Source: China Appliance Magazine (run by CHEAA)

Amid China’s Ministry of Environmental Protection’s (MEP) action plan of cutting coal consumption volume of 28 cities to a negative growth, heat pump water heaters and gas boilers, major replacements of coal-burning boilers, saw a surge in market size.

As enterprises step up their efforts in heating market of Northern China, heat pump water heaters and gas boilers went out of supply in 2017. Spurred by the government’s project of coal to clean energy, these two sectors witnessed a steady rise in construction channels.

A strong momentum

The clean heating projects open up opportunities for gas boiler enterprises as well as heat pump water heater enterprises in Northern China.

According to an action plan released by MEP, as of the end of October, 3 million households in 28 cities of the Beijing-Tianjin-Hebei area and its surrounding areas should have finished the conversion from coal-burning heating to clean energy heating. At press time, this massive conversion has not been finished.

We haven’t learned of the progress of the project yet, but its promotion to heat pump water heater sector and gas boiler sector has surely gone beyond expectation. Yang Lei, General Manager of the heat pump water heater division of Haier, tells our reporter that, year 2017 is a golden period for the development of domestic heat pump water heater sector. According to him, this sector posted domestic sales volume of 667,700 units in the first half of 2017 with sales value of 3.993 billion Yuan, far surpassing the performance of last year. It is forecasted that, heat pump water heater sector is expected to see its sales volume of 2017 grow by 29% year-on-year to 13 billion Yuan.

Gas boiler sector also booms excitingly. Lu Gang, Director in charge of construction channels at Vatti, introduces that, “amid the government’s growing call for a conversion from coal to gas, the sales volume of gas boilers in 2016 surged by 30.43% year-on-year to 2.1 million units, and the number is expected to reach 4 million as of 2017.”

This massive conversion leaves many enterprises a shortage of supply, especially of gas boilers. China Appliance reporter has learned that, Haier’s production capacity of 0.3 million gas boilers per year has been fully delivered this year, and all sold out. Haier plans to elevate its capacity of this category to 1 million units in 2018. Rinnai, with a capacity of more than 0.3 million units, is not able to meet the shooting up demand this year and plans to expand production. Of Rinnai’s sales volume, 0.1 million units came from the coal to gas project. After its new facility came into production, Vanward’s capacity reaches 1 million units, allowing it to meet the market demand.

Compared to gas boilers, some makers of heat pump water heaters have been capable of meeting the demand generated by coal to electricity project. China Appliance reporter has learned that, Haier’s capacity of heat pump water heaters is 0.5 million units. Its sell-in volume from coal-to-electricity project numbered 10,000 units, a year-on-year increase of 30%, accounting for 5% of Haier’s total sell-in volume of heat pump water heaters. Phnix’s capacity of heat pump water heaters is 0.4 million units, and its sales volume generated by coal to electricity project posted 10,000 units. McQuay saw its orders driven by coal to electricity project valued more than 0.3 billion Yuan and sales value posted 0.2 billion Yuan, doubled from last year but not a big part of the company’s total heat pump water heater volume.

As this year’s heating season comes closer, our reporter finds that the after-sales service teams of home appliance makers have their hands full installing and adjusting appliances.

The government’s projects of coal to gas and coal to electricity sharpen consumers’ knowledge of heat pump water heaters and gas boilers, spurring a spike in their retail sales. Tian Shixun, General Manager of McQuay, tells our reporter that, “The project drives our heat pump water heater business up by 30% year-on-year. As to construction channel, schools and hospitals are remodeling their heating systems. Haier, Rinnai and Phnix are part of this remodeling.”

Intense market competition

In coal to electricity project, the major replacement is heat pump water heater, with central air conditioner makers and heat pump makers as main players including Haier, Midea, Gree, Changhong, Hisense, Phnix, McQuay, Tenesun and Tongyi. To accommodate to this change, suppliers including Emerson and Highly have been upgrading their technologies. In coal to gas project, the major replacement is gas boiler, with gas boiler makers and gas appliance makers as main players including Rinnai, Haier, Vanward, Macro, Vatti, Navien and Squirrel.

A flock of new entrants intensifies market competition. According to an officer from TCAH, heat pump water heater makers bidding for the coal to electricity project in only Hebei province registered 147. The same heat can also be found in coal to gas project. Lu Gang from Vatti introduces that, with coal to gas projects put in place in more cities, the number of bidding enterprises multiplies. In some districts of Jinan, a city of Shandong province, users are allowed to select gas boilers on their own and get reimbursement from the government with receipts.

Yu Jinjian, General Manager of Haier’s commercial heat pump division, says, “The industry’s brand pattern is not clear yet. But with more regulations carried out, renewable energy certificate and energy efficiency label going mandatory, and market competition further intensifying, brands with little technology and of low quality would be phased out and big brands would have a bigger market share.” Tian Shixun from McQuay says that, a severe winter would speed up the process.

Wei Shuping, Sales Director of Navien, points out that big brands’ chances of winning bids in coal to gas project are increasing. The industry is changing from a mixture of various brands to a pattern increasingly dominated by big brands.

Specially designed products

From our interviews, our reporter found that enterprises have put weight on the heating market in Northern China, rolling out specially designed products to meet consumers’ needs and wants.

There are mainly two kinds of heat pump water heaters-splits and packaged units-on Chinese market. Central air conditioner makers’ products are mainly splits while heat pump makers prefer packaged units. Zhang Jing, General Manager of Phnix, says, “The preferences don’t make a difference in product quality. It’s simply out of different understandings of products.”

Heat pump water heaters can also be classified into variable frequency units and constant frequency units. Le Hongsheng, General Manager of division of emerging products of Highly, believes that variable frequency products will be the future of this category. “The high inrush of constant frequency products at startup will affect the steadiness of the powerline. During heating season, multiple heat pump water heaters will be running at the same time. Taken this into account, we believe that constant frequency products have more advantages than constant ones.” “What’s more, constant frequency products are more energy efficient.” Xie Ying, Vice President of light commercial air conditioning marketing of Emmerson’s Asian-Pacific region, agrees with Le’s points. According to her, although variable frequency is the future trend, mid-size and small-size enterprises involved in coal to electricity project, which is a quite high number, grow relatively slow in R&D.

Zhang Jing from Phnix disagrees, “In places long at low temperature, constant frequency products’ performance can be improved through higher speed of rotation and higher input power. Our testing results show that constant frequency products are not outdone by variable frequency units in Northern China.”

As to gas boilers, Beijing and Tianjin require bidding enterprises to install condensing gas boilers for coal to gas project. Other cities have no requirement yet. An industry insider reveals that, “Cities with strong financial capability tend to offer more subsidies to their citizens, and often choose condensing products over others.”

“In general, products of this year’s coal to gas project go more energy efficient, smarter and with better operation steadiness.” An officer from Vanward says. The project of coal to gas mainly targets rural areas, where the installation environment differs distinctively. Thus some enterprises adjust their products to meet the demand of coal to gas project.