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Heat Pumps

More efforts needed
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About this report

Heat pumps are increasingly recognised as a critical technology for heat decarbonization, receiving increasing policy support in several countries over the last years. About 190 million heat pump units were in operation in buildings worldwide in 2021. The global stock of heat pumps has increased quite steadily over the past few years, particularly in primary heating markets – North America, Europe and northern and eastern Asia. In 2021, record high growth in heat pumps sales was registered in particular in Europe, China and the United States; 2022 is also showing early signs of positive growth despite challenges in supply chains. Other than climate objectives, energy security is an important driver for heat pumps in the European Union in particular, with increasing policy attention in 2022. Part of the deployment is also driven by a growing space cooling demand met with reversible heat pumps.

Heat pumps still meet only around 10% of the global heating need in buildings though, below the deployment level required to get on track with the Net Zero Emissions by 2050 Scenario. In this scenario, the global heat pump stock reaches about 600 million by 2030, covering at least 20% of global heating needs. Further policy support and technical innovation are needed, in particular to reduce upfront purchase and installation costs, remove market barriers to complex renovations, improve energy performance and durability, and exploit the potential of heat pumps as an enabler of power system integration and flexibility.

CO2 emissions

By leveraging electricity to harness ambient heat from the ground, water or air, heat pumps can supply useful heat with one-third to one-fifth of the electricity used by conventional electric equipment. Considering national electricity generation portfolios for the year 2021, more thank four-fifth of global space and water heating demand could be met with lower CO2 emissions by using heat pumps instead of condensing gas boilers.

Thanks to continuing improvements in heat pump energy performance and reductions in the carbon intensity of power generation, this potential coverage is a major improvement from the 2010 level of 50%. Rapid reductions in emissions from electricity supply and increased technology efficiency in the Net Zero Scenario mean that in all regions, heat pumps would record lower CO2 emissions than natural gas-fired condensing boilers before 2025.

Relative CO2 emissions from the operation of air-source heat pumps compared with the most efficient condensing gas boilers by region in the Net Zero Scenario, 2010-2030

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Energy

While global energy data on heat pumps are limited, we estimate that in 2021 heat pumps met only around 10% of the global heating need in buildings – less than half of what’s needed in the NZE by 2030.

Contribution of renewable and non-renewable electricity and ambient heat from ground, water and air to heat pump output in buildings space heating in the Net Zero Scenario, 2010-2030

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In some markets such as Japan and the European Union, and to some extent South Korea, heat supplied from heat pumps is credited as renewable, making them eligible to support under certain renewable energy policy schemes. In 2022 China also recognised heat pumps as a renewable energy technology at the national level. 

Technology deployment

In 2021 heat pump sales increased by more than 13% globally. In the European Union, of which the largest markets are France, Italy and Germany, sales grew by around 35% year-on-year, exceeding 2.2 million units. The next most dynamic markets were the United States (up 15%), Japan (up 13%) and China (up 13% for air-source heat pumps). Air-source heat pumps account for the majority of sales globally, with a market share of more than 60% in 2021. Ground-source (or geothermal) heat pumps can deliver heating and cooling with higher efficiency than air-source heat pumps, yet due to their higher capital cost and the specific skills and techniques required for installation in particular, they represent only a small portion of global sales – and only about 2.5% of heat pumps installed in the European Union.

As highlighted in the IEA 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas, speeding up the replacement of gas boilers by doubling heat pump installations in the European Union would save 2 bcm of gas use in the first year, for a total additional investment of EUR 15 billion.

The lifetime cost of heat pumps is now cheaper than oil and gas for heating in several countries. Yet, heat pumps represented less than 10% of global heating equipment sales in 2021, while fossil fuel equipment still accounted for 45%. In the Net Zero Scenario, heat pumps represent more than half of total heating sales by 2030.

Increase in heat pumps sales in selected regions, 2021 relative to 2020

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Innovation

Continued research and innovation are key to enhancing heat pump performance in different buildings and climate contexts. Key innovation areas are:

  • Systems-oriented solutions: algorithm design to optimise whole-building/district energy use, integrated active controls, storage, on-site integration with solar PV, control design to exploit the potential of heat pumps to provide flexibility to the electric grid.
  • Compact integrated solutions: managing both heat pumps and thermal storage to meet the entire heating and cooling needs of buildings (see Climate and Comfort Box).
  • Efficiency improvements, such as building retrofits, in multi-family buildings and in cold climates.
  • Refrigerants: efficient and safe heat pump operation with very low or zero global warming potential refrigerant fluids.
  • Improved acoustics and aesthetics to increase the acceptability and expand the installation potential.
  • Drilling techniques to reduce the surface footprint of geothermal solutions: for example, systems relying on deviated wells can be scaled from large buildings up to building complexes or districts, also relying on business models such as turnkey heating and cooling-as-a-service.

