The Impact of the Top 3 Strategic Imperatives on the Industrial Heat Pumps Industry

Innovative Business Models

• The combined impact of decentralization, decarbonization, and digitization will drive new business models in the heat pump (HP) market, as flexibility will be central to variable electricity generation, guaranteed performance, and energy cost savings.

• Customers will increasingly expect turnkey, stable operating expenses (OpEx) solutions from technology providers and project developers and installers, as they help mitigate price, operational, and maintenance risk; reduce running costs; and achieve guaranteed energy savings and reduced payback.
• These factors will provide opportunities for energy providers, tech and service providers, and original equipment manufacturers (OEMs) to generate new revenue streams.

Disruptive Technologies

• Policy packages, including bans on synthetic refrigerants, will drive the market toward natural refrigerants.
• High temperature HPs currently have a lower technology readiness level (TRL), but with MARKET demonstrations and R&D, growth is forecasted to accelerate toward the end of the decade.
• Customers consider temperature, policies, and safety standards when deciding on the right refrigerant. A strong drive toward adopting natural refrigerants and innovation in HPs comprises the use of the right compressor technologies and refrigerants.

Industry Convergence

• Competition is becoming more integrated across the HP value chain; it involves more than mere product-based sales wherein companies are competing with other equipment manufacturers as well as with boiler manufacturers for hybrid offerings, with integrators, and with service companies, creating a more integrated market.
• Merger and acquisition (M&A) is a traditional competitive strategy that will remain the trend for brand globalization and localization, as it is cost-competitive and offers companies a way to expand their products, solutions, and services.
• Intensified competition is a result of the different kinds of solutions the industry requires, as HPs must be grid-flexible and able to work with multiple assets.

Scope of Analysis

• Forecast Segments:
  • Units: Refers to the HP market's annual sales in the industrial segment, specifically solutions 200 kilowatts (kW) in size and above.
  • HP Revenue: Refers to multiplying annual sales by average price, with sales sometimes extrapolated from megawatt (MW) volume additions. The price refers to the core equipment cost.
  • Forecasts: Provided at an industrial level with no industry-specific breakouts, key end-user sectors include food and beverage, pulp and paper, chemicals, pharmaceuticals, metals, and textiles.
• Technology Definitions:
  • Medium Temperature HPs (MTHP): Up to 100 Degrees Celsius
  • High Temperature HPs (HTHP): Above 100 to 160 Degrees Celsius
  • Ultra-High Temperature HPs (UHTHP): Above 160 Degrees Celsius
• Key Countries:
  • United States
  • Japan
  • China
  • France
  • Germany
  • Spain
  • Netherlands
  • Italy
  • United Kingdom
• Regions:
  • Europe
  • North America
  • Asia-Pacific (APAC)
  • Rest of the World (ROW)
• Capacity:
  • Less than 1 MW
  • 1–5 MW
  • Above 5 MW

Key Insights

• Market Potential: Industrial HPs hold significant market potential and will reach revenues of about $9.18 billion in 2035. Considering the decarbonization imperative across target sectors such as food and beverage, chemicals, pulp and paper, refining, and metals, the industrial HP market is on track to grow at an average of 6% to 7% year on year through 2030, after which it will accelerate by 8% to 10% year on year beyond 2030.
• Growth Drivers and Restraints: The key growth drivers for the industry are the need to reduce primary energy consumption from fossil fuels, the potential for waste heat emissions re-use, policy instruments and financing mechanisms, and the diverse range of potential demand sectors. The industry’s key growth restraints are the high upfront costs, limited potential for modular systems, limited technology uptake, and running costs/payback period. Striking a balance between these drivers and restraints will mean modest growth up to 2030, accelerating after that point as the market gains momentum.
• Market Units and Revenue: The global industrial HP market will reach 13.15 thousand units by 2035, up from 6.94 thousand units in 2023. Global revenues will reach $9.18 billion by 2035, increasing at a compound annual growth rate (CAGR) of 5.2% from 2024 to 2035. In 2023, China, the United States, and numerous markets in Europe will account for 75% of global unit sales and revenues. Food and beverage, pulp and paper, chemicals, pharmaceuticals, metals, and textiles account for a significant portion of demand. Carbon capture, datacenters, and grid-ancillary services combined with thermal energy storage systems are emerging applications.
• Competitive Landscape: The market is highly competitive and dominated by global players. Success factors include cost optimization, product development efforts, a focus on lower global warming potential (GWP) refrigerants, improved efficiency and coefficient of performance (COP), and better localization. Product innovation and development efforts are focused toward incorporating oil-free compressors, steam-generating HPs, and plate heat exchangers. Established customer relationships, bespoke solutions, a wide distribution network, strategic partnerships with compressor manufacturers, continued R&D, and policy measures support will drive competitiveness. HP design is heavily influenced by the design and efficiency of the compressor.
• Customer Expectations: Apart from regulatory incentives and policies, customers expect a benefit in the running-cost savings of the heating solution and guaranteed savings in the form of performance contracts that depend on performance metrics, such as HaS and energy performance, that they hope. As HPs are cost-intensive, OEMs incorporating such business models as part of their sales strategy can accelerate HP adoption. Ultimately, the customers look at carbon savings and financial benefits over OpEx potential.

Competitive Environment: