With Laurent segle And from London and Gerard Read from Berlin. This is redefining energy. Today. On redefining Energy, we're going to talk about our rise of heat pumps.
Or yeah, heat pumps they rise again. But first award from our partner. We are excited to be partner with the International Energy Week, where some of the biggest names in global energy come together for a packagender tackling ideas, technology and policy shaping the futures. Thousands of attendees. It's in London the week of the ten to the twelfth of February, and we have a special promotion called for our listeners and it's going to be INDO show Notes. But let's go back to heat pumps.
Well, look, if we talk about the electrification of our world to one area of whether the challenge is here it's just retrofitting heat. But the good news is we do have something called heat pumps and they're incredibly.
Efficient and from a fuel point of view, very low cost.
It's really part of the European strategy to decarbonize. There is one of the EU plan. I mean they'll get so much plan, but basically they wanted to have sixty million heat pumps installed by two thirty and at the end of two twenty five we were at thirty million, so that's pretty good.
But there's a long way to goo, my friend, thirty million over the next four or five years. That's a lot, right, Yeah, that's a lot. In order to talk about heat pumps, how the market is going, the innovation, we brought somebody who really know something about it. Yeah. So Paul Kenny is the Director General of the European Heat Pump Association. Obviously that's the representative body of those involved in heat
pop manufacturing, installing, etcetera, etcetera, right across Europe. And it's another irish Man, so we have a lot of Irish Man always invited. Chardy, is there any connection, There's no connections. It's just potluck, just pot luck.
So let's bring Paul on the show.
Paul really looking forward to this podcast.
Thanks for coming on, Thanks very much for having me.
Paul. First question, very simple, your association. What does he do?
So the European Heap and Association is a sexual association, so it represents the full value chain R and D test centers, component manufacturers, heap manufacturers, so that the full supply chain, even utilities as well. The idea is behind
that wider than just a manufacturers association. It represents enough of the industry that has a stake in seeing heat pumps roll out across Europe, and we advocate for our policies that support the deployment of heat pumps, whether that's product policy, energy policy, taxation policy.
To drive the market must have been very recent. Busiers you are increa to twenty two to twenty three to twenty four were weaker, but scenes that to twenty five you'll get a significant rebound. So how do you explain what was up in the.
Bus three four years twenty ten to twenty twenty one sixteen percent compound annual growth rate. That's a reasonably good growth rate, nice and stable, nice and predictable and good to expand production. So on twenty two is the war in Ukraine. Gas prices went bananas. A lot of electricity prices were hedged, so they didn't quite follow as quickly. So electricity companies, by their gas won two years in advance.
So what we saw in twenty two was this really strong narrative to say get off gas as quickly as you can. We mightn't have enough gas in Europe, and we saw a huge increase in the orders for heat pumps the installations in Europe back half of twenty three. The electricity price started to go up with all of that high gas prices, and what happened then was the gas price started to come down, came out of the narrative.
We had a full strategic store of gas and it was much more difficult to ship heat pumps, and gas
prices are down and electricity prices are up. Second thing is important in all of the numbers, there was a lot of orders in twenty two in the beginning of twenty three that were duplicate orders, so an installer has customers for one hundred heat pumps, and the supply chain was still ramping up for those very large increase in orders, and we saw multiple orders that went into stock when all of the manufacturers were able to catch up with orders, so that stock had to wash out in late twenty
three twenty four. Pretty much it's washed out now. And what we see so Germany, one of the bigger markets, we have for the first time seen heat pumps overtake gas boilers, so they're the number one heating technology in Germany. So what we saw in the first half of twenty twenty five is a nine percent growth rate. We don't have the final numbers for the end of twenty five just yet, but we expect to see most European markets will deliver end of your performance back in growth, which
is very positive. We had four markets in twenty four in growth. We'll see a lot more in twenty five.
So bol can I jump in there and just ask you, just talk a little bit about what is driving demand across Europe for heat pump A.
Couple of things.
