Stephane Eugster (Vontobel) | 55% is by how much the European Commission wants to reduce the European Union’s greenhouse gas emissions by 2030 compared to 1990 with its “Fit for 55” package. To achieve this ambitious goal, everyone will have to buckle up