The possibilities in the industry are new and evolving as the brands are setting the groundwork for significant future innovation.
Water heating is one of the topmost concerns for homeowners and the industries for their energy expenses. Consumers are looking for better water heating solutions to reduce their electric costs. With consumers moving toward adopting tankless and high-efficiency water heater technology, the manufacturers are focusing on redesigning their products to maintain their position in the market. Companies are also focusing on mergers and acquisitions. Manufacturers are increasingly investing in R&D of energy-efficient and cost-effective water heater technology. Meanwhile, governments in different countries are also encouraging the use of natural sources of energy, thereby driving the demand for energy efficient solutions.
The sudden outbreak of COVID-19 has majorly impacted the global economy, thereby limiting business growth. However, development of new strategies to respond to the crisis, including healthcare infrastructure development, among others, is expected to drive the market landscape.
Indian market scenario
India has been regarded as one of the fastest growing economies across the world and contributes a significant contribution to the overall water heaters market. The Indian water heaters market in 2019 is estimated at Rs 2787 crore, growing at a 10.4 percent CAGR. 2019-20 winter season witnessed a huge surge in the demand of water heaters, especially from the northern parts of India with the extreme drop in temperature.
The trend of growing urbanization and increasing disposable income has been escalating the demand for advanced and smart features in the residential and commercial segment, in terms of water heating. The increasing urban population coupled with the growing adoption of the solar water systems contributing to the growth of the market in the region. India has the sixth largest installed capacity for solar thermal across the globe. According to the IEA, solar thermal capacity that is mostly used for water heating projected a significant growth in India.
Business in seasonal categories witnessed tremendous growth from e-commerce retail channels with more double-digit growth in the segment. This can be attributed to a continued demographic shift in shoppers especially from Tier-III+ towns and largely in the northern and eastern states.
Consumer’s expectation about product functionality, reliability, and aesthetics has increased manifold and, thus, brands are routinely introducing products that address their evolving needs. The brands, which rely on third-party manufacturing, have either established or are planning to set up their own manufacturing units.
Companies are also adding capacity and capability to produce a wider range of SKUs. This has helped derive supply chain efficiencies, enabled launching more models and improve quality of products. Products are being imbibed technological and aesthetic improvements to align with customers’ aspirations while premiumization and scale benefits have improved margins. Improved brand awareness with respect to technological superiority and willingness to pay a premium owing to higher income levels are driving market share in favor of branded products.
Along with 5-star BEE rating for efficiency, companies are introducing high storage capacity models suitable for medium to big families. Products are being developed with soft-touch controls, eco-friendly modes, and advanced build quality to protect water heaters from corrosion and damage from accidental splashes in the bathroom. ISI certification assuring quality and safety have gained importance over the last few years.
Apart from vertical orientation, models with horizontal designs are also being introduced by brands for facilitating modern residential constructions. There are many reasons and advantages to go for horizontal design. For instance, if the height is a concern in a bathroom, then installing a vertical heater may cause the space to become more constrained. Additionally, if a user does not want his water heater to be visible and has a false ceiling in place, horizontal water heaters have become a great choice with concealed installation.
Global market dynamics
The global water heaters market size exceeded USD 30 billion in 2019 and annual installation is anticipated to surpass 144 million units by 2026. Electric led the water heaters market in 2019 owing to the rising electrification rate mainly across the Asia-Pacific and African economies.
Asia-Pacific dominated the market and accounted for a 36.5 percent share of global revenue in 2019 and is anticipated to continue its dominance in the coming years. The European water heaters market is expected to witness a CAGR of 3.8 percent. Brazil accounted for a substantial revenue share in the Central and South America market.
Increasing the focus of various product manufacturers on developing new systems and technologies that function with more efficiency is propelling the solar water heaters market growth. Expansion of piped gas networks across various developing economies is projected to result in the widespread adoption of gas water heaters.
Hybrid water heaters are likely to witness increased demand owing to key product characteristics of providing cooling and heating facility from the single device. These water heaters use electricity to move heat from one place to another instead of directly generating electricity owing to which they can be more energy-efficient as compared to electric water heaters.
