For people who do forecasting and monitor industry trends, the past few years have been very interesting. Housing starts plunged, the U.S. economy became uncertain, the industry went through R-22 to R-410A refrigerant transition in 2010, and then the United States experienced its hottest summer in 20 years, with more than 270 seasonal cooling degree days. What a long and interesting trip it has been.
Obviously, the task of identifying trends in this environment is challenging. Fortunately, Emerson Climate Technologies has a unique perspective on the HVACR industry. Emerson executives are working daily with major OEMs, talking to contractors and meeting with end-users in many industries to understand their challenges and needs. The depth and breadth of the Emerson offerings across all industry segments and applications gives that organization a good foundation of sales history to pull from in making predictions for the year.
In identifying this year's trends for the cooling industry, Emerson looks at a number of factors affecting the residential and commercial air-conditioning markets to develop unique forecasting models. These factors include data from housing starts, residential fixed investment, commercial markets research, gross domestic product data, consumer spending, producer price index, prime interest rate, consumer confidence, unemployment rate and, for short-term planning, weather forecasts. The use of these models not only ensures adequate supply of the right types and quantities of products, it also informs customers of expected shifts in product demand.
For 2011, Emerson is planning for continued economic uncertainty coupled with a slow and choppy recovery. Some improvements in housing starts and pent-up demand should provide single-digit growth in the unitary air-conditioning market, assuming the nation experiences normal weather. Based on various econometric models, the current forecast suggests five “megatrends” that will play a major role for the industry, both in 2011 and into the future.
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- Energy Efficiency
This is probably the least surprising of the megatrends for 2011 but it could be the most important. The industry has seen the 13 SEER transition in 2006, the refrigerant changeover of 2010, and now preparations are under way for more energy-efficiency regulations to go into effect as early as 2013. In states like Texas and California, whole-house-efficiency certification is also under consideration that would affect codes for new construction. More than 20 more states have pending or approved legislation.
Tax incentives for high-efficiency systems also are playing a part in driving this trend, and the federal government has stepped into this realm as well. Even though some incentives expire for 2011, geothermal credits continue through 2016. Many state and local governments also have offered further incentives, including the states of Florida and Missouri, which are leading the way with strong incentives for their residents.
There also is a great opportunity for the industry to help customers take advantage of the many incentives available, which in many cases can provide significant payback and make new, energy-efficient products more financially attractive than traditional options. Many Internet databases are available to consumers and contractors to see what incentives might apply in a particular region. One popular site is the Database of State Incentives for Renewables & Efficiency found at http://www.dsireusa.org/. By studying this site, a contractor can become an expert in energy efficiency and incentives.
- Heat Pumps
The growth in sales of reversible heat pumps in North America is closely tied to the overall trend for energy-efficient heating and cooling solutions. Over the past five years, heat pumps have grown from 28 percent of the market to 37 percent in 2010. Emerson expects heat pumps to continue growing and to become approximately 45 percent of the residential unitary market by 2015.
Growth in the geothermal market also is being driven by improvements in heat pump technology, including modulating compressors, the rising costs of electricity and natural gas, pending regional energy standards and tax credits that help offset the higher upfront costs associated with geothermal heat pumps.
- Communicating systems and outdoor electronics
The adoption of communicating systems and outdoor electronics is another interesting growth area that has emerged in recent years. Increasingly, we see the development of high-end residential systems with more sophisticated features, such as units that contain advanced communications that auto configure certain system components to aid technicians with the initial installation.
Communicating systems are enabled by outdoor electronics, which provide data that can help to more accurately diagnose problems and provide homeowners and technicians with additional knowledge about the performance of their systems.
The outdoor unit electronics market has expanded exponentially in the last five years. From less than 2 percent of the market in 2005, it has grown to more than 15 percent in 2010 and is projected by many to be as high as 40 percent by 2013.
- Modulation technology
The growth in higher-efficiency systems has led to great demand for modulating technology in compressors, even in this depressed market. Emerson models would suggest this growth will continue into 2011 and beyond, as the heat pump market continues to expand, and consumers increasingly demand a richer mix of home heating and cooling options.
Emerson has seen strong annual growth rates of 20 percent for modulating systems, even in this tough market. Driving this growth is demand for two-stage modulating compressors, such as our Copeland Scroll UltraTech™, and an increasing need for variable-speed compressors and drives. Emerson also has been experiencing continued higher demand for modulated technology in the commercial market, as evidenced by increased sales of Copeland Scroll Digital™ Compressors.
- Service replacement vs. system replacement
In many parts of the United States today, conditioned air is not optional. Growth over the past 20 years of populations in the humid Southeast and hot Southwest have created a significant installed base of central air-conditioning units in regions that require immediate replacement when they reach the end of their normal operating lives. Even in a tough economy, homeowners and commercial facilities are still replacing old equipment and repairing or replacing failed components. Emerson has seen continued growth in the sales of service parts in recent years. For 2011, this trend will put a lot of pressure on the distribution channel to ensure there is an ample stock of replacement compressors and other components.
Another factor that affects service replacement opportunities is the R-22 phase-out and the availability of replacement R22 equipment and refrigerant. Most major OEMs have decided to manufacture dry charged units used to repair existing equipment. This trend will continue for the foreseeable future but will be constrained by the availability of reclaimed R-22 refrigerants and further regulations.
Overall, for 2011, Emerson is looking forward to working with distributors, contractors and OEMs to ensure the current Emerson offerings are meeting their day-to-day needs. As with any good econometric model, Emerson will be adjusting the view of 2011 as it progresses. Emerson people are excited about the potential growth trends affecting the industry and will be ready to serve the needs of their customers during these exciting times.
Karl Zellmer is vice president, sales, Emerson Climate Technologies, Air Conditioning Division. He has 29 years of experience in the HVACR industry. While at Emerson Climate Technologies, Zellmer has been instrumental in the market development and introduction of scroll technology, beginning with the first Copeland Scroll products. Zellmer also has been involved in expanding Emerson Climate Technologies' involvement with HVACR contractors and affiliated associations. In his current position, Zellmer is responsible for sales and technical support of air-conditioning products. He also is one of Emerson Climate Technologies' experts on energy-leading technologies for the HVACR industry. Contact Karl at Karl.Zellmer@emerson.com.