Decline in Demand for Heat Pumps in the European Market, Stable in Croatia

The European heat pump industry is facing a lack of interested buyers and is forced to reduce or temporarily freeze three thousand jobs related to investments that accompany production capacity that has exceeded demand growth.

Jozefien Vanbecelaere, the leading figure in EU business at the European Heat Pump Association (EHPA), stated to the media that sales fell in 2023 for the first time in the past 15 years. The industrial association EHPA blames political uncertainty as well as the drop in gas prices. Demand for heat pumps decreases or increases depending on the price of natural gas and electricity.

According to EHPA data, sales in 14 countries, which represent 90 percent of the European market, fell by five percent in 2023 compared to 2022, from 2.77 million to 2.64 million. The decline in sales is particularly pronounced in Poland (46 percent), Finland (42 percent), and Italy (32 percent).

Heat pumps, which are also more expensive, operate three times more efficiently than natural gas boilers. However, their greater efficiency pales in comparison to the far cheaper gas prices in Europe. Since February, gas has been sold for less than 30 euros per megawatt-hour (MWh), which means a price between 60 to 80 euros per MWh for consumers. Electricity prices, however, are around 300 euros per MWh.

What makes heat pump systems attractive is the fact that they are a modern, eco-friendly, and economical solution for central heating needs of residential buildings and for the preparation of domestic hot water. The main advantages are comfort in use since the only energy source is electricity, eliminating the need for any additional activities such as refilling stoves or storing fuel. They can also cool, so there is no need for an additional investment in a separate cooling system. Heat pumps are managed via mobile applications, reduce energy expenses, and long-term reduce CO2 emissions.

The Japanese manufacturer Daikin has eliminated 500 jobs in Belgium. Vaillant, a German heat pump manufacturer, has decided to reduce working hours for one hundred of its workers. French manufacturers have also resorted to similar tactics.

Reduction of Support for Heat Pumps

EPHA does not have data for Croatia, but Dalibor Borovička, director of Daikin Croatia, states that the demand for heat pumps in Croatia is stable compared to 2022 and 2023. After four years of exponential growth, the growth trend has stabilized on an annual basis, as well as in a month-to-month comparison. There is also a noticeable trend of longer project execution due to a lack of qualified labor in the construction sector. Regarding demand from end customers for personal use, there is a noticeable increase due to announced subsidies from FZOEU for improving the energy efficiency of family homes.

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Dalibor Borovička, Daikin

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Heat pumps are key to European efforts to reduce the use of natural gas because they operate on ambient air that is not contaminated with pollutants that occur in the air and serve as an alternative to gas heating. Economic prospects have been much better for heat pumps in the past two years.

The EU announced its Green Deal in 2019, followed by the REPowerEU plans in 2022 for a rapid end to dependence on Russian gas. In recent years, the heat pump market, driven by soaring gas prices, uncertain gas supply, and government incentives in certain countries, has significantly grown. However, recently several factors have halted demand growth. Gas prices have returned to very low levels, thereby reducing the financial incentive to switch to sustainable heating. High inflation and higher interest rates have reduced purchasing power and resulted in delays in investments in the construction sector.

In 2023, several governments reduced support measures for heat pumps. Although the EU has a clear plan to make heating more sustainable, with heat pumps as a key player, the path to this major transition is not straightforward. At the end of December 2023, the European Commission decided to postpone its action plan for heat pumps until after the elections in the European Union, which will certainly significantly delay the adoption of clean heating technology. Despite stating that it wants to accelerate the introduction of heat pumps and reminding member states of the importance of greater ambition, the European Commission has hit the brakes.

– We remain convinced of the significant potential of heat pumps, and we consider the measure to reduce their production a temporary intervention – believes Borovička.