The last commission passed I think nineteen pieces of legislation, the Clean Deal or the Green Deal, So governments are really from a climate and energy perspective incentivized through European regulation. Second, Europe's problem in competitiveness is gas. Europe's problem in climate
is gas. Europe's problem in security is gas. We see a very clear driver from we say, the civil servants and the people who are outside of the wave of politics that's going around focused on delivering a transition away from gas. The European government's spent six hundred and eighty billion, according to Brugel, between twenty two and twenty four on soies for consumers for their bills, but effectively money that was exported to Russia, to Qatar, to the US and
to Norway and all of those ministries for finance. They want to make sure that that doesn't happen again. They want to ensure away from high price spikes. And I think when in twenty two when the gas price card was played by Putin to try and really destabilize European governments and push on this war. He can only play that once. That's the nineteen seventy three oil crisis in gas,
and now everyone is trying to drive away. So what's driving market sales is in countries where electricity is competitive with gas, we see lots of heat pump deployments. So the Scandinavian countries traditionally cheap electricity, traditionally high carbon taxation, and they've been really solid heat pump markets for many years. France has relatively cheap electricity, real solid heat pump market
for many years as well. Cooling is driving, particularly in the southern European countries, is really driving heat pump deployment, and air to air heat pump in Europe is a heat pump. It can heat and cool. Obviously, cooling needs are increasing with climate change and climate adaptation, so they're
kind of the key drivers. Obviously, governments are supporting subsidizing heat pumps in various different ways with various different levels of success and competence, and that's also really driving that. There's a number of different drivers, but ultimately the solution to all of these things is a competitive heat pump market with large amounts of deployment.
Well, as you have described going up and down and you are in direct contact with the supply chain the installer. What are the positive innovation you've seen Recently.
We switch refrigerant from particularly from monoblocks for single family houses from R thirty two and our four ten a before that, to a lot of propane in R to ninety. That's delivering a higher temperature, slightly larger devices, and slightly higher costs, but that's delivering higher temperatures at a higher efficiency. So that innovation is helping the transition from high temperature
heating systems into heat pumps. The second big innovation that we see in the market is really designed for installation. So before maybe ten years ago, you bought the heat pump and you bought the circulation pump, and you about the feet, and you bought the sensors. You know, they all came different. Now what we're seeing is a lot
easier to install. If you go to a trade show, all of the manufacturers are displaying the innovation they've done to try and make this better, faster, quicker installation, easier installation. And I think the third thing that we've seen from an innovation point of view not necessarily really really new, but what we're seeing is deployment in the market is
around flexibility. So whether it's through a home energy management system or directly into the heat pumps API, the ability where the market signals are there the LIKESI scan and AVIA, the UK via Octopus and so on. Where a heat pump if it only needs to run for five hours a day because it's very mild, or ten hours a day because it's somewhat colder, that it starts to use
energy at those low electricity prices. For me, that particular innovation is the one that is going to really drive heat pump sales because it will drive down your electricity bill for running your heat pump and make it really much more competitive versus the incumbent fossil technology.
So that's the older smart almost that domain.
It's a little bit more advanced than that. It's reading outside temperature, predicting how much energy you need to use in your house, and then scheduling the heat pump demand. It's almost more a smart meter coupled with slightly smarter devices. But this technology is not necessarily new. It switches that look at energy prices and so on, but the algorithms and the aggregators are there. They're very active in Scandinavia
to said, and there's others in other countries. But some countries have really strong regulation, strong regulators and good technology rolled out. Smart meterings so on. In other countries are behind, so we don't have huge amount of smart meters in Germany as an example, and that restricts that ability to use. You talk all the time about negative prices and the electricity system. I hear it, but like those negative prices
should be passed through to customers. If you increase demand at times of large amounts of generation, you get less hours of negative pricing and less negative pricing, which obviously is great for renewable deployment because you're not eating your own.
Lunch, and what about the buttlenecks that, in your opinion, are the most urgent to resolve.
