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Heating Up Market Opportunities

Heating Up Market Opportunities

Owning a water heater was once considered to be an epitome of luxury. But that credo has changed over the last five years. Major players of the water heating industry have started penetrating deeper into the Indian markets.

Majorly fostered by the rising adoption of energy-efficient components in the residential and commercial space, the global water-heaters market has emerged as a lucrative growth ground of the overall energy industry. The market growth in India is led by an increasing number of new residential units, rising per capita disposable income, improving standard of living, and technological advancements. The advent of renewables, IoT, and other smart environmentally responsible technologies, has further impacted the water-heating industry for good in terms of new designs, shapes, energy-efficiency standards, and more control over the equipment. Aided by these technological advancements, these products have undergone many changes in the recent years, which in turn have prominently impacted the market valuation.

Indian market dynamics

Water heaters are among the fastest growing home appliances that provide a continual supply of hot water. The Indian water heaters market has been smaller than other consumer durable markets, owing to low product penetration with seasonal demand, high energy costs, irregular electricity supply in rural areas, and availability of affordable alternatives like cooking stoves and immersion rods for heating water.

The Indian water heaters market in 2019 is estimated at Rs 2525 crore and 4 million units. The electric storage heaters continue to lead the segment with a 42.3 percent market share, estimated at Rs 1070 crore. Electric instant heaters are gaining preference gradually; however, they currently maintain a ratio of 1:2 with their storage counterpart. The gas heaters saw a 13-percent increase over 2018.

Some of the key drivers in the Indian water heaters industry are:

Rising disposable incomes and electricity availability. The penetration of water heaters has been low on account of high energy costs and availability of affordable substitutes like cooking stoves, fireplaces, and immersion rods. However, with government initiatives for universal availability of electricity along with rising disposable incomes, the adoption of water heaters is rising.

Product development with enhanced features. Manufacturers are adding new features (Wi-fi control, automated temperature adjustments, and leak detection, among others) to water heaters in order to differentiate products from solar and water heaters. These developments are expected to drive growth in the mid-to-long term.

Energy-efficient products. With BEE’s Standards and Labelling Program having included water heaters as a mandatory appliance, manufacturers produce more energy-efficient products, in turn reducing energy costs and improving demand for water heaters.

Organized players have gradually improved their market share from ~57 percent in FY14 to ~62 percent in FY18. With rising disposable incomes and a shifting preference for branded and quality products, organized players are expected to improve their share to ~70 percent by FY23. Further, GST implementation is likely to reduce the organized-unorganized price gap, thereby catalyzing a shift toward branded players.

Global market dynamics

The global market for water heaters has been witnessing steady growth and is expected to continue at the same pace till 2021. It is estimated to reach USD 52.8 billion in revenue toward the end of 2021. Ongoing government-initiated awareness programs toward benefits of green, eco-friendly, and energy-efficient systems are the key factors fostering the demand for water heaters. Growing need for hot water across the domestic applications, coupled with significant cost reductions, is set to accelerate the product penetration. Stringent policies to enhance the carbon footprint will enhance the industry landscape.

Specialty stores segment is expected to dominate through 2025. This is on account of the availability of wide range of products under one roof, skilled personnel to assist in purchase, and lack of trust on online shopping platforms for purchasing large appliances. However, e-commerce is expected to register the highest CAGR of 6.9 percent from 2018 to 2025, owing to the growing penetration of internet, availability of discounts and schemes, and changing shopping behavior among the populace.

Electric water heaters that are easy to install and require minimum maintenance dominate the water-heaters market. Heat pump technology and condensing-gas-fired systems are some of the innovative technologies in the global market. In recent years, conventional storage water heaters using various fuels, such as natural gas, have also gained a lot of traction. Solar and geothermal equipment are also being incorporated by manufacturers in their product line. Consumers are moving toward adopting higher-efficiency water heaters as part of the replacement. Hence, manufacturers are seeing a lot of potential in the solar market.

Increasing solar generation share in the global energy mix, coupled with declining component cost, inclination toward clean energy sources on account of stringent policies to counter the global climate change, and extensive technological capabilities coupled with low-cost manufacturing, will positively enhance the industry outlook. Energy-efficiency, cost-effectiveness, and requirement of less storage space are among the crucial needs of customers willing to install water heaters. Focusing on the aforementioned needs, vendors are introducing new technologies in water heaters. Key companies are also focusing on anti-corrosion and filtration-sterilization technology. Providing clean and soft water through water heaters is also being focused on.

Asia-Pacific water heaters market is anticipated to exceed USD 9 billion by 2025. Rapid infrastructural development, coupled with ongoing expansion of service industry, will drive the APAC market share. Prevailing building requirements for promoting the adoption of energy-efficient heating appliances, along with smart city initiatives by respective state government authorities, will positively enhance the business outlook. Furthermore, growing demand for advanced heating appliances on account of rising awareness toward newly developed technologies will augment the industry landscape.

Commercial landscape. The global commercial water heaters market size is poised to reach USD 1.09 billion by 2023, progressing at a CAGR of 5 percent. The market is driven by technological innovations in commercial water heaters. Ongoing replacement of existing units on account of escalating heating bills and large standby losses; development of high-rise building infrastructure; and construction of new public facilities are escalating significant water-heating demand. In addition, the increasing investments in the hospitality sector are anticipated to further boost the market growth. Luxury hotels, shopping centers, entertainment malls, corporate offices, educational institutes, and airports have a huge demand for hot water. In addition, worldwide roll out of smart city projects will result in mass product deployment across residential and commercial properties.

Maintaining water heaters is a tedious task for commercial end-users due to their shorter maintenance cycle. Therefore, to reduce the overall maintenance time and increase the efficiency and life span of water heaters, vendors are focusing on improving the performance by adding new features. Some vendors are using monitoring devices and software that can analyze the performance of water heaters. Moreover, major vendors are also focusing on developing region-specific water heaters that require reduced maintenance and deliver improved performance.

AHR Expo 2019 sets the tone. At one of the largest HVACR events, the AHR Expo 2019, human interface improved this year in water heating products with the reflection of app-based technologies in the newest product range. Connectivity and the Internet of Things (IoT) continued to be the buzzwords. New water heater at the show featured the highest achievable efficiency, in addition to ease of installation. Several brands offered new electric water heaters, designed for regions with clean-energy initiatives that encourage electricity generated through wind, solar, or other sustainable methods for use, powering plumbing applications on the grid, rather than burning gas. Several manufacturers also showed point-of-use electric water heaters for light commercial applications.

Electric water heaters continue as the most preferred

The global electric water heaters segment held a leading market share in 2018 and is anticipated to witness the fastest growth in the coming years. The residential application segment held a leading share of 72.4 percent in 2018. Growing concerns for energy efficiency are contributing to the increasing demand for electric water heaters. Increasing number of pre-plumbed unvented systems in several new constructions are also driving the demand. Manufacturers are integrating smart heating controls in electric heaters to facilitate ease of use. Energy-efficiency regulations in various countries have also led to the increase in replacement of water heaters. This has resulted in the increasing demand for highly efficient electric water heaters. The commercial application segment is anticipated to expand at the fastest CAGR of 7.8 percent from 2019 to 2025.

Europe held a leading market share in 2018 owing to higher production adoption and shifting consumer preference for energy-efficient and economical products. Moreover, surging demand from the commercial sector is expected to have a positive impact on the market growth. North America is anticipated to expand at the fastest CAGR of 10.7 percent
from 2019 to 2025. The presence of prominent players in the region is expected to propel the demand in the upcoming years.

The global instant water-heaters market size was valued at USD 2.8 billion in 2018. The market is anticipated to grow over USD 15 billion by 2024 with the annual installation to surpass 75 million units. Growing replacement of conventional heating appliances primarily across domestic establishments on account of stringent industry, coupled with rising construction of zero emission buildings, will complement the business landscape. Various instant water heaters are equipped with energy star ratings, which make them eco-friendly and economical for the buyers. These products generally cost more than conventional 40-gallon water heater, but usually have longer warranties and they last longer as compared to the traditional water heaters. Smart features including multiple communication options, remote monitoring, Wi-Fi connectivity, and voice activation are expected to positively influence the industry outlook.

