressed in kWh in terms of final energy

SCF = 'smart control factor' means the water heating energy efficiency gain due to smart control under the conditions set out in point 3 of Annex VII

smart = 'smart control compliance' means the measure of whether a water heater equipped with smart controls fulfils the criterion set out in point 5 of Annex VIII;

Qcor = 'ambient correction term' means a term which takes into account the fact that the place where the water heater is installed is not an isothermal place, expressed in kWh

-k = Factor used in the Qcor calculations (for values of k see below)

Pstby = 'standby heat loss' means the heat loss of a heat pump water heater in operating modes without heat demand, expressed in kW


Appendix 3 – Formulas for the Energy Label & EcoDesign Calculations

Table with k values:Load profile3XS XXS XS S M L XL XXLk value 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0

The Ecodesign Regulation for Lot 2 is expected to be published in the European Official Journal in the 3rd quarter 2013. The regulation will come into force 20 days thereafter and will unfold its effects in two steps:

Calculation method:

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