A small device with a large potential
Already before the war in Ukraine in November 2021 we wrote about how our electrification of transportation and heating through air-to-water heat pumps would be key drivers of demand for copper. When Russia invaded Ukraine in February 2022 energy markets went into a tailspin and Europe was looking into an energy crisis forcing people to find alternatives for heating as gas prices initially soared. Air-to-water heat pumps were completely sold out in the matter of weeks as demand exploded and we highlighted a couple days after the invasion how the war in Ukraine would change everything in Europe’s energy infrastructure including the usage of heat pumps.
A heat pump is essentially a reverse air conditioner and they come in two types of air-to-air and air-to-water. The former is often used in summer houses, cars, storage rooms etc. while the latter is used for heating radiators, underfloor heating pipes, and hot water in central heating systems. According to IEA, there was 190mn heat pumps in operation in 2021 and this number is expected to expand to 600mn in 2030 (covering 20% of the world’s heating needs) translating into 13.6% annualised growth, but with the war in Ukraine this growth rate could likely increase as heat pumps will help Europe reduce its dependence on natural gas. Heat pumps have become 50% more energy efficient since 2010 and are more energy efficient than natural gas boilers with double the efficiency in Europe. The lifetime cost of heat pumps is also cheaper than oil and gas heating in most countries so the unit economics for heat pumps point to rapid adoption and growth ahead.
The largest markets for heat pumps are France, Italy, Germany, US, Japan, and China, with the highest growth rates observed in Europe overall. Governments around the world have implemented policies that provide different types of grants and incentives to switch to heat pumps. Pure exposure to the heat pump market is difficult for investors as the major manufacturers of heat pumps often make many other different industrial components and machines. The below highlights some of the publicly listed companies involved in manufacturing heat pumps. We have no good information on how much of revenue comes from heat pumps, but judging from the number of words in annual reports it seems that a company such as Swedish-based Nibe Industrier is getting a significant share of its revenue from heat pumps and are very dedicated to the future of heat pumps. GEA Group is more involved in larger scale industrial heat pumps. Other companies such as Samsung is only getting a limited share of its revenue from heat pumps.