German Chancellor Olaf Scholz (SPD) visits heat pump manufacturer Viessmann © Rene Traut/IMAGO
The armaments group Rheinmetall is striving to enter the market for heat pumps and is investing in the production of important components. This is because there is a great deal of dependence on Asia and China for these components.
This article is IPPEN. MEDIA in the course of a cooperation with the Climate.Table Professional Briefing – first published by Climate. Table on May 11, 2023.
Berlin – The armaments and technology group Rheinmetall has received a 770 million euro order for the production of compressors for heat pumps. The company is thus investing in an important new business area – and at the same time could reduce the dependence of the European heat pump industry on international supply chains. The company had already received the order at the end of 2022 – but it was only now that it became known that it was for compressors for heat pumps.
Rheinmetall's investments are an "important decision," Thomas Nowak, secretary-general of the European Heat Pump Association (EHPA), told Table.Media. When it comes to compressors, there are strong dependencies on Asia, Nowak said. Rheinmetall's investments would give heat pump manufacturers another option to purchase important components and create "a procurement point within Europe," Nowak said. The creation of globally distributed production standard locations would be useful to make the heat pump ramp-up "resilient", the expert believes.
Compressors, also known as compressors, are often the most expensive component of a heat pump. They account for a good quarter of the costs and ensure the compression and heating of the refrigerant in the systems.
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Reduce import dependencies
The example of Rheinmetall and its previous dependence on imported compressors raises a fundamental question: Will China, with its advantages in the mass production of industrial goods, also displace European suppliers from the market with low prices in the booming heat pump market? Is the history of solar production, which has practically completely migrated to China, repeating itself?
So far, experts do not see any clear signs of this. It is not certain that the People's Republic will take over the next market for energy transition products. There are various reasons for this, which show differences to the rise of the solar industry:
- A large part of China's production is installed in the People's Republic. So far, only a small part is exported.
- The market is already established worldwide.
- International trade in heat pumps is more difficult than in solar cells.
- Consumers prefer local products. Craftsmen have close ties with domestic manufacturers.
Overall, European manufacturers are heavily dependent on China and Asia in general for some components. "This can lead to shortages of certain products," says Jan Rosenow, European managing director of the think tank Regulatory Assistance Project. During the Corona period, for example, there was a lack of microchips – but also inconspicuous goods such as the rubber feet on which the heat pumps stand. According to Nowak, however, the current dependence on Asia mainly affects compressors.
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China's exports are rising – but at a low level
China is one of the world's most important manufacturers of heat pumps. Its market share is 40 percent of world production. European imports of Chinese heat pumps and components more than quadrupled between 2018 and 2022, from €327 million to €1.37 billion (both heat pumps and "reversible heat pumps"). According to the International Energy Agency (IEA), China is one of the few manufacturers with a "significant share" of exports of heat pumps.
The market in Europe is booming. By 2030, six million heat pumps are to be installed in Germany alone – an increase of 500,000 units per year. The heat pump industry is currently investing far too little in new production facilities to meet global demand, writes the IEA.
Heat pumps: a different market than for solar systems
According to experts, China is not going to turn the heat pump market upside down in the near future. "I can hardly imagine a similar development of dependencies as in the solar industry," says Jan Rosenow. There are many reasons for this:
- The market for heat pumps is already very mature. "China produces cheaper" than manufacturers in the West, says Rosenow. In the future, however, the greatest cost reductions are to be expected during installation. "As a result, China cannot make good use of its advantages of low-cost mass production," says the heat pump expert. However, Martin Sabel, Managing Director of the German Heat Pump Association, sees "considerable potential for cost reduction, especially in the case of monobloc heat pumps, which are widely used in Germany". Larger quantities would enable more efficient production methods and a reduction in margins. According to a spokeswoman, the heat pump manufacturer Bosch also sees "potential for economies of scale" that could be leveraged by building up further capacities of European manufacturers.
- International trade in heat pumps is not easy: they are bulky products that – unlike solar cells and modules – are not easy to transport. In addition, there are different regulations and technical requirements for heat pumps in the different sales markets, as the IEA writes in a recent report. For example, the EU recently banned the use of F-gases as a coolant. "Here, European industry has a head start over Chinese competitors, who have less experience in using CO₂ or propane as a coolant," says Rosenow. However, China is adapting to international standards and thus trying to increase exports, as the IEA writes. Rosenow also suspects that the Chinese are "likely to catch up quickly."
- Also, heat pumps are not a uniform product like solar cells. There are different preferences in the three largest markets – the US, Asia and Europe. Air-to-air heat pumps are common in the United States. In Europe, air-to-water and brine-to-water heat pumps are the common types – and a large proportion of them come from European production. In China and other parts of Asia, heat pumps that can be used for both cooling and heating ("reversible heat pumps") dominate.
- In addition, customers pay close attention to the quality of heat pumps, says Rosenow. Confidence in domestic manufacturers is very high. In addition, installers often have many years of experience with domestic products and recommend them more often than imports from Asia.
By Nico Beckert
