Demand For Air Conditioning Heats Up

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Amid a series of punishing heat waves, demand for air-conditioning will increase to better meet the needs of people, industry and more. But such growth comes with huge challenges.

Globally, there are 2 billion air conditioners, according to the International Energy Agency (IEA). A significant number of them are concentrated in the U.S., where more than 90% of households have AC units. Expect that number to nearly triple by 2050, with growth driven primarily by emerging economies where incomes are rising, including China and India.

Rising global temperatures are a big concern. Extreme heat has become a very deadly health hazard, responsible for an estimated 489,000 deaths annually. In the U.S., it causes more weather-related deaths than floods, hurricanes and tornadoes combined.

HVAC companies smell a big opportunity. These range from established Japanese and U.S. firms like Daikin, Trane Technologies, Carrier, Mitsubishi and Johnson Controls to rising Chinese manufacturers like Midea Group, Gree, Hisense and Haier. The latter have started to make inroads in AC-averse Europe during the continent’s recent heat wave. For example, sales of Midea’s PortaSplit, a popular portable unit, are more than double (200,000) last year’s total in Europe.

Look for advances that make AC better, cheaper and more energy-efficient. Cooling equipment consumes an estimated 5,000 terawatt-hours per year globally, roughly equal to America’s entire annual electricity consumption. Air conditioners also represent the fastest-growing single source of electricity usage in buildings. Among those in the works:

• Start-up Transaera makes industrial HVAC units that cost 20% more than traditional systems but are 40% more energy-efficient. The company has a deal with Amazon to install units in its e-commerce warehouses.
• Bill Gates-backed Blue Frontier has developed a special liquid desiccant process, combined with heat pump technology, that can cool indoor air more efficiently. Recent National Renewable Energy Laboratory (now known as the National Laboratory of the Rockies, NLR) trials found that Blue Frontier’s AC has the potential to significantly lower power demand and cut cooling bills in half.
• Carrier is working with several utilities on in-home trials of its hybrid HVAC units, which have built-in battery systems that can store power generated by solar panels during peak hours, then use it in the evenings to free up more grid capacity.

The future of air-conditioning is more than home cooling, which still accounts for the largest share of the HVAC market. Still, companies like Carrier have seen sales sag and started turning their focus to more lucrative ventures, such as data centers. The huge growth in these new applications could prove a strain on power infrastructure around the world, underscoring the importance of the innovations now being pursued.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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