Heat pump manufacturing supply chain research project report

1 November 2020 heat PUMP manufacturing supply chain research project FINAL report research carried out by Eunomia research & Consulting Ltd on behalf of the Department for Business, Energy and Industrial Strategy Acknowledgements This independent research report was produced by Eunomia research & Consulting Ltd. We would like to thank MCS for providing data that was used for our supply chain mapping exercise. We would also like to thank all the manufacturers, trade associations, and other organisations for their participation in the study, and the project board at BEIS for their feedback during the project . Disclaimer The views expressed in this report are those of the authors, not necessarily those of the Department for Business, Energy & Industrial Strategy (nor do they reflect Government policy).

2 Crown copyright 2020 This publication is licensed under the terms of the Open Government Licence except where otherwise stated. To view this licence, visit or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: Where we have identified any third-party copyright information you will need to obtain permission from the copyright holders concerned. Any enquiries regarding this publication should be sent to us at: 4 List of Acronyms ASHP Air source heat pump ATA Air to air ATW Air to water BSRIA UK Building Services research and Information Association CAGR Compound annual growth rate CCC The UK Committee on Climate Change COP Coefficient of performance EHPA European heat Pump Association EINA UK s Energy Innovation Needs Assessment F-gas Fluorinated gas GMI Global Markets Insights GSHP Ground source heat pump GTW Ground to water GWP Global warming potential HFC Hydrofluorocarbons HVAC Heating, ventilation.

3 And air conditioning IEA International Energy Agency MCS Microgeneration Certification Scheme RHI Renewable heat Incentive WSHP Water source heat pump WTW Water to water 5 List of Definitions Air source heat pump A heat pump that extracts heat from the air. Air to air heat pump A heat pump that extracts heat from air and delivers heat in the form of warm air. Air to water heat pump A heat pump that extracts heat from air and delivers heat in the form of warm water. Coefficient of performance The ratio of thermal energy output to electrical energy input. Ground source heat pump A heat pump that extracts heat from the ground. Ground to water heat pump A heat pump that extracts heat from the ground and delivers heat in the form of warm water.

4 heat pump A machine that uses a small amount of electrical energy to transfer a greater amount of thermal energy from a heat source to a heat sink, or vice versa. hybrid heat pump A single heating unit combining a traditional fossil fuel boiler with a renewable system, such as an ATW or GTW heat pump. It will automatically switch between the two energy sources using the most efficient at the time. hybrid system A heating system comprised of a heat pump and a traditional fossil fuel boiler, connected in parallel, with a control system to optimise heating system performance. Hydronic heat pump Any heat pump that delivers heat in the form of warm water. Hydronic heat pumps can be air, ground, or water source. Monobloc system An ASHP in which the entire refrigeration cycle is contained within one unit (usually located outdoors).

5 Split system An ASHP in which the refrigeration cycle is split between an indoor and outdoor unit, connected by piping. Water source heat pump A heat pump that extracts heat from water. Water to water heat pump A heat pump that extracts heat from water and delivers heat in the form of warm water. Refrigerant A heat transfer fluid with a boiling point and latent heat of vaporisation chosen to match the thermodynamic characteristics of the unit and its duty cycle. F-Gas Fluorinated gases are a group of manmade chemicals that contain fluorine and are commonly used as refrigerants. Tier 1 manufacturing The manufacture and assembly of components to produce a final heat pump product. Tier 2 manufacturing The manufacturing of heat pump components.

6 6 Contents Executive Summary _____ 9 Background _____ 9 Aims _____ 9 Methodology _____ 10 Key Findings _____ 10 What are the risks and opportunities for the UK heat pump supply chain ? _____ 10 How fast could the UK heat pump supply chain grow? _____ 19 1) Introduction _____ 24 Background _____ 24 heat Pump Technologies _____ 25 research Aims _____ 27 2) Methodology _____ 29 Task 1: Literature Review _____ 29 Task 2: supply chain Mapping _____ 29 Task 3: Manufacturer Interviews _____ 30 Task 4: Growth Rate Analysis _____ 31 Task 5: Validation of Results _____ 31 Limitations of the research _____ 32 3) heat Pump Market Analysis _____ 34 International heat Pump Market _____ 34 By Product _____ 34 Regional Analysis _____ 35 By Application _____ 37 Expected Growth _____ 38 European heat Pump Market _____ 38 National Differences _____ 40 UK heat Pump Market _____ 44 By Product _____ 45 By Application _____ 46 UK Policy and Commitments for heat pumps _____ 48 heat Pump manufacturing _____ 51 Key Global heat Pump Manufacturers and Their Locations _____ 51 Key UK Manufacturers _____ 52 Strengths and Weaknesses of heat Pump Manufacturers Serving the UK the Market __ 57 7 UK Manufacturer Case Studies _____ 61 Kensa heat pumps _____ 61 Mitsubishi electric _____ 62 Star Renewable Energy _____ 63 Summary Findings heat Pump Market

