1. Question 1: What is a heat pump?
1.1. Heat pump concept: an energy-saving device that transfers heat energy from low-temperature objects to high-temperature objects
Water flows to a low place, and a water pump is a device that can send water from a low place to a high place. Heat energy is transferred from high-temperature objects to low-temperature objects, and a heat pump is a device that can transfer heat energy from low-temperature objects to high-temperature objects, and can provide users with functions such as heating, cooling, hot water, and drying. Heat pumps have two features: paid and energy-saving. From the perspective of paid features, according to the second law of thermodynamics, thermal energy cannot be transferred from low-temperature objects to high-temperature objects spontaneously and without cost.
Therefore, heat pumps need to input a part of heat energy (usually high-level energy that is easy to be used, such as electric energy) for starting to perform “heat energy transfer work”. From the perspective of energy-saving features, the heat pump starts the device with a small amount of heat energy (1 unit of high-level energy that is easily utilized), thereby obtaining a large amount of heat energy from air, soil or water (3-5 units of low-level energy that is difficult to use). Under the premise of providing the same amount of heat energy, the energy consumption cost of heat pump is about 15%-20% of coal burning, 25%-30% of pure electric energy, 30%-50% of oil/gas, and 60%-70% of conventional solar energy %.
1.2 Common classification of heat pumps: by low-level energy source and by function
Heat pumps can be divided into air source heat pumps, ground source heat pumps and water source heat pumps according to low-level energy sources, and air source heat pumps are the mainstream. According to the “China Heat Pump Industry Development Report (2022)”, the sales volume of China’s heat pump industry in 2021 will be 24.82 billion yuan, of which the sales volume of air source heat pumps will be 22.71 billion yuan, accounting for 91.50%. Compared with air source heat pumps, ground source heat pumps and water source heat pumps have advantages in some experiences (such as noise, defrosting, etc.), but the economic and environmental problems are more prominent, which are reflected in:
- Economically unfriendly, with higher design, construction and maintenance costs. For example, in order to ensure heat transfer performance, ground source heat pump buried pipes occupy a large area and depth, making short-term design and construction difficult, long-term maintenance difficult and unfavorable for future land development. Another example is that the water source heat pump needs to fully investigate the water source conditions and the water intake structures are complex.
- The environment is not friendly, and there is a hidden danger of causing secondary environmental problems. For example, if the water source heat pump uses groundwater, it needs to consider the problem of difficult recharge.
As the mainstream air source heat pump, according to the number of functions, it can be further divided into single function (heating/hot water), dual supply (heating + cooling) and triple supply (heating + cooling + hot water). Single function: A single function heat pump can provide heating or hot water function. Household heat pumps are small in size and easy to install, and are suitable for small areas such as homes and small shops. The commercial type has a longer service life, up to 15 years, and is mainly suitable for hotels, factories, swimming pools, etc.
Dual supply: The dual supply has cooling and heating functions. Due to different refrigerants, it can be divided into upper and lower water (air conditioning and floor heating both use water systems), upper and lower water (air conditioning uses fluorine system, floor heating uses water system) and upper fluorine Under fluorine (air conditioning and floor heating both use fluorine system). In the market, above-grade water and above-fluorine water are more common, and the total market share in 2021 will be about 99%.
Triple supply: Triple supply adds hot water function on the basis of dual supply, which has a higher comprehensive energy efficiency ratio, and the initial investment and operating costs are more than 10% less than traditional air conditioners + water heaters. However, due to the different water quality in various places, the domestic hot water needs to be equipped with a secondary heat exchange system to prevent corrosion and perforation. The condensation temperature needs to be increased by 5°C, and the COP value of the host machine will drop. Therefore, the stability of triple supply is not as good as that of dual supply.
2. Question 2: What is the growth logic of the heat pump industry?
The growth logic of the heat pump industry is divided into two levels:
First, at the macro level, heat pumps are low-carbon and energy-saving, which is conducive to the country’s strategic goals of climate security and energy security, and is a key support industry for various countries. In addition, the national climate security and energy security strategies are long-term and deterministic, and the industry is expected to benefit from policy dividends for a long time.
Second, at the micro level, heat pumps have good energy-saving effects, and have obvious advantages in economic benefits under policy subsidies, and the demand for heating, cooling, and hot water is relatively rigid, and they have a solid demand foundation.
2.1. Growth logic 1: Energy security, reducing energy supply risks
Energy security is the core interest of all countries. In 2020, China, the 27 EU countries, and the United States are 22.5%, 57.5%, and -3.7% dependent on foreign energy, respectively. Among them, some major European countries such as Spain and Germany are as high as 60%. In the long run, the energy-saving effect of heat pumps is obvious, and the comprehensive promotion in the industrial, commercial and civilian fields can improve energy security issues. In the short term, Europe’s energy supply is highly dependent on Russia’s oil and gas exports. After the Russia-Ukraine conflict, energy prices in Europe have soared and energy supply has become severe. European countries have increased support policies for heat pumps to further stimulate heat pump consumption.
2.2. Growth logic 2: Climate security, helping carbon neutrality goals
The climate issue is an important issue in international relations, and major countries in the world regard carbon reduction as an important international responsibility. Compared with other heating solutions, heat pumps have obvious advantages in reducing emissions. The “NetZeroby2050” released by the IEA and the “Heat Pump Helps Carbon Neutrality White Paper (2021)” released by the CHPA both regard heat pumps as one of the important emission reduction equipment.
2.3. Growth logic 3: Economic considerations, optimizing production and living costs
The economics of heat pumps are based on a combination of current subsidies (fixed costs) and future energy prices (variable costs). We calculated the economics of purchasing heat pumps in the European and Chinese markets respectively. European market: heat pump products are mainly used to replace the original gas-fired wall-hung boilers, and the cost can be paid back in less than 3 years under subsidies.
We take the German heating market as an example to calculate, based on AGEnergiebilanzen’s estimate that the annual heating energy consumption of each household in Germany is 14644kwh and the subsidy is 45% of the installation cost, assuming that the efficiency of heat pump equipment is 400%, the efficiency of gas fireplace equipment is 92%, The annual cost of capital is 6%. Among them, the electricity price is the average electricity price in the past 12 months, and the natural gas price is calculated based on the current price, which is divided into high, medium and low. Assuming that the future German natural gas prices are maintained at 2.5/2.0/1.4 Euro/Nm respectively, the payback period of using heat pump heating is 2.0/2.9/6.4 years respectively.
Domestic market: heat pump products are mainly used to replace the original scattered coal heating, and the current subsidy policy can pay back the cost in 4 years. From the perspective of annual cost alone, in the case of 15 years of service life, the annual cost of air source heat pump/gas wall-hung boiler/scattered coal heating is 886.2/3363.2/2250.6 yuan respectively, and the economic effect of air source heat pump is outstanding. However, the initial investment of air source heat pumps is relatively large, and users may give up installation for short-term interests.
From the perspective of the investment recovery period, we take the Huairou area of Beijing as an example to conduct calculations. Due to the large difference in the subsidy intensity of the “coal-to-electricity” initiative (there are differences in both the initial investment and the electricity price subsidy), we divide the calculation into a large subsidy intensity (2017) In 2022 “coal to electricity”), the subsidy is small (“coal to electricity” in 2022) and no subsidy will be discussed. In the three cases, the investment recovery period of heat pump heating is 1.7 years, 4.8 years and 20 years respectively above.
2.4. Limiting factors: high investment, difficult installation
Limiting factor 1: high investment. The design of heat pump products is more complex than other heating products, the cost is higher, the initial investment is higher, and it is more sensitive to subsidies and energy efficiency policies. Taking the domestic market as an example, in terms of hot water supply, according to industry online statistics, the average price of air source heat pump water heaters in 2020 is 3,682 yuan, which is 3-5 times that of other traditional water heaters; in terms of heating, air source heat pump hot air heating and air source heat pump The initial investment of hot water heating is 9,000 yuan and 21,000 yuan, and the initial investment of water ground source heat pump even reaches 45,000 yuan, which is much higher than that of scattered coal heating (3,500 yuan) and direct heating electric heating (5,000 yuan).
Limiting factor 2: Difficult to install. Heat pumps have strong installation properties, and there are certain restrictions on the growth of the industry, mainly reflected in: 1) The unit is large in size. The air source heat pump has a large external unit, requires a certain amount of space, and has certain noise problems. It is difficult to install and popularize in high-density commercial and residential areas; 2) It is difficult to lay pipes. The heat pump adopts a water system structure and needs to lay ground pipes, but it can be connected to the original boiler heating system (such as in northern my country and Europe), otherwise it needs to be re-laid with ground pipes (such as in southern my country); 3) The installation cost is high. Overseas markets have high labor costs and insufficient installers, and installation costs can account for more than 30% of the terminal price.
2.5. Review and summary: long-term track, policy market
1) At this stage, the global heat pump industry is in the third round of upward cycle, and the short-term prosperity is relatively high and can be maintained for a long time. Reviewing the development history of heat pumps in Europe and the United States, we found that global heat pump sales have a strong correlation with energy price trends, and have experienced three rounds of obvious upward cycles. The first upward cycle was from 1978 to 1984, during which the second oil crisis occurred; the second upward cycle was from 2000 to 2007, during which the Iraq War occurred; the third upward cycle was from 2020 to the present, during which the Russian-Ukrainian conflict occurred .
2) Compared with climate security and economic factors, energy security is the core logic for the growth of the heat pump industry. The three upward cycles of the heat pump industry were all catalyzed by the energy crisis. Compared with rising energy prices, energy security is the key factor for countries to increase support policies for heat pumps in the short term. Among the three growth logics, the climate issue is important but not urgent, and the economics of heat pumps depend to a considerable extent on strong subsidies from policies. Therefore, energy security is the core logic of the growth of the heat pump industry.
3) The heat pump industry is a typical policy market, and the long-term and cyclical policies have a profound impact on the industry. Due to the long history of heating in the northern hemisphere, there are many heating schemes. Considering the large initial investment and inconvenient installation of heat pumps, from an economic point of view, it is difficult for heat pumps to form a significant advantage simply by increasing the price of traditional energy. Therefore, the support policy centered on subsidies has become a key variable in the rhythm of the heat pump industry. On the one hand, energy security and climate security are long-term issues, so heat pump support policies are long-term; on the other hand, occasional energy crises make heat pump support policies explosive. Affected by policies, the heat pump industry has both long-term and cyclical characteristics.
3. Question 3: How is the industrial chain and value chain of the heat pump industry distributed?
3.1. Industrial chain: The industrial chain of the heat pump industry is relatively long, and its structure is similar to that of the air-conditioning industry
Upstream components: The composition of the main upstream components of the heat pump industry is similar to that of the air-conditioning industry. The core components include compressors, valves, heat exchangers, controllers, water pumps, and water tanks. Midstream heat pump complete sets: At present, there are many players in the domestic heat pump complete set industry with complex components, which are mainly divided into the following categories: 1) Air conditioner manufacturers: Midea, Gree, Haier, Hisense, etc.; 2) Water heater manufacturers: Sunrise Dongfang, Wanhe Electricity; 3) Professional manufacturers of heat pumps: Finney Technology, Huatiancheng, Pavo, Tongyi Technology, etc.; 4) Foreign-funded manufacturers: York, AO Smith, etc. Downstream channels & applications: In terms of channels, domestic sales mainly adopt various modes such as distribution, agency, and direct sales, while export sales mainly use OEM/ODM. In terms of application, heat pumps are widely used in building heating, refrigeration, dehumidification, hot water supply, agricultural product drying, industrial heating, seawater desalination and many other fields
3.2. Value chain: The value chain of the heat pump industry is unevenly distributed, mainly concentrated in the upstream and downstream links
The ex-factory unit price of heat pump products exported by domestic OEMs ranges from about 10,000 to 20,000 yuan, and the terminal price in Europe is more than 30,000 yuan. Referring to Finney Technology, we take the industrial chain of domestic heat pump OEMs exported to Europe, which is more concerned by the market, as an example to split the value of the heat pump industry.