The residential application segment exceeded USD 19 billion in 2019 and an annual installation is set to exceed 119 million units by 2026. Increasing hot water demand from various residential applications, including bathing, washing, cleaning, and cooking, is augmenting the market growth.
Surging the adoption of a diversified array of water heaters in the commercial as well as the industrial sector is driving the product demand. Rising hot water demand majorly from hospitals and hotels is fueling market growth. Increasing usage of the product in various manufacturing industries like food and beverage processing and chemical industries is also propelling the demand for water heaters.
The 30–100-liter capacity water heaters segment led the market and accounted for a 29.7 percent revenue share in 2019. Surging urbanization, coupled with ongoing migration to urban areas, is likely to bolster the demand for 100–250-liter water heaters. The capacity below 30 liter will expand at a CAGR of 3.8 percent over years.
The 250–400-liter capacity segment will witness substantial growth, majorly owing to the stringent industry regulations regarding the replacement of conventional heaters by these water heaters. This replacement is likely to reduce the standby heat losses as well as offer a cost-effective heating system across huge commercial applications.
Robust investments focused on product development and innovation are catalyzing the demand for electric water heaters. Key manufacturers engage in launching new products and technologies that offer enhanced customer experience and reduce the operating cost. The introduction of products with features such as corrosion resistance, water filtration, remote control, and monitoring, which are boosting the market growth.
Electric water heaters
The electric water heaters market size surpassed USD 16 billion in 2019, with annual installation predicted to reach 109 million units by 2026. Strict building standards promoting the adoption of star rating heating systems are complementing the market revenue.
Growing deployment of below 100-liter system across residential and small businesses is complementing the electric water heaters market growth. The below 30-liter systems are extensively deployed across bathrooms and kitchens to meet the instant hot water requirements throughout the day. Flexible and competitive pricing coupled with product assortment and new features will further encourage the product adoption. Ongoing migration to cities along with surging urbanization rates will facilitate the adoption of 100–250-liter water heaters.
The industry has reached its maturity and requires thrust through new product launches and technologies to improve the customer experience and minimize the operating cost. Introduction of advanced water heating models with extensive features including the corrosion resistance, limited chances of dry firing, water filtration, monitoring, and remote control are significantly boosting the market share.
Increased focus toward the product design and aesthetics along with ongoing rivalry is fueling the market growth. The industry is highly fragmented with presence of numerous international and regional players, introducing newer technologies and systems in the market. Growing inclination toward home décor and furnishing have stimulated the demand for modern colorful designs matching the installation space. In addition, internal threat of substitution from gas, solar, and other hybrid models will further result in product enhancement.
Latin America, Europe and Asia-Pacific dictated the global electric water heaters market growth with a collective revenue share exceeding 75 percent in 2019. Furthermore, rising refurbishment activities coupled with increasing demand for high efficiency heating systems is encouraging the product adoption. However, the systems are facing strong competition from its gas substitutes in North America and Middle East on account of easy accessibility and availability of low-cost natural gas supply and pipeline infrastructure. For Latin America, Brazil dominated the market share accounting for more than 70 percent in 2019.
The instant water heaters market size was valued at over USD 12 billion in 2019 and annual installation is projected to surpass 75 million units by 2026. Increasing adoption of instant water heater over storage units will complement the tankless water heater market growth over the years. The units are preferred over its storage counterparts owing to key benefits including high supply output, on demand heating and limited standby losses. Ease of installation, low power consumption, and minimal maintenance are some of the vital parameters which facilitate the product adoption.
Advanced heating capabilities, energy optimization, and low standby losses will foster the tankless water heaters market. Requirement of critical hot water supply primarily across hospitals and hospitality sector coupled with need for water savings across the public amenities is facilitating the product penetration. In addition, it integrates key features including fuel flexibility, efficient heating and minimal maintenance.
Latin America, Europe, and Asia Pacific dominated the market accounting for over 90 percent share in 2019. Availability of low-cost labor, high manufacturing capabilities along with government norms across the regions have been positively influencing the tankless water heaters market outlook. or Europe, France dominated the overall industry accounting for a market size of over USD 50 million in 2019.