When we think about the bottlenecks of heap on deployment, you've probably got the biggest one is the electricity to gas price ratio, and that is driven by a number of different things. First of all, some government's tax electricity far more than the tax gas. Obviously, if you want someone to use a lot of something, you don't tax it a lot. And if you like cigarettes, if you want people to not use them, you tax them out. So right now, we have some countries that tax electricity
six times more than gas. Then we've produced a paper recently. It's you can get on our website and LinkedIn and whatever. It's really trying to correlate the electricity to gas price ratio with the taxation ratio. So how much governments actually tax and levy electricity. Now, what's good about this is there are choices. This is in then electricity market, this is the pastor costs. On top of that, there are choices that governments can make, and some of those choices.
We've been pushing this quite hard, and now there's others on board, including the Commission writing to government saying you need to shift your taxation from electricity to gas to encourage people to use electricity, which is clean, indigenous, more secure. And as an example, late last year we saw a number of different countries. So Belgium announced a tax increase in gas funded by a tax decrease in electricity in
the UK budget. At the November twenty twenty five they announced a shift of the renewable electricity subsidies off the electricity bill and into the exchequer finance. Denmark announced a tax break for electricity use for home heating via a heat pump. Germany has using their Climate Fund. They announced that in twenty five to fund the transmission system costs, and there's further discussions that maybe they'll further bring down
the price of electricity through different mechanisms. So one by one, as we engage with European governments and as our national associations engage with European governments trying to push them to make these decisions, we see those decisions are getting made. And that's probably if you talk about the barrier to heat pump deployment, that's the number one economics one O one. If something is cheap, people will use it. If something
is expensive, people will look for the alternative. The second one I think was a big issue in twenty two
in Germany, which was the capacity of installers. It is an issue across Europe, but it is coming down and down and down, and as the technology becomes more competitive from a running cost point of view, more installers are coming into the market and there's lots of initiatives across Europe to drive up the number of installers, and that will obviously bring competition into the installer market, which is one of the key challenges to deployment, the high cost of installation.
Can I ask a little bit about sort of coupling key pumps with other technologies, in other words, putting in solar, putting in batteries, putting in some hot water storage. What's your view in and around all of this.
It's something that we see a lot of installers doing. So they go to a homeowner and they say, look, we'll come to your house, we'll put in a PV system, and we'll put in your heat pump, put an EV charger and so on. And that's a really good angle from an installer market perspective, because if you're a householder and you put in three four, five six kilo, what's the PV. It's all going on to the grid unless you have a device to be an electric car or heat pump. That's something we see a lot of very
supportive of it. There's complementary technologies like in particular PV. From a battery point of view, what I would really like to see is heat pumps playing the market on their own. So does it make sense to charge up a battery to run your heat pump in four hours time with the rentra efficiency of give or take eighty eighty two percent and lose that twenty percent of electricity to run your heat pump, I e. Make your heat
pump twenty percent less efficient. Maybe it does if the electricity price ratio is big enough between middle of the night and during the day or whenever it is cheap and expensive. But I think what's much more important to do is pre charge and preheat your house, use the building itself, use your hot water storage to really drive
on the ability to be flexible. It's something that I've done at home in my own house since twenty fifteen, which is preheat the house and cheap night rate electricity and then let it come down a little bit over the day, and when you switch from day to night, go back up again with your heat pump operation. And most houses that are reasonably well insulated, you're not going to notice the degree most of the year around, unless it's very very cold or a very poor performance house.
In effect, the thermal storage of the home is far more cost effective than the electricity storage of a battery.
I'd like to switch on industrial heat pumps because there is this view that in the industry half of the gas is used for say above two hundred three hundred sea temperature, where you know it's technology very difficult to replace gas, but below the threshold, say two hundred C or three hundred CE, industrial heat pumps starts to provide excelling solutions. So what's your view on this.
