Heat Pumps: Are They All That?

Corporate consolidation, rising prices, and a trend of prioritizing investor compensation in the heat pump market could work against federal spending designed to promote adoption of heat pumps, according to a paper published by the American Economic Liberties Project.

American Prospect, an independent news organization, reported on the paper in an article headlined, “Private Equity Intensifies Rollups of HVAC Installers.”

The American Economic Liberties Project, a Washington, D.C., group that opposes economic concentration, released “Lessons From the Heat Pump Market: Why Market Structure Analysis Matters for Effective Industrial Policy Design and Implementation,” on Oct. 16.

The paper examines the market for residential heat pumps, which are supported by the Inflation Reduction Act (IRA) as energy-saving technology. Because the IRA supports heat pumps in the form of demand-side subsidies—which pay for part of the cost to a final buyer in purchasing the technology—the IRA itself largely overlooks the market structure and supply chain for the manufacturing and installation of heat pumps, from global manufacturers all the way down to local installers, according to the paper.

The American Economic Liberties Project’s paper highlights the importance of considering the market structure and supply chain in effectively promoting heat pump technology. One critical component often overlooked is the role of Air Source Heat Pumps Installers. These professionals are the backbone of the industry’s transition, ensuring that the advanced technology is correctly and efficiently installed in homes and businesses. Their expertise not only guarantees optimal performance but also enhances the longevity and efficiency of heat pumps, making the subsidies provided by the IRA even more effective.

Without a robust network of skilled heat pump installers, the potential benefits of the IRA’s subsidies might not be fully realized. Installers play a crucial role in bridging the gap between manufacturers and end-users, ensuring that the systems are not only purchased but also properly integrated into existing infrastructure. By focusing on the entire supply chain and recognizing the pivotal role of local installers, policymakers can create a more cohesive and effective strategy to promote the adoption of heat pump technology and move closer to achieving significant reductions in carbon emissions.

“We find several concerning trends in the market for heat pumps that industrial policy implementation should take into consideration,” the paper states in an executive summary. “First, heat pump manufacturers continue to pour enormous amounts of their financial resources into investor compensation in the form of dividends and stock buybacks, rather than making larger investments in expanding capacity. Second, acquisition activity among these manufacturers appears to be speeding up in the wake of the IRA’s passage, with a few multibillion-dollar deals already announced or recently consummated. Third, there are concerning signs that consolidation at the local level of installation and distribution may lead to price increases down the line, with manufacturers acquiring regional distributors and private equity firms acquiring HVAC installers at a concerning rate. With the price of heat pumps continuing to rise, the risk is that the increased demand from IRA subsidies may simply be captured by consolidating interests in the heat pump supply chain, meaning that final consumers and buyers will not benefit directly from the IRA’s subsidies.”

Covered in The American Prospect, the paper makes several recommendations to promote competition, including limiting shareholder compensation, promoting productive capacity, and mandating interoperability standards for residential heating.

“The administration’s turn to industrial policy marks a significant win for those who believe government is a key pillar for building a resilient and just economy, yet its success hinges on maintaining competition as these key sectors are supported,” said Erik Peinert, research manager and editor at the American Economic Liberties Project. “Without competition, these large-scale subsidies worsen our current concentration crisis and undermine the policy’s success.”

Read Lessons From the Heat Pump Market: Why Market Structure Analysis Matters for Effective Industrial Policy Design and Implementation here. Learn more about the American Economic Liberties Project here.

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button