Specific prizes exist to recognise heat pump innovations and their impacts, such as the Peter Ritter von Rittinger International Heat Pump Award, the Heat Pump Award and the Residential Cold Climate Heat Pump Challenge, the latter being organised by the United States (EPA) and Canada (Natural Resources Canada) among other parties. Innovations in heat pump technologies have also been acknowledged in broader contexts; for instance, a heat pump start up in Minnesota won the energy/clean tech category of the 2021 MN Cup, and the 2019 French Innovation prize was awarded to a hybrid heat pump technology for domestic use.

Supporting infrastructure

Heat distribution systems can affect the efficiency of heat pump operation in buildings. Some existing systems might not always be compatible with the operating temperature of heat pumps. Policy support should address both building and heat distribution system upgrades through holistic renovation packages to enable heat pump deployment in existing buildings.

In the Net Zero Scenario, about 40% of power generation comes from wind and solar PV by 2030, and solar rooftop installations grow fourfold from 2020. Heat pumps, combined with energy storage and active control systems, can absorb fluctuations from variable renewables and/or reduce peak electricity demand by fully exploiting the demand-side response potential that these technologies can offer.

Combined heat pumps and storage systems are being marketed and manufacturers are working to provide the equipment together with an energy management system to operate all components in the most efficient way, balancing power and congestion without loss of comfort.

Policy

Several policies to support the heat pump market are currently being developed, prompted by record-high energy prices and the anticipation of upcoming winter challenges following the Russian invasion of Ukraine. The REPowerEU plans to double the deployment rate of hydronic heat pumps, reaching 10 million units over the next 5 years, since followed by several country-specific targets. The United States also highlighted heat pumps as a critical technology in its Defense Production Act. Key policy instruments are:

Financial instruments to reduce upfront costs and accelerate deployment: different grants, rebates and subsidies have been introduced or expanded in 2021 and 2022, for example, in the United States1 and France.2

Electricity tariffs to motivate fuel switching and account for flexibility: for example, the Electric Ireland Superhome programme contains beneficial pricing for heat pump users and the EU Save Energy Communication highlighted the importance of energy pricing for switching to heat pumps. Rebalancing taxes and levies on electricity and gas could also help improve heat pump competitiveness in many markets.

Mandatory performance-based labels to encourage deployment: for example, in October 2021 the energy efficiency labelling scheme for EcoCute3 heat pumps was launched in Japan.

Building codes and standards: for example, in California heat pumps were chosen as a baseline building heating and cooling technology in 2021, meaning that new buildings will have to meet energy efficiency standards equal to or above those of high-efficiency heat pumps. In 2022 the Washington State Council updated the commercial building energy code, mandating heating and cooling systems to use heat pumps. In China a new building regulation came into force in 2022, setting requirements for installed HVAC and efficiency improvements.

Renewable and energy efficiency targets and instruments to ban fossil fuels installations: for example, in July 2022 the ban on the replacement of oil and coal boilers comes into force under France’s new building code. New York City will follow with the natural gas ban starting from 2023 in new buildings up to seven floors high, and from 2027 in those over seven stories.

Policies

Policy
Country
Year
Status
Jurisdiction
Investment

Investment in heat pumps grew by a record 25% in 2021, driven by exponential growth in the European Union, United Kingdom, and Japan, although the increase in costs due to inflation and labour shortages account for about a quarter of this growth. Investment is driven by policies such as that in Germany, where a national cap and trade system was adopted to effectively put a carbon tax on heating fuels, among other sectors.

International collaboration

International collaboration supports knowledge and data sharing and generation, as well as accelerating standard harmonisation across countries.

The Technology Collaboration Programme on Heat Pumping Technologies has been developing collaborative international research to innovate, demonstrate, collect and communicate advancements on heat pumping technologies since 1978.

The Innovation Community on Affordable Heating and Cooling of Buildings aims to facilitate new partnerships, private investment and research collaboration to accelerate innovation in the sectors.

Private-sectors strategies

Manufacturers are expanding their production capacity to follow increasing demand for heat pumps. For example, manufacturers are increasing production capacity for air-to-water heat pumps in facilities in Western and Central Europe, and of natural refrigerant heat pumps in the United Kingdom.  To boost heat pump production capacity, the development of new manufacturing sites was announced this year, for instance in Poland and Turkey. In 2022 massive investment plans were also announced, with the intention of expanding heat pump and green solutions (with associated R&D).

Nevertheless, the expected sharp increase in heat pump sales might outpace production capabilities. In order to maintain domestic production, the German government has called upon the heat pump industry to start ramping up their production capacity.

Together with increasing production, new business models are also being developed by the private sector. Heating-as-a-service4 has been offered in Estonia since summer 2021. Consumer interest in this service exceeded initial expectations.5 Similarly, heat pumps are offered on an as-a-service basis in Germany and many other countries.