Escalating demand from commercial establishments on account of rapid expansion of service sector will foster the APAC market. Availability of low-cost labor, coupled with extensive manufacturing capabilities, will attract a number of investors across the region. Prevailing building codes and standards, along with inflexible environment regulations, will drive the Europe instant water-heaters market size.

The global storage water heaters market size is expected to reach the value of over USD 7.6 billion in 2019, with an annual installation to exceed 82 million units by 2026. Low cost, easy maintenance and repair, and simple designs are the primary factors encouraging the demand for storage water heaters. The widespread availability of ready-to-install systems, coupled with a variety of designs suitable for multiple heating applications, will foster the product deployment. Technological developments, including corrosion resistance, Wi-fi connectivity, and communication and control options, along with the leakage-detection system, will further complement the business scenario.

Growing investments toward product development and research, design, and development are the key strategies incorporated by the companies. Inorganic growth on account of mergers and acquisitions along with agreements with prominent technology providers will create new prospects for the industry. Storage water heaters help in maximizing heating capacity by using hot water storage tanks. Manufacturers are providing storage heaters in a variety of sizes as per the requirements of consumers. Compared to various water heaters, installation of storage heaters is less expensive, and these are also easy to maintain and repair. However, these heaters have been known to explode; hence, vendors are focusing on providing water-heater services on a regular basis. Moreover, storage heaters require space for the tank; hence, manufacturers are focusing on minimizing the size of storage heaters to eliminate the space issue.

Sustainable solar water heaters

The global solar water heaters market size is expected to reach over USD 3 billion by 2025. Surging demand for cost-effective and sustainable water heating technology to reduce electricity bills will stimulate the solar water-heaters market share. Increasing purchasing power parity, improvement in living standards, shifting population toward urban areas, and ongoing spending toward development of single- and multi-family houses are some of the key parameters fueling the energy-efficient systems. Volatility in fossil fuel and electricity prices has also positively impacted the demand for energy-efficient systems. Thermosyphon installation accounted for over 55 percent of global solar water-heaters market share in 2018.

Adoption of heat pump technology rises

Heat pump water heaters (HPWHs) have been around for a while, with the vast majority of consumers showing little interest. Until recently, it has been easy to see why – HPWHs are significantly more expensive than conventional gas or electric water heaters, and the potential cost savings can be hard to communicate. But all of that is starting to change, and change quickly. As more and more homeowners and building owners seek ways to improve efficiency and decrease their energy costs over the long term, heat pump water heaters have gained traction and are picking up momentum.

In 2019, sales of HPWHs are expected to rise 11 percent globally, with continued growth expected for at least the next 5 years. For business-savvy contractors, that represents a huge opportunity to become a leader in the field and boost their profits with higher-ticket sales. Heat pumps continue to represent a small share of total residential heating equipment, as more than three-quarters of sales globally were for fossil fuel or conventional electric technologies in 2018. At the same time, global heat pumps sales rose by nearly 10 percent between 2017 and 2018 – double the 2016‑17 growth rate. Nearly 80 percent of new household heat pump installations in 2017 were in China, Japan, and USA, which together account for around 35 percent of global final energy demand for space and water heating in residential buildings.

Way forward

Owning a water heater was once considered to be an epitome of luxury. But that credo is slowly changing. Major players of the water heating industry have started penetrating deeper into the Indian markets by setting up retail outlets and service centers even in the remote towns. They are relentless in creating awareness for the consumers, adumbrating about the benefits of owning a geyser for water-heating purpose, compared to conventional means like a gas stove, kerosene stove, or even immersion rods for that matter. The industry has been witnessing double-digit growth for a few years now. This is indicative that the consumers are fast switching over to or upgrading their water heaters. Consumers are being spoilt for choices as there is a wide gamut of water heaters available in the market.

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