The storage water heaters market size was valued at over USD 9.5 billion in 2019 and annual installation is projected to exceed 90 million units by 2026. Rapid population growth coupled with growing urbanization will complement the below 30-liter storage water heaters market trends. Ongoing commercialization on account of growing economic development primarily across developing countries will spur the 30–100-liter capacity units.
The manufacturers are upgrading their existing models to comply with respective energy efficiency standards and minimize the carbon footprint. High water holding capacity, un-compromised water pressure and multi usage points are some of the key advancements being incorporated by the companies. The units are favored over its available counterparts owing to key benefits including low initial cost, ease of installation and flexible and friendly user interface.
The electric storage water heaters accounted for over 65 percent of revenue share in year 2019. Eminent participants are integrating advanced technologies including smart control features and leakage detection system to expand the product life and decrease service charges. For instance, manufactures are offering annual maintenance packages on the purchase of electric storage units, which will attract new customers resulting in increased product deployment.
Asia-Pacific, Europe, and North America dominated the overall market growth with a combined revenue share of over 60 percent in 2019. In Europe, France dominated the market, having accounted for over 20 percent revenue share in 2019.
Solar water heaters
One of the most widely known solar thermal applications is solar water heating. In terms of installation expenditures and energy cost over the total life of the system, solar water heating technology has proven to be cost efficient for several domestic and industrial applications.
Technological practicability of these systems has long been recognized and is presently employed in commercial sectors of many countries. Residential solar water heating is a promising age-old technology, which has been evolved and developed both in the range and quality as a successful packaged market–product.
The demand for solar water heaters has increased over the last 4–5 years. Though conventional heating appliances are still dominating the market, solar water heaters are also gaining popularity among the consumers and expected to have a boom by 2021.
The solar water heaters market is expected to grow at a CAGR of more than 5.1 percent over the period of 2020–2025. Factors such as reducing carbon footprint and increasing efficiency, clubbed with the increase in usage of solar heater due to the declining prices and growing adoption of glazed solar heaters, are likely to drive the solar water heaters market.
The raw materials for the manufacturing of solar water heater are available at low cost and it is made cheaper as many countries around the globe subsidize its use. However, a lot of space is required in the installing of the solar water heaters which can cause problems in areas where the space availability is a constraint.
Programs like solar city in Seoul are being introduced to subsidize the solar water heaters market and make them cheaper to their alternatives. This, in turn, is likely to create opportunities for the players involved in the market in the near future.
The glazed solar water heaters are expected to dominate the market. However, glazed solar water heaters are more expensive than the unglazed solar water heaters. Governments are pushing for schemes to push for solar water heater to reduce emissions from gas-powered water heaters and district heating system.
Most of the unglazed solar water heaters are used in North America. Asia-Pacific and Middle-East, on the other hand, are tilted more toward glazed solar water heaters with nearly 100 percent of the solar water heaters being of glazed type. The Middle-East and Africa region is expected to dominate the market, with the majority of the demand coming from countries such as Turkey and Israel.
Heat pump water heaters
The global heat pump water heaters market size is projected to reach USD 2.1 billion by 2026 from an estimated value of USD 1.4 billion in 2020, at a CAGR of 6.8 percent. Factors driving the growth of the heat pump water heaters market include the energy efficient technology along with the usage of non-conventional sources of energy to heat the water. In addition, supportive regulations and grants for using renewable sources of energy in different applications are also expected to play a key role in the growth of this market in the coming years.
The residential segment, by end user, is expected to contribute the largest share in the market. The adoption of heat pump water heaters is increasing in the residential sector, majorly due to its energy-efficient technologies and various government initiatives in the form of subsidy or tax benefit offered in order to enhance the demand for heat pump water heaters.
The air source segment is estimated to be the largest segment, by type. The demand for air source heat pump is growing majorly in the residential sector owing to its low installation cost and environment-friendly technology. They are mainly used in Asia Pacific owing to the fact that countries such as China, Australia, Thailand, and New Zealand are focusing on limiting their carbon footprint resulting from the use of fossil fuels.