When gas prices were very cheap, companies just wasted the heat, they didn't bother recovering, and it was cheaper just to burn new gas and let the heat go up into the atmosphere. But what we're seeing now with gas prices at thirty euros a mega with our wholesale and obviously to companies it's at different levels it's different amounts, but are manufacturers who traditionally produce chillers now they have heat recovery and all of those chillers, it's a relatively easy
technology to recover that heat. So what we see now is a really strong interest in lots of the things like biopharma food. If you consider every kind of food that's produced is heated up over one hundred degrees or two hundred degrees and then cool down again. Beer is made by you cook your ingredients and then you cool it down so it can ferment. So you heat and cool, heat and cool, and heat pumps just provide a lovely technology where you can pull out that heat and supply
it back in at the beginning of the process. So we have a lot of ongoing work with paper and pulp industry, food and drink industry, the chemicals industry was starting individual companies waste order treatment so on, and they're coming to us to see how that they can support their industry at a wide scale to try and absorb
the technology. Europe is funding a lot of innovation in the space to see the first deployment getting subsidized, and then obviously spend some time making sure everyone knows about it, so it's a massive opportunity. We're at the very very
bottom of the s curve of technology deployment. The single biggest barrier in industrial heat pumps is literally knowledge by the engineers in factories to see I have a huge opportunity, and where you have waste heat and heat demand under two hundred degrees, you probably have a very good business case. And in particular where electricity is cost effective, so that the Nordic countries, Iberia, France and so on. We are
seeing a lot of deployment of industrial heat pumps. However, five years ago this wasn't the market, the market with chillers to waste heat. So it's a nascent industry, but it has massive potential. We are seeing a lot of deployment start now though we are our members are all busy in the business development phase and deployment phase now, and we see new factories opening for industrial heat pumps around Europe.
By the way, I know you might think this is a mad question, but I would have thought the biggest market for heat pumps is actually electric cars.
You're probably right.
It's not something that we as an association to deal with those sub killwatt heat punts in tumble dryers or cars or whatever it is. But yeah, absolutely you're seen and deployed everywhere. We don't deal with fridges, but everyone has a fridge in their house and that's the heat pots. It's all technology, it's one hundred and fifty years old and it's in everyone's house in one way or another.
We won't be a very seious energy podcast if we didn't talk about that. That center us what it's more on the cooling side, can you explain a bit what you've seen the past eighteen months.
Obviously there's a big rush to build data centers and they all need to be cooled, and we see a variety of different cooling technologies and data centers, right to the unchipped liquid cooling that we see kind of in the newer ones. What's really interesting about this, and you know, the market of chillers for data centers is a lot of our members and we talk regularly with them about it.
But that weighs heat. If you're talking about the earlier technology for cooling data centers, which was just air flowing through the server racks, that air comes out at thirty thirty five degrees relatively low high volume air. You need to extract heat from that. It's very doable. It's a great source of waste heat. But as you progress through the technology options of cooling data centers, your liquid on
chip cooling comes back at fifty five degrees so much easier. So, if you know the laws of physics around heat pumps, the lower the temperature lift you need to get to produce your heat, the higher the coefficient performance. So you might have had a coefficient performance of three or three times more heat comes out than you put in electricity.
But at fifty five degrees waste heat to go into a district heating center, it brings that right up, so you end up with a larger and larger amount of heat from your data center for the same amount of electricity to transport and upgrade the heat temperature. The Commission is due to publish in Q one twenty six Electrification
and Heating and Cooling Strategy. They held a workshop at the end of twenty five with the data center industry with the waste heat industry to see how they could really tap in to that for producing district heating and to try and an increase the amount of waste heat that comes from data centers and what are the policy leaders they need to do to drive that on.
But part of the energy security package, there's also a lot of debates around supply chain, around technology not done in Europe, what's happening there.
It's interesting a big debate in Brussels in twenty twenty five and it will continue into twenty six and onwards. Is the European preference or made an EU for public procurement and particularly subsidies. Now most heat pumps deployed air to water heat pumps are made in Europe, some of the components are not, and some of the components are global. This is a very globalized supply chain, like the automotive
supply chain. One of the things that's really important to know though, is if you deploy a heat pump, you offset maybe ten to fifteen thousand euros and wholesale gas imports into the Union. And a heat pump is far smaller in price in terms of the actual cost per unit. So any heat pump deployed, even if it's not made in Europe, is very very beneficial to European competitives and
European economy. However, most are actually made in Europe. The value chain is in Europe, the designers are in Europe, the installers are in Europe, and particularly the value ad is in Europe. But what we worry a little bit about is we're just going to throw trade out the window because we have a political necessity to say we can make everything in Europe. Yes we can, but it's not necessarily sensible to make everything in Europe. We don't have the workers and the supply chains right now for
everything to be made in Europe. So we should value AD and add the highest value components and the final assembly for sure in Europe.
