Heat Pump Market Shows Signs of Recovery After Early 2024 Decline

In the United States, the second-largest heat pump market, sales declined by 1% in the first half of 2024 (H1). Lower consumer spending and a preference for repairing existing systems contributed to the decline. However, heat pumps continued to gain market share as fossil fuel system sales dropped further. By mid-year, heat pump sales were 25% higher than those of fossil fuel-based heating systems. By November, a strong rebound saw sales up nearly 15% year-on-year, indicating a potential recovery.

In the European Union, heat pump sales fell by almost 50% in H1 2024, continuing a downward trend from late 2023. The decline was driven by lower natural gas prices, a slowdown in the construction sector, and policy uncertainty. Early full-year data for Germany, Europe's second-largest heat pump market, confirmed a nearly 50% drop in sales. However, the German Heat Pump Association (BWP) expects a more than 30% increase in sales by 2025 due to government incentives.

Japan’s heat pump market showed stagnation, with a marginal 1% increase in H1 2024 compared to the previous year. Consumer reticence played a role, as reflected in Japan’s declining "willingness to buy durable goods" index. However, by December, sales had risen by around 5%, recovering from a weak first half but remaining below 2022 levels.

China saw significant growth, with sales increasing by 13% in H1 2024, marking a second consecutive year of double-digit growth. China remains the largest heat pump market, accounting for 30% of global sales. Growth occurred across all segments, including air-to-air heat pumps for both heating and cooling, air-to-water heat pumps used mainly in northern China, and heat pump water heaters for residential and commercial applications.

While full-year global data for 2024 is not yet available, regional trends indicate a potential recovery after the 2023 market slowdown. If confirmed, this rebound would mark a turning point for the heat pump sector, which saw peak sales in 2022 before declining in 2023.

Supply Chain and Trade Developments

Heat pump manufacturing is less geographically concentrated than other clean energy technologies like solar PV and batteries. However, China remains a dominant player, producing 40% of the world's heat pumps in 2023 - more than the European Union (15%) and the United States (20%) combined. While manufacturing capacity in most regions saw minor growth in 2023, China expanded its production by over 10% to meet rising domestic demand.

China also leads in heat pump component manufacturing. In 2023, it produced 95% of global compressors and accounted for 50% of compressor trade. Additionally, China exported 50% of the world’s traded heat pumps, with three-quarters of those exports going to European markets.

Heat pump manufacturers that also produce air conditioners have a competitive advantage due to overlapping production processes. With China housing over 80% of global air conditioning manufacturing capacity - much of it underutilized - companies can easily shift production to heat pumps as demand rises.

Future Market Outlook

Although global heat pump trade is expanding, local production remains key in major markets. Today, only about 25% of global heat pump production is traded internationally. By 2035, under the current policy scenario, domestic production is expected to meet around 75% of demand in the European Union and Japan, and 90% in the United States.

Improved data collection and reporting are expected to play a crucial role in shaping industrial strategies and policy support. International representatives from manufacturers, industry associations, and academia met at the IEA headquarters on January 23, 2025, to discuss ways to improve data quality and harmonize global heat pump definitions.

The IEA plans to continue working with stakeholders to refine heat pump reporting and will publish regular updates on global heat pump sales and deployment trends.

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