Recommendations for policy makers

Policy frameworks should target both new and existing buildings. They can articulate regulations (e.g. building codes, bans on new fossil boilers), incentives and redistributive measures towards households with low financial resources, to achieve a rapid phase-out of fossil fuel heating and the large-scale deployment of heat pumps in line with the Net Zero Scenario, while protecting social justice and equity. Fiscal and financing measures, including grants and specific loans, have a key role to play to help overcome upfront costs. Information campaigns will also be pivotal to raise consumer awareness of energy security and climate challenges and the potential benefits of heat pumps.

Anticipating supply chain requirements and skills and labour needs – from manufacturing to installation – will be pivotal to avoid bottlenecks and achieve levels of deployment in line with the Net Zero Scenario trajectory. Upskilling, knowledge-sharing and R&D can play an important role in the longer term to enhance the performance of heat pumps, in particular in cold climates and for geothermal units.

As heat pump sales increase, so will the volume of units reaching the end of their life in the near future. Policy makers and manufacturers should prepare now to manage the flows of end-of-life heat pumps from a circular economy perspective. This calls for establishing a clear regulatory framework to define responsibilities and financing models for the repair of heat pumps and the adequate recycling of their materials and their refrigerants in particular to mitigate their climate impacts.

Phasing out fossil fuel heating is the first step to decarbonising heating and cooling systems. Firstly, any subsidies for fossil fuel heating should be ended as soon as possible, followed by a ban on the sale of fossil fuel equipment, while carefully taking into account and compensating for the impact on the most vulnerable populations. Many countries tax electricity significantly more than fossil energy, therefore giving an indirect incentive to use oil and gas. Taxation levels should be adjusted and the negative external effects from burning fossil fuel should be integrated into the price.

Integrating carbon metrics into building codes and introducing or strengthening minimum energy performance standards and labelling schemes will drive the development and deployment of heat pumps. Provided these regulations include provisions or requirements for metering and active control systems, heat pumps could bring significant flexibility to electricity systems.

Monitoring heat pump deployment through harmonised data collection is crucial to better tailor public policy design and help decision-making in the private sector. Public administrations are appropriate bodies to collect and share this data while ensuring privacy for citizens.

Harmonisation of data communication protocols will be critical to enable data reporting on heat pumps and heat distribution systems in buildings, and data exchange between stakeholders and devices. This is particularly important to unleash the flexibility potential of heat pumps and help integrate higher shares of variable renewables in electricity grids.

Electrification of heating and cooling requires the integration of heating/cooling roadmaps into traditional energy plans to co‑ordinate infrastructure development (e.g. electricity grid, district heat network, storage), optimise costs and tailor infrastructure adequately.

Recommendations for the private sector

Heating and cooling as a service – renting out heat pumps to consumers and ensuring the proper operation of the technology – is a promising business model, showing potential benefits both for consumers (relieving them from the high upfront cost challenge) and companies, which can benefit from more predictable and longer-lasting revenue flows than by simply selling the heating equipment.

Companies can also further exploit the synergies between different technologies by developing and selling integrated heat pump systems featuring metering, active demand response protocols, heat storage or even solar PV, as a package of appliances under one brand.

Additionally, heat pump operators can value the demand-side flexibility potential offered by heat pumps, for instance through dynamic electricity tariffs. Exploitation of excess heat during space cooling production in a reversible unit could also offer important technology advantages.

As demand for heat pumps increases rapidly, the private sector can concentrate on new partnerships and international collaborations to accelerate effective production, innovation, data collection and reporting. Knowledge sharing will be particularly valuable for experiments around electricity market designs (e.g. how to integrate demand-side response under specific electricity market regulation).

Acknowledgements
  • Thibaut Abergel, Bouygues , Reviewer
  • Takahiro Asahi, Daikin Industries, Reviewer
  • Monica Axell, HPT TCP, c/o RISE Research Institutes of Sweden, Reviewer
  • Ines Cecilio, Celsius Energy , Reviewer
  • Tanguy De Bienassis, IEA, Contributor
  • Duncan Gibb, Regulatory Assistance Project , Reviewer
  • Caroline Haglund Stignor, HPT TCP, c/o RISE Research Institutes of Sweden, Reviewer
  • Richard Lowes, Regulatory Assistance Project , Reviewer
  • Yuko Masuda, Daikin Industries, Reviewer
  • Thomas Nowak, EHPA, Reviewer
  • Stephan Renz, HPT TCP, c/o Renz Consulting, Basel, Reviewer
  • Giovanni Sosio, Celsius Energy, Reviewer
Notes and references
  1. In the United States, the Build Better Act contains significant rebates for heat pump buyers, up to USD 4 000 for large heating solutions intended for cold climates.

  2. In 2022 France increased the MaPrimeRenov grant to up to EUR 11 000 to replace existing fossil fuel water and space heaters.

  3. EcoCute heat pumps use CO2 as a refrigerant instead of conventional R-134a refrigerants.

  4. Consumers rent heat pumps for a period of 10-15 years without paying high upfront costs or potential maintenance costs.

  5. Approximately 20% of its consumers were signing up for this service by December 2021; the initial prediction was that only 5% of potential heat pump buyers would be interested in this service.