Honestly, looking at you say that, Well, the biggest players in the world are all Japanese in South Korean in terms of air conditioning players and stuff.
Like that, right for sure, but they all make in Europe. Like it's Japan and Europe. Ofol was you make Japanese cars in Europe, you make Japanese heat pumps in Europe. It's not necessarily on the basis of we will make everything, you know, And I think we need to trade with our friends for sure, particularly where there's like minded values.
Very good, Paul.
The other thing that I'd just like to talk about is the role of flexibility. I think myself and larn are very clear in our heads that the way to having a modern energy system and low cost system is you have to make it as flexible as possible.
We'd love to hear your views and how that fits into the whole heat pump industry.
It's something that it's very clear there are parts of European industry, there are some householders and others that won't be flexible. But the more others that can be flexible or flexible, the lower costs for everyone. And I think that's a really important principle what we see as the slowness of European governments to implement the twenty nineteen Energy Markets Directive to really allow for all of that flexibility. It's coming and more countries will add dynamic market tarifs
in twenty twenty six. However, if you take the overall cost of the energy bill, it's becoming less and less wholesale market or the energy market. So it's maybe sixty percent of cost, but it's trending downwards as a percentage
of the electricity bill. And what we now need to see is a focus on those non commodity costs, even the pass through costs, the network charges, the capacity markets, the curtailment the renewable obligations to be used in a way that really incentivizes the full flexibility pricing to go to the customers that can be flexible. What does that actually mean? So Germany have talked about a capacity market
for new gas fire power plants. When I was in government in Ireland, we had a significant challenge of bringing all power plants off the bars while demand, particularly from data centers, heat pumps and evs was rising, and we needed to come up with a capacity market to deliver
this peak power for a very small amount of time. Now, if we go and build power plants that are used twenty hours, which is what some of these power plants were used in one year, or thirty hours a year or one hundred hours a year, it's going to be
really expensive. And what we need to do is take that capacity market cost and layer it on to when you're using it, so there's a very strong price signal for anyone who can be flexible not to use power at the worst possible time when it's not available, and conversely, when you have abundant available renewables to really ramp up demand, and heat pumps can really take that cheap energy and pre charge homes, pre charge water, pre charge industry where
they can be lots of storage. And in particular when we deploy large heat pumps and district heating, if the price signals are there, they can deploy large amounts of thermal storage, which is super cheap, particularly at the volumes of district heating, and that blows out of the water. The idea that you can't be flexible, particularly in some of those markets. The ev market is obviously going to be the same, and if we can get vehicle to grid deploy it as well as that, you can really
flex demand. But if we just have the energy market and everything else is fixed, and the energy market becomes a smaller and smaller portion of your bill, we're not going to achieve what we need to achieve. An ACER, the European Regulator Group, they've published papers in twenty twenty five and as did the Commission to talk about how we drive on this flexible and dynamic network and non commodity cost flexibility.
So Paul, maybe just as a last question, give us a sort of view of how you see the next few years in terms of the heat pump market, and also build into that air condition if you can as well, right, because I think more and more people are going to require cooling.
Just because it's very clear, and continent of Europe areer and even in the north of Europe it's getting very warm in the summers.
