
Release of IEA’s Energy Technology Perspectives 2024 – Heat Pumps Selected as one of the Analysed Clean Energy Technologies
This latest issue of IEA’s flagship publication Energy Technology Perspectives, offers a cutting-edge analysis of the connections between energy, trade, manufacturing, and climate. The manufacturing capacity, supply chains trade flows, markets, and the future development for the six most important clean energy technologies have been studied – solar PV, wind power, batteries, electric vehicles, electrolysers, and heat pumps.
In the release event on October 30, Dr Fatih Birol, the Executive Director of IEA, said during his opening speech that this report is a testimony that energy, industry, and trade policies are interwoven and countries who have succeeded in designing well-functioning policies in these areas will benefit. This report is aimed to serve as a guidebook for policy makers, offering an in-depth, quantified basis to inform their deliberations for years to come. In the coming years, there will be even more intense competition between countries when it comes to clean energy technologies. In addition, the market for clean energy is foreseen to increase manyfold. Therefore, trade policies are important, as well as support for the sector.
Investment in manufacturing clean technologies
The analysis that IEA has made shows that a major wave of investment in manufacturing clean technologies is underway, with many new factories being built across the world. Clean technology supply chains are highly dependent on trade and will continue to be in the future. Cost competitiveness is an important driver of manufacturing investment, but not the only one. Other important factors are various forms of policy support, access to markets, skills and knowledge in the industrial base, and infrastructure.
Clean technology manufacturing
The report shows that the manufacturing capacity for clean technologies and materials today is highly concentrated geographically, with China being the largest single producer in all cases. However, in the case of heat pumps, there is a much larger manufacturing spread than in many of the other technologies, see Figure 1.11.
Looking at Figure 1.6 below (from the report), it can be concluded that the situation for heat pumps differs compared to the other clean energy technologies. First of all, the manufacturing additions have not been concentrated in China as for the other technologies – until 2023, when almost no additions were announced outside China.
Trade of clean energy technologies
Trade in clean energy technologies has expanded quickly over the last 10 years, helping to drive the energy transition. Trade in heat pumps has grown less rapidly than trade in the other technologies, as manufacturing capacity has grown significantly in the main demand centers to comply with local standards and building designs. Exports have grown by around 50% since 2010, reaching over USD 10 billion in 2023, with corresponding capacities of more than 25 GW.
Manufacturing cost
The report reveals that the contribution of upstream components to the Life Cycle Cost Of Production (LCCOP) of heat pumps is higher than that of all the other clean technologies, as manufacturing heat pumps consists mainly of the assembly of different parts. The cost of components such as compressors or heat exchangers represents the largest share of manufacturing costs for heat pumps.
Moreover, manufacturers that produce their own components and/or can benefit from economies of scale have a strong competitive advantage. It is explained in the report that these factors partially explain the significant cost gap between technologies and across regions. For example, an air-to-air heat pump for a ducted system manufactured in the United States can cost twice as much to produce per kW as an air-to-air split system manufactured in China, with up to 70% of the difference in cost being driven by component and material costs.
It is pointed out in the report that there are good possibilities to reduce heat pump production costs, for instance, via enhanced digitalisation and automation of some production processes, or via strategic partnerships on producing certain components. Installation costs could also be cut, for instance, by developing more modular, easier-to-install units and by training more installers.
Outlook for the Future
The anticipated development according to different scenarios has been studied by the IEA analysts. In the STEPS (the Stated Policies Scenario), existing building energy efficiency policies and financial instruments drive heat pump sales up to about 265 GW in 2035, more than doubling from 2023, and to about 365 GW in 2050. Deployment is even faster in the APS (Announced Pledges Scenario), with sales rising to about 350 GW in 2035 and 475 GW in 2050. In this scenario, heat pumps become the dominant heating technology globally, covering around one-third of space heating needs by 2050. In both scenarios, demand increases most strongly in major heating markets in advanced economies and China. However, there is still a substantial gap between the demand in the APS compared to IEA’s Net Zero Emission Scenario, where heat pumps cover 55% of the heating needs in 2050.
In the STEPS, the United States remains the second largest producing country, after China, thanks to generous financial support to manufacturers under the IRA. Mexico’s heat pump production is expected to nearly triple by 2035, being the lowest-cost producer among North American countries, with the country exporting its surplus primarily to the United States.
The overall market dynamics in the APS are similar to those in the STEPS, with China remaining the leading manufacturer, followed by the United States and the European Union. Ambitious industrial policy plans could strengthen domestic production in some countries. In addition, countries with strong manufacturing capacity for air conditioners in Southeast Asia could significantly increase their production of reversible heat pumps, even though their share in the global total remains small. In the European Union, the NZIA (Net Zero Industry Act) aim of meeting 40% of domestic demand with domestic production has already been achieved for heat pumps but announced manufacturing expansions, if implemented in full, would be enough to cover almost all the region’s demand in 2030. However, imports – mainly from China, where production costs remain highly competitive, increase sharply thereafter as demand increases rapidly in this scenario. (APS).
HPT TCP has supported IEA with data information related to heat pumping technologies, and representatives from the TCP have reviewed the report.
Source: IEA Energy Technology Perspectives 2024