Heat pump water heaters falling under the category of 500 liter are compact and hence, are easy to install. They provide ample hot water for almost all small commercial applications and residential sector. Hence, water heaters with this capacity are suitable for less hot water requirement applications in small commercial establishments and residential sector. Small individual heat pump water heaters of up to 500-liter capacity are used in the hospitality sector for holiday homes and motels as they ensure interruption-free availability of hot water for bathing, personal laundry, etc., applications.
The 10–20kW segment is estimated to dominate the market. In the residential sector, the requirement of instant hot water has been rising at a significant rate. This led to the deployment of low-powered heat pump water heater to cater to this instant hot water requirements majorly for residential sector. Heat pump water heaters with 10–20 kW rated capacity are easy to use and offer high operational efficiency. The R410A is expected to be the largest market in the product segment.
Asia-Pacific is expected to dominate the market owing to the increase in the use of renewable energy and energy efficient products. Several leading players in the heat pump water heaters market have their manufacturing facilities in countries such as China, India, and Thailand. The region is home to a number of emerging economies such as China, India, New Zealand, and Malaysia. These countries are taking various initiatives to enhance the installation of heat pump water heaters.
Driver: Reduction in CO2 emission
The production and consumption of energy lead to the emission of carbon dioxide. Many countries are aiming to reduce their primary energy demand due to the increasing CO2 emissions and implement policies to restrict the emission of greenhouse gases. Heat pump water heater is one of the most promising technologies for reducing greenhouse gas emissions.
A heat pump water heater offers an energy-efficient way to provide heating through aerothermal and geothermal technologies. Exhaust air, groundwater, and surface water (lake, river, or pond) are the other examples of commonly used heat sources. Heat pump water heaters take the ambient heat from air, water, and ground at low temperatures and increase the water temperature level through energy input, mostly from electricity. To heat the water, air source or water source heat pump uses 66 percent to 80 percent of the heat from renewable heat sources in the environment and 20 percent to 33 percent electrical energy for the heat pump compressor.
Hence, carbon emissions associated with energy consumption and generation can be reduced significantly by using heat pump water heater systems instead of fossil fuel-based systems. This is driving the increase in the number of installations of heat pump water heaters in residential, commercial, and industrial segments.
Restraint: Lack of awareness in developing and underdeveloped countries
The awareness regarding energy efficiency, cost efficiency, and environmental benefits of heat pump water heaters is low among all end user segments. This is because they are typically perceived to be expensive, which acts as a restraint for market penetration in developing as well as underdeveloped economies. There is also a lack of awareness regarding the opportunities that heat pump water heaters provide for energy conservation and reduction of CO2 emissions.
According to a report published by the United Nations Environment Program, there is a lack of awareness among the contractors regarding the International Organization for Standardization (ISO) standards for heat pumps. Thus, the lack of awareness of heat pump technology across the entire supply chain (technicians, consultants, engineers, contractors, and end users) is a barrier to the adoption of heat pump water heaters in developing and underdeveloped countries.
Opportunity: Integration of IoT
Internet of Things (IoT)-enabled heat pump water heater systems are expected to offer real-time monitoring, predictive maintenance, and remote diagnostics for heat pump water heaters. IoT-enabled heat pump water heater systems consist of smart thermostats that help in monitoring environmental changes and communicating with the heat pump water heater equipment.
Technologically advanced software enables heat pump water heater systems to leverage data for continuous improvements in efficiency and energy-savings. For instance, building management systems (BMS) involve the installation of sensors, software, a network, and a cloud-based data store. Their functions include the management of boilers, chillers, pumps, air handling units, rooftop units, heat pumps, VAV boxes, radiators, fan coil units, exhaust fans, and security and safety operations.
Such systems help facility managers to easily manage heat pump water heater systems, thus saving time and cost. Integration with IoT helps in tracking the abnormalities in heat pump water heaters, subsequently reducing system failure. Thus, the integration of IoT with heat pump water heaters is providing significant opportunities for the growth of the market.