Upstream: The value of core components accounts for a relatively high proportion. According to estimates, in the cost structure of heat pump products, heat exchangers account for about 21%, compressors account for about 16%, controllers and drive modules account for about 12%, and the three together account for 49% of the product cost and about 23% of the terminal price. %. It is worth mentioning that since heat pumps are durable products with high customer orders, overseas customers are more strict in the selection of core components, so they often require imported products in the process of OEM.
If the core components of domestic enterprises all use imported products, the value of relevant core components in the value chain may be further increased. Localization and integration may become the future development direction of the heat pump upstream parts industry.
Compared with household air conditioners, although heat pumps have a gap in product standardization, they also have the industrial characteristics of concentrated value of core components and slow product technology iteration. The potential trend of integration. In addition, the current localization of core components is accelerating, and it is expected to further reduce costs through domestic substitution in the future.
Midstream: The value of the domestic heat pump unit is not high, and the profit of export OEM only accounts for about 13% of the terminal price. Due to differences in scale and product structure, there are certain differences in the export gross profit margin of heat pump OEMs of various domestic brands, but the overall level is in the range of 25%-35%. The gross profit margin of domestic sales of heat pumps of various brands varies greatly, ranging from 15% to 30%, and the overall gross profit rate is lower than that of OEM exports. Figure 22. Gross profit margin of domestic heat pump manufacturers for export (2021) Figure 23. Domestic heat pump manufacturers
Downstream: The value of the channel link is the highest, and the brand, installation, and retail are strongly localized. According to estimates, overseas sales of heat pump products account for 15% of the terminal price, and overseas installation accounts for 33% of the terminal price. The value of overseas sales covers dealer profits and brand premiums.
The channel markup rate ranges from 30% to 40%. The overall value is relatively high. The reason is that heat pumps are high-customer durable goods, and there are many heat pump consumption scenarios in Europe. Heating is the main focus in winter, and product failure will cause great inconvenience to life. This leads to high selection costs for heat pump products in Europe. Users tend to choose local brands or international brands, and there is a certain brand premium. In addition, after re-installation and re-sale of heat pumps, there are many European countries and the market is scattered. Local dealers have obvious advantages and account for a relatively high value.
The value of overseas installation links is the highest, mainly due to: first, expensive labor and insufficient personnel; second, strict qualifications. Heat pump installation also involves the judgment and design of house structure and heating environment, and needs to pass local professional qualification assessment. Since the heat pump subsidies in many European countries are applied by registered installers, even a considerable part of local distributors or agents provide services in cooperation with professional installers; the third is potential employment protection.
Household appliances in the European heat pump channel may become a potential trend in the future. High installation costs have restrained the consumption potential of heat pumps in Europe to a certain extent. From a cost point of view, there is a certain synergistic effect between traditional home appliance channels, especially air-conditioning channels, and heat pumps, which can optimize installation costs and promote the popularization of heat pumps. In the long run, home appliances in the heat pump channel may become the future development direction.
4. Question 4: What is the business model of the heat pump industry?
There are big differences in the domestic and foreign sales business models of China’s heat pump industry. Most of the export sales adopt the OEM (ODM/OEM) model, and a small number of self-owned brand products are mainly targeted at the low-end market. Specifically, the export OEM model of China’s heat pump industry has the following characteristics: 1) Both ends are outside, mainly earning the domestic and foreign price difference in the manufacturing process.
The two ends outside mean that the upstream core components are mostly imported products designated by overseas customers, and the downstream brand operation, installation and after-sales links are handled by overseas companies. Domestic brands are mainly responsible for the intermediate manufacturing links, earning the domestic and foreign price difference in the manufacturing supply chain. 2) Small batch customization, limited scale effect. In terms of total volume, China’s air source heat pump exports will be 1.31 million units in 2021, and the scale effect of the industry is relatively limited. From a structural point of view, due to the differences in policies and living habits of overseas countries, the standardization of external heat pump products is relatively low, and heat pump export orders are characterized by small batches and customization, and it is difficult for domestic brands to form an effective scale effect. The export pattern is scattered, and there are a large number of long-tail brands. It is estimated that the export sales of heat pumps of the head brand Finney Technology in 2021 will only be about 190,000 units.
Domestic sales mainly adopt the OBM model, and generally expand the market through various forms such as distribution, agency and direct sales. At this stage, domestic heat pump head and waist brands all have the ability to integrate research, production and sales. In terms of brand operation mode, self-owned brands are basically adopted; in terms of sales mode, the market is generally expanded through various forms such as distribution, agency and direct sales. Among them, the household market mostly adopts a buyout agency or distribution model, and the engineering market often adopts a direct sales model, such as Finney Technology and Pavo Technology.
5. Question 5: How big is the growth space for the heat pump industry?
In terms of sales volume, the sales volume of the global heat pump market may exceed 10 million in 2021. According to statistics from authoritative organizations in various countries, the sales volume of heat pumps in the United States/China/Europe/Japan in 2021 will be 392/288/218/590,000 units, respectively, +14.6%/9.0%/+34.6%/+11.6% year-on-year. Considering the differences between China, the United States, Japan and Europe and the differences in statistical standards, the total number of global heat pump sales in 2021 may exceed 10 million and the overall growth rate will be relatively fast.
In terms of trade volume, European heat pump imports accounted for 83.9%, while Chinese heat pump exports accounted for 18.1%. In 2021, the total global import of heat pumps will be US$4.05 billion, a year-on-year increase of 60.8%, of which Europe will account for 83.8%; in 2021, the total global heat pump exports will be US$4.37 billion, a year-on-year increase of 52.5%, of which Europe will account for 65.3%, and China will account for 10%. 18.1%.
From the perspective of the top ten countries in terms of global heat pump imports and exports, Germany, France, Italy, Austria, and Belgium are both major heat pump exporters and importers, and the import and export volume of heat pumps is relatively balanced; China, the Czech Republic, Sweden, Japan, and the United States As a major exporter of heat pumps in the world, it has a large trade surplus in heat pumps; Switzerland, the Netherlands, Poland, and the United Kingdom are major importers of heat pumps in the world, with a large trade deficit in heat pumps.
5.1. Overseas markets: Europe is the main export market for my country’s heat pumps, with broad room for growth
Driven by low-carbon goals and energy security, the demand for heat pumps in Europe has ushered in a high growth. Europe has long been the largest market for my country’s heat pump exports. From 2017 to 2021, the proportion of my country’s heat pump exports to Europe has rapidly increased from 56% to 71%. Driven by low-carbon targets and energy security, the demand for heat pumps in Europe has ushered in a high growth. According to EHPA statistics, the sales volume of heat pumps in Europe increased from 510,000 units to 2.18 million units in 2006-2021. The industry sales volume accelerated after 2015, and the year-on-year sales growth rate in 2021 was 36.25%.
From the perspective of regional structure, sales of heat pumps in southern and northern Europe will increase rapidly in 2021. In terms of total volume, according to EHPA statistics, in 2021, France, Italy, Spain and other Mediterranean countries will rank first, second and fourth in terms of sales volume, and Sweden, Finland, Norway, Denmark and other Nordic countries will rank fifth, sixth and seventh in terms of sales volume respectively. ,9. In terms of per household, after controlling the variable of population size, the sales volume per 1,000 households in the Nordic countries will reach more than 23 units in 2021, which is significantly ahead of other European regions; some countries along the Mediterranean coast, such as France, Italy, and the West, will also reach about 10 units.
From the perspective of product structure, air source heat pumps in Europe take the leading position, and the growth rate is relatively fast. In 2020, sales of air source heat pumps in Europe will account for 86%. According to EHPA statistics, the sales growth rate of air source heat pumps in Europe will reach 138% in 2021, much higher than other regions in the world. In terms of regional distribution, the overall proportion of ground source heat pumps in Central Europe and Northern Europe is higher than that in Western Europe and Southern Europe. relatively low.
Growth space: Sales volume is expected to increase by 5.6 times in the next 10 years, with a compound annual growth rate of 21%. According to EHPA statistics, the number of heat pumps in Europe will be about 16.98 million in 2021, with a penetration rate of about 13.0%. Based on the forecast of REPowerEU, EHPA estimates that Europe will need to install 20 million heat pumps in 2026 and 60 million heat pumps in 2030. Among them, the sales volume in 2026 is about 5.4 million, an increase of 147.7% over 2021, and the five-year CAGR is 19.89%; the sales volume in 2031 is 14.5 million, an increase of 565.1% over 2021, and the 10-year CAGR is 20.86%.
5.2. The domestic market: the boom is on the rise, and it is expected to grow steadily
From 2015 to 2021, the domestic sales of air source heat pumps in my country will increase from 6.2 billion yuan to 15.8 billion yuan. my country’s air source heat pump market is more obviously affected by policies. From 2014 to 2017, driven by the “coal-to-electricity” policy, the industry’s sales have experienced rapid growth; with the “coal-to-electricity” policy retreating, the industry’s sales growth has slowed down significantly . After the “Double Carbon Target” was put forward in 2020, the industry’s sales returned to double-digit growth under the support of the new policy.
From the perspective of demand structure, my country’s air source heat pump is mainly based on heating demand. In 2021, my country’s air source heat pump heating/hot water/drying demand will account for 55.4%/35.5%/9.1% respectively. From the perspective of trends, since 2017, the demand for heating and hot water has declined, and the proportion of drying demand has continued to expand.
In terms of regional structure, North China replaced South China as the largest regional market. There are regional differences in demand for air source heat pumps in China, with heating in the north and hot water in the south. In 2014, with the support of the national “coal-to-electricity” policy and subsidies, the popularity of heat pumps in northern regions accelerated, and the proportions of North China, Northwest China, and Northeast China increased significantly compared with 2015.
6. Question 6: How do you view the internal and external pattern of the heat pump industry?
6.1 Overseas: There are many brands in the European market, and domestic brands have sufficient potential
There are many European countries and the heat pump has a long history of development, which has created a pattern of many brands and scattered shares in the heat pump industry. European heat pump brands can be divided into European, American, Japanese and Chinese brands according to their regions. European, American and Japanese brands mainly target the mid-to-high-end market, while Chinese brands mainly target the mid-to-low-end market.
1) European series: NIBE INDUSTRY IERAB, BOSCH (Bosch), ATLANTIC, ARISTON (Ariston), etc.
2) American series: Carrier, York, etc.
3) Japanese series: Daikin, Mitsubishi Electric, etc.
4) Chinese series: Midea, Gree, Domestic brands such as Haier and Finney have sufficient potential, and their market share in Europe is expected to increase. Among the top 14 importers of heat pumps in Europe, Spain accounted for the highest import volume of China, only 5.8%.
The first brand has sufficient funds, and can achieve market expansion and brand promotion through mergers and acquisitions of local brands; third, the top brand European home appliance channels are relatively complete, which is expected to produce synergistic effects.
6.1. Domestically: the structure is relatively scattered, and the three major companies are leading the way
According to industry online statistics, in 2020, the CR3 of the domestic air source heat pump market is 34%, and the CR5 is 49%, and the pattern is relatively scattered. Among them, the three major brands (Haier, Midea, and Gree) took the lead in market share, followed by established professional manufacturers such as Zhongguang Outes, Nuente, and Finney. Comprehensive home appliance manufacturers and established professional manufacturers are expected to expand their advantages.
First, leading in hard power, comprehensive home appliance manufacturers and established professional manufacturers have relatively deep accumulation, and have obvious advantages in manufacturing, technology and scale, especially comprehensive home appliance manufacturers also have the potential to reduce costs through industrial chain integration; second, leading in soft power, comprehensive The channels, training and after-sales systems of home appliance manufacturers and established professional manufacturers are more complete.