7 Analysis _____ 64 4)Tier 2 Component Parts Market Analysis _____ 65 Refrigerants _____ 66 Mechanical Components _____ 66 Cost Analysis _____ 67 supply chain Mapping _____ 68 Differences in heat Pump supply Chains _____ 70 Regional Analysis _____ 71 Summary Findings - Tier 2 Component Parts Market Analysis _____ 73 5)Synergies with Related Sectors _____ 74 Synergies with Air Conditioning and Refrigeration manufacturing _____ 74 Synergies with Boiler manufacturing _____ 75 Synergies with Other Sectors _____ 75 Related Sectors Market and Key Manufacturers _____ 77 Summary Findings - Synergies with Other Related Sectors _____ 786)Potential for Growth in the UK heat Pump supply chain _____ 79 Growth in the UK Market _____ 79 heat Pump Deployment Scenarios _____ 79 Growth Rate by Product _____ 83 Growth Rate by Application _____ 83 Impact of COVID-19 on Expected Growth _____ 83 supply -side Dynamics_____ 84 Limitations.

8 Barriers and Bottlenecks to Meeting UK heat Pump Growth _____ 85 Workforce Skills _____ 85 Component Parts _____ 85 Future Manufacturer Market Share _____ 85 Location of Manufacture _____ 87 Imports _____ 88 UK Based Manufacture _____ 89 Relocating manufacturing to the UK _____ 89 Modelled Location of Manufacture _____ 91 Export Potential _____ 92 8 UK s Future Trading Arrangements _____ 93 Summary Findings Potential Growth in the UK heat Pump supply Chain_____ 94 7)Adding Value to the UK Economy _____ 96 High-Value heat Pump supply chain Areas _____ 96 Increasing Manufacture of heat pumps in the UK _____ 97UK heat Pump manufacturing Growth Opportunities _____ 98 Labour transition from gas manufacture to heat pump manufacture _____ 100 Innovation, research and Development _____ 100 Developing UK-optimised heat pump solutions _____ 101 Smart tariffs and controls _____ 102 Designing heat pumps with greater modularity _____ 103 Refrigerants _____ 103 Design of large-scale heat pumps for industrial applications and heat networks _____ 103 Export _____ 103 Summary Findings - Adding Value to the UK Economy _____ 104 8)

9 Impact of heat Pump Growth on the Boiler Industry _____ 106 Gas Boilers _____ 106 Oil/LPG Boilers _____ 107 Lessons Learned from Other Transitions to Minimise Disruption _____ 108 Summary Findings - Impact of heat Pump Growth on the Boiler Industry _____ 1099)Conclusion _____ 110 Appendix _____ 112A 1: research Questions _____ 113 A 2: Methodology _____ 117 A 3: REA Sources _____ 120 A 4: Validation Workshop Results _____ 131 A 5: Calculation to extract ATW data from air source total _____ 143 A 6: Interview Topic Guide _____ 144 A 7: UK Policy and Commitment to heat pumps Continued _____ 153 A 8: Synergies with related sectors market description and key players _____ 156 A - 9: Global and UK key Tier 1 and Tier 2 manufacturers _____ 164 A - 10: Growth Rate Analysis - Model assumptions _____ 167 heat Pump manufacturing supply chain research project report 9 Executive Summary The Department for Business, Energy and Industrial Strategy (BEIS) has commissioned Eunomia research & Consulting Ltd (Eunomia) to research the practical steps needed to grow the UK heat pump manufacturing supply chain .

10 This report contains the findings of research into the existing supply chain and heat pump market, and the risks to and opportunities for growth. The potential for growth of the heat pump market was based on BEIS estimates of potential growth in the deployment of heat pumps in the domestic and non-domestic sectors. Alongside a literature review, the findings in this report were supported by interviews with organisations involved in the manufacture of heat pumps and an online workshop, held with a range of businesses throughout the supply chain . Background The greenhouse gas emissions associated with heating domestic and non-domestic buildings (excluding industry) were responsible for 23% of the UK s emissions in Natural gas has been the predominant fuel used to heat the UK building stock, however, if the UK s target of net-zero greenhouse gas emissions by 2050 is to be achieved, then it is unlikely that natural gas will have a significant role.