Challenge: High installation cost
Heat pump water heater systems are used to increase the energy-efficiency, reduce energy costs, and lower the carbon emissions in residential, commercial, and industrial sectors. Heat pump water heaters are of two types: aerothermal heat pumps (air source heat pumps) and geothermal heat pumps (ground source heat pumps).
Air source heat pump water heaters are more common, as they are less expensive and efficient enough to service most homes and small commercial buildings. Geothermal heat pump water heaters are typically costlier to install because of underground installation. High-density polyethylene pipes are required to be put in the ground, which takes a team of specialists at least 3 days to install the pipes and the entire system, although they are more efficient and can service bigger buildings.
The installation cost of heat pump water heater equipment for residential, commercial, and industrial applications depends on various factors. For instance, in the residential application, the installation cost of all heat pump systems depends on the size of homes, additional ductwork, type of equipment, and thermal unit value of the equipment. The cost of installation of a heat pump water heater also depends on the complexity, type, brand, and size of the heat pump. Thus, the high installation cost is a challenge that can hamper the growth of the heat pump market.
This is an exciting time in the water heaters industry. While the average homeowner might be surprised to see exciting and water heater in the same sentence, those in the industry are experiencing significant technological advances in a relatively short time span.
Although the water heater’s basic operation had remained largely unchanged for many decades, recent years have seen many innovations that are changing the footprint and the functionality of these appliances.
These trends are largely driven by consumer demand and government regulations, and it is important for manufacturers to stay on top of changes in the technology. Here are three trends shaping water heater advancements in 2020.
Across the industry, water heaters are becoming more efficient. The trend toward energy efficiency is driven by both consumer demand and government requirements. Contrary to what seems like popular opinion today, energy efficiency is not limited to tankless water heaters. While it is true that tankless water heaters are very efficient, modern tank water heaters are more efficient than ever before, with many models meeting Energy Star standards. There are applications for which each technology is best suited.
Following the energy efficiency trend, heat pump technology is a long-proven technology that is now gaining traction in the water heaters industry. These products are extremely efficient, and consumers are even seeing rebates at the local level for choosing heat pump water heaters. Many energy advocates and utilities are also supportive of heat pump water heater technology due to its high efficiency and use of a renewable energy resource. It will be interesting to see how this technology develops in coming years.
The Internet of Things
Another trend driving the functionality of water heaters is connectivity. The IoT has led to the smart home connecting all aspects of the home from entertainment to lighting to the home’s HVAC systems.
The water heater is not exempt from the Internet of Things, as homeowners are searching for finer control over their homes. They can save energy and money by setting their water heaters on vacation mode while they are away or setting schedules for times of day with higher demand for hot water. If they live in areas with variable electricity rates, they can control the water heater to offset those costs.
However, the benefits of connected water heaters are not limited to the end user. This connectivity can allow service contractors to monitor the water heater and inform homeowners when it is not operating optimally. The contractor can also use connected water heater diagnostics to know what is wrong with the water heater before they arrive at the customer’s home, making service calls faster and more efficient.
From the manufacturer’s perspective, a connected water heater allows them to understand more about the products they design and how they operate in homes under real conditions. This information is invaluable for new product research and development.
The possibilities here are new and evolving, and the future is not yet fully understood, but connectivity sets the groundwork for significant future innovation.
As mentioned previously, regulations set new minimum standards for water heater efficiency across several countries, but there is also an increased government activity at the state and local levels to support their renewable energy and decarbonization goals.
For instance, in the US, Washington state recently passed legislation that will require heat pump and electric resistance water heaters installed in the state to be grid-enabled over the next 2 years. This means that the homeowner’s utility provider can control the water heater remotely. This lets the utility manage the load on their grid and possibly reduce demand during peak times. This is truly the intersection between connectivity and energy efficiency, and it remains to be seen how widespread demand for grid-enabled water heaters will become.
Looking at the future
Water heaters are already part of the smart home ecosystem, but expect deeper integration with other appliances, more connected ability and better efficiency. As homeowners, contractors, and governments continue to realize and define their goals for water heaters, the industry will continue to adapt and provide the functionality they require. –TVJ Bureau