Heat Pumps

Heat pumps are widely used to meet heating and cooling demands in residential, commercial and industrial applications. On an appliance level, heat pumps can provide heat more efficiently than conventional heating technologies. ¹ This is because, rather than “producing” thermal energy (for example, through combustion), heat pumps use a refrigeration cycle to draw heat from a lower-temperature ambient source to a higher-temperature destination. Heat pumps use an external energy source, typically electricity, to drive this cycle, “pumping” around 3-4 units of heat per unit of electricity. ²

Common sources of ambient energy include the outside air, the ground and bodies of water. Air-source heat pumps are the most widespread, accounting for around 85% of the heat pumps in buildings worldwide. ³

Whether or not heat pumps are a “renewable” technology is under debate. On the one hand, they always harness a source of renewable energy, whether it is the ambient air, water or even waste heat. However, the energy that powers the units, typically electricity, is not necessarily renewable and is frequently based on fossil fuels. The ratio of renewable heating and cooling provided by heat pumps is therefore limited by the auxiliary energy; if this energy is renewable, so is the full output of the heat pump.

In markets such as Japan and the EU, and to some extent the Republic of Korea, heat supplied by heat pumps is credited as renewable, making the units eligible for support under certain renewable energy policy schemes. ⁴ In 2022, China classified heat pumps as a renewable energy technology at the national level for the first time. ⁵

Although heat pumps are widely available and have been a common technology for decades, they represent only a small share of the global heating market. In 2021, heat pumps accounted for less than 10% of heating equipment sales globally, whereas fossil fuel-based devices represented 45% of sales. ⁶

Annual Additions and Leading Countries

The global market for heat pumps is concentrated mainly in countries with colder climates, such as China, Japan, the United States and parts of Europe. However, countries with warmer climates also install heat pumps, given that the units can be reversible, moving heat from the interior to the exterior rather than vice versa. Because heat pumps also can provide cooling, their growing global deployment is attributed in part to rising demand for space cooling. ⁷ Worldwide, the heat pump market grew an estimated 11% in 2022, the second consecutive year of double-digit growth. ⁸

China is the world's leading installer of heat pumps. Its heat pump market remained largely stable in 2022 as the country continued to grapple with economic recovery from the COVID-19 pandemic. ⁹ Increasingly, ground-source heat pumps are being deployed in China to replace coal-fired furnaces. ¹⁰

The United States also is a large heat pump market. Air-air systems are most common in the country, with buildings often using ductwork to distribute the heat from the device to the targeted space. In 2022, the US heat pump market grew 11% to reach a record 4.3 million units shipped. ¹¹ (See Figure 19.) For the first time, US annual heat pump sales eclipsed annual sales of gas boilers, although sales of both devices have been rising. ¹² State and local policies have driven heat pump sales, even before federal legislation came into force. ¹³

Heat pump sales in Europe also have risen dramatically. In 2022, sales increased 38% to reach a record 3 million units. ¹⁴ This was on top of a 34% market increase in 2021, vastly exceeding the roughly 10% growth of prior years. ¹⁵ France was again Europe's leading market, with sales of around 600,000 units (aorund 80,000 units more than 2021) corresponding to a market growth of 20%. ¹⁶ Sales grew 37% in Italy and 58% in Germany, the region's two other large markets. ¹⁷

Notable growth also occurred in Europe's emerging markets. Poland experienced the largest overall expansion globally (first in percentage growth and second in absolute sales) with more than 200,000 units (more than 110,000 units more than 2021) sold in 2022. ¹⁸ (See Snapshot: Poland.) Markets doubled in Belgium and the Czech Republic, although starting from a much smaller base. ¹⁹ Air-to-water heat pumps are most common in Europe, comprising around half of all units sold. ²⁰

In Europe, the Russian Federation's invasion of Ukraine was a key driver of heat pump uptake in 2022. A dramatic rise in energy prices, notably fossil gas for heating, led many consumers to look towards heat pumps to reduce their gas demand. ²¹ Also contributing to market expansion was the growing number of countries with policies mandating the phase-out or restriction of fossil fuel heating in buildings, with the expectation that an EU Directive would eventually require this. ²² Mandates restricting fossil fuel use in new buildings are increasingly common in the United States as well, although they have faced backlash. ²³

Heat Pump Applications and Trends

Heat pumps are most commonly deployed in buildings to heat space and water. As of 2021, heat pumps met an estimated 10% of the world's heating demand in buildings. ²⁴

In addition to providing direct heat in buildings, heat pumps are increasingly used to meet low-temperature needs in industrial processing. Heat pumps provide energy for various purposes in food and beverage production, paper manufacturing, and chemical production, typically supplying process heat up to 100°C. ²⁵ In some industries, commercial applications have achieved temperatures of 140-160°C, and as of 2022 high-temperature industrial heat pumps reaching 200°C were in the pre-commercial stage. ²⁶ In Europe and the United States, industries have turned increasingly to heat pumps to reduce dependence on fossil fuels. ²⁷ Manufacturers have announced massive models of up to 120 MW in capacity to generate process steam for the chemical industry. ²⁸

Heat pumps also supply thermal energy for district heating networks. ²⁹ Unlike for household applications, the most common systems for district heating are water-source and ground-source heat pumps, drawing on wastewater or industrial waste heat as the energy source. ³⁰ In 2022, large-scale heat pumps advanced in Austria (based on wastewater), Finland (wastewater and seawater), Germany (river water from the Rhine; Europe's largest heat pump at 40 MW), the Netherlands (wastewater) and Sweden. ³¹ Two projects under discussion in Serbia would use heat pumps based on wastewater to heat district energy networks. ³²

FIGURE 19.