Right, My maybe slightly optimistic perspective is cooling is going to drive heat pump adoption. Energy security is going to drive heat pump adoption. Competitiveness is going to drive heat pump adoption. Air to water heat pumps can do cool as well, particularly underfloor heating or fan coils, and we will see more and more of that deployed. But particularly you're right, air to air heating systems, air to air cooling systems I have when in the House of Rent
in Brussels. We'll see a lot of those deployed. What will the market look like at the end of twenty twenty five, somewhere between two point five two point six million heat pumps. I think we will see with the measures that we talked about earlier that governments were taken to encourage electrification heat, I think we'll see between a ten and twenty percent growth for the next five years. I don't think we'll see a big spike that happened in twenty two because that was driven by something that
was fake. It wasn't systemic, it wasn't real, it wasn't long term. But as we see the long term changes to the market, particularly in energy prices, we will see a deployment. I think we'll hit fifty million heatpumps deployed a quarter of European homes by twenty thirty. Europe had a target at sixty million. We might get closer to that. We also see industrial heat pumps really take off. I think from a competitiveness point interview, industry is under pressure competitiveness.
Technology that's four times more efficient than its alternative, we'll really deploy at scale, and we'll see district heating regulated into a lot of district heating to convert from fossil heat to clean heat. We'll see that drive heatpump adoption as well. So I'd quite positive over the next five years.
Well, but it's great to start the year with a positive message. You're very busy man, but a very happy man. I have a suggestion because I think that the name of the association is a bit too much nineteen seventies, so maybe you call it cooling and heating Europe cheh, make it a bit revolutionary.
I would somewhat disagree with some of my members who love our an am heat froms Europe or something like that should really be what we are called, because that's what we do. Been great having you on the show, Paul, and thank you very much for having me on the show. I listened to it all the time, so it's great to actually be here in person.
Laurent. You know I use heat pumps. I think promoting hip pomps. I'm a believer. How are you well here?
I'm referring to the biggest expert you need pumps in your op and that's our friend Jan Roseno, who is Professor of Energy and climent Policy at Oxford University, and by the way, we're going to be visiting him on the twenty fifth of February. He says, the main orderer is the price of ratio gas to electricity. So in countries where the ratio is positive, quite naturally heat pumps get developed. But if gas is super cheap and electricitist is taxed a lot. That's where the main orders are.
So it really depends on the conditions.
Yeah, it's an interesting thing because if you go to the nord X, electricity generally as a low price, which means guess what, they're all hitting electricity in hat pomps. But then when you go to the areas where you have more expensive electricity chake the case of Germany, then you've got less hitt pumps. This is the the biggest channel.
And I think we're in a world around correct me if I'm wrong, where people don't want to see gas prices going up. I think the alternative is you have to make electricity cheaper.
Yeah. There was also a part which I thought was very interesting was the rapid rise of industrial heat pumps and that could be a major decobanization too for any sector that requires heat. I would say Bilow two hundred.
See.
Yeah, and let's be really clear in that if you're heavy industry across Europe, you're basically paying very low prices as it is, so you know, the ratio from electricity gas it's in the money in a heavy industry, but requires you obviously to re equip your plans, probably to change earthy processes internally, etcetera, etcetera, And Europe really needs to do and I think we need to reindustrialize anyway. But what you're doing is you need to get industry,
our own industry to reinvest in our countries. That means putting I'm not going to call them subsidies, but just put them in support mechanisms, incentivized and term reinvests. You know.
Yeah, I don't know what to do with the cement or still sector, but when it comes to hospital, food processing, pharmaceuticals, all this can be electrified.
Pretty fast, exactly exactly A.
Few things before we go. In terms of planning, we'll be together invited by Jan Roseno in Oxford the twenty fifth of February. Charge you're going to Davos this week.
I am absolutely yeah, looking forward to that.
We are in partnership with International Energy Week the tends to the twelfth of February. You're also going to e World. We are going together to the Munich Security Conference the twelve and thirteen of feb We're very busy, we sure do, with a lot to do in the next few weeks. So yeah, and two fish Ty episode on Heat Pump. I have wrote well with the help of AI of course, a song song on heat pumps because we need to present a very positive and fun view of that industry.
You already I'm gonna sing, go for it. Heat Bump, Heat bump, You owe my heat bump, and you can warm me up when the winter score is on heat Bump, Heat bump, you owe my heat bump, and baby, you can switch me on.
Well, I'm glad you swang rather than me, because otherwise we'd have no more listeners.
Okay, my friend God, have a great day. Talk to you next week, look forward.
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