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Why policy is key to warming up the global heat pump market

Low-carbon heating solutions will need regulatory support.

By Jan Rosenow

Until a few years ago, the term “heat pump” was not making headlines. Today, however, this renewable heating technology is frequently in the spotlight as Europe strives towards a net-zero economy. Experience shows, however, that heat pump markets have expanded most where governments have introduced supportive policy environments, as I argue in a paper published today in Nature.

Heat pumps use electricity – which can be generated from low-carbon sources, such as wind or solar power – to collect heat from the environment and raise it to a temperature at which it can heat buildings and produce hot water. Heat pumps can extract heat from the air, the ground or water, using components identical to those in a refrigerator.

Today, heat pumps are garnering lots of attention, not only as a means to reduce carbon emissions from heating our homes, but also to move away from increasingly expensive fossil gas imports. The International Energy Agency, the UN Intergovernmental Panel on Climate Change and management consultants McKinsey have all identified heat pumps as the key heating solution for buildings in the context of net-zero climate goals. Following the invasion of Ukraine by Russia, policymakers in the US even considered whether manufacturing heat pumps and shipping them to Europe could help phase out Russian gas imports. Consumers are also increasingly looking at heat pumps as an alternative to heating with expensive fossil fuels.

After years of modest growth, heat pumps now seem to be following in the successful footsteps of electric vehicles. Data for 2021 indicates record performance in the heat pump market, with double-digit growth in some countries. Across Europe, market growth exceeded 34 per cent in 2021, with over two million units sold in one year for the first time ever. Poland and Italy saw a particularly strong uptick with growth of more than 70 per cent and 60 per cent, respectively. The US market for heat pumps expanded by 15 per cent in 2021, with 40 to 50 per cent of new buildings relying on them for heating. In China, the world’s largest market for air source heat pumps, sales grew around 7 per cent. This progress is driven by the country’s use of policies enforcing technology mandates, such as its Clean Winter Heat Plan in northern China and its Electric Heating Policy, which requires coal-fired heating to be replaced with electric heating.

Interestingly, the highest penetration of heat pumps can be found in the coldest climates, despite frequent claims in the media that heat pumps do not work in cold conditions. In Europe, the four countries with the largest share of household heat pumps are Norway at 60 per cent, Sweden at 43 per cent, Finland at 41 per cent and Estonia at 34 per cent. These four nations also face the coldest winters in Europe.

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This year is likely to see yet another record for heat pump market growth. The European Commission announced in its REPowerEU strategy that it wants to double the deployment rate of heat pumps in the EU. In parallel, several countries have announced bans on fossil fuel heating systems. In Germany, all-new heating systems need to run on at least 65 per cent renewable energy by 2024. Most experts expect that, as a result, the majority of heating systems will be heat pumps. The Dutch government has announced a ban on stand-alone fossil fuel heating systems by 2026. President Biden has invoked the Defense Production Act to ramp up heat pump manufacturing in the US.

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Although further rapid growth now looks likely, the pace of adoption – and how that measures up against pathways to net zero – will depend strongly on government policies and energy price trends. The recent rise in European and Asian gas prices increases the attractiveness of heat pumps compared to gas boilers. But markets are fickle. Sustained policy support remains vital for heat pumps, which, in most contexts, are not yet the dominant heating technology.

Experience tells us that heat pump markets have expanded most in countries with supportive policy mixes combining economic incentives, regulation, research and development, training, and information campaigns rather than in countries where market uptake is reliant on one single policy instrument. Recent policy announcements — including bans on fossil fuel heating, mandates for heat pumps and pricing reform — suggest that policymakers have understood this framework and are willing to provide markets with the necessary technology clarity to ensure that heat pump installation rates will continue to increase.

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