National Heat Pump Markets with the Largest Growth in 2022

Snapshot.POLAND

Heat Pumps Grew Rapidly in Poland in 2022

Amid a surging European heat pump market, Poland experienced the world's fastest growth in heat pumps in 2022. Sales of heat pumps in Poland grew 120% compared to 2021. Nearly a third of all new heating systems in Poland were heat pumps in 2022, and the country became the EU's fifth largest market in absolute terms.

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Heat Pumps Grew Rapidly in Poland in 2022

Amid a surging European heat pump market, Poland experienced the world's fastest growth in heat pumps in 2022. Sales of heat pumps in Poland grew 120% compared to 2021. Nearly a third of all new heating systems in Poland were heat pumps in 2022, and the country became the EU's fifth largest market in absolute terms.

Poland's heat pump market has been on the upswing for several years. The number of units sold has increased from around 12,000 in 2012 to more than 200,000 in 2022. The rapid market growth began in 2018 following the reform of an air pollution law that increased financial support for heat pumps to replace coal-fired heating systems. Notably, Poland is one of the only European countries to provide renewable heating subsidies adjusted to household income.

Heat pumps are not the only energy technology to experience rapid growth in Poland. Solar PV markets also have skyrocketed, with Poland becoming the EU's third largest market in 2022. (See Figure 20.) The Russian Federation's invasion of Ukraine also resulted in support for solar PV in 2022, with fossil gas and coal prices increasing substantially and consumers eager to avoid buying Russian gas.

FIGURE 20.

Sales of Heat Pumps and Additions of Solar PV in Poland, 2012-2022

Notable trends in the heat pump industry in 2022 included significant investments in manufacturing spurred by the global energy crisis and the Russian invasion of Ukraine, more competitive costs, use of operating heat pumps as a source of flexibility, and efforts to lower the life-cycle emissions of units.

Numerous firms across the heat pump value chain announced new manufacturing facilities during 2022. Most of these projects are in Europe and are expected to be completed by 2025, boosting the region's heat pump production capacity; in total, projects representing more than EUR 5.5 billion (USD 5.9 billion) were announced. ³³ Daikin Europe accounted for more than a quarter of this sum, investing around EUR 1.2 billion (USD 1.3 billion) in its European sites. ³⁴ Vaillant announced an investment of EUR 130 million (USD 139 million) in 2022 and opened a new factory in early 2023 that can produce more than 500,000 heat pumps annually. ³⁵ Stiebel Eltron announced an investment of EUR 600 million (USD 640 million) to triple its production by 2025. ³⁶

Additional investment announcements came from BDR Thermea, Bosch, Ecoforest, Groupe Atlantic, Hoval, NIBE, Midea Group and Panasonic. ³⁷ Many heat pump component manufacturers also pledged new investments. ³⁸ The US Inflation Reduction Act of 2022 earmarked USD 10 billion in tax credits for clean energy manufacturing as well as USD 500 million in grants for manufacturing facilities. ³⁹ In early 2023, LG Electronics announced that it would open its first heat pump manufacturing facility in the United States. ⁴⁰

The cost of heating with a heat pump depends on both upfront and ongoing costs. In most markets, the upfront costs for equipment and installation remain a barrier to adoption. Depending on the region, installing a heat pump can be much more expensive than installing a fossil-based heating technology. ⁴¹ Despite this, many countries have seen reductions in the upfront costs of heat pumps ⁱ . ⁴² Policies to reduce such costs, especially for low-income households, are important for wider adoption of the technology. ⁴³

The operational costs of heat pumps vary by country, and their competitiveness with fossil fuel technologies depends on an array of factors. In jurisdictions where fossil gas and oil are much cheaper than electricity, even the high efficiency of heat pumps cannot compensate for ongoing costs. ⁴⁴ This is often exacerbated by energy taxation regimes that place heavy burdens on electricity. ⁴⁵ Denmark, Germany, the Netherlands and the United Kingdom have begun reforming their tax regimes to favour electric heating, especially with heat pumps. ⁴⁶ Other countries have reformed tariffs to further incentivise heat pumps. ⁴⁷

Despite ongoing cost barriers, many households that switched to heat pumps from existing fossil fuel boilers saw savings on their energy bills. ⁴⁸ In Canada, Germany, the Republic of Korea, and the United Kingdom, the levelised cost of heating was competitive with a fossil gas boiler alternative during 2022. ⁴⁹

Switching to heat pumps typically reduces greenhouse gas emissions, but the use of conventional refrigerants (fluorinated gases, or f-gases) in these systems can contribute potent greenhouse gases if released to the atmosphere. ⁵⁰ In Europe, efforts to phase out these refrigerants have led to discussions on alternatives with lower global warming potentials, such as propane or carbon dioxide (CO₂). However, some alternatives may have environmental hazards and complicated or expensive operating and installation conditions that hamper their use. ⁵¹

In early 2023, the European Parliament adopted a proposal to phase out f-gases by 2050, and while the heat pump industry supports the goal, it has expressed concerns about proposed short-term bans affecting production capacity. ⁵² Previous international environmental agreements, such as the Kigali Amendment to the Montreal Protocol, fostered the transition to many refrigerants with lower global warming potentials that are currently in use. As the heat pump industry evolves, the biggest competitive challenge will be the ongoing use of relatively inexpensive fossil fuels for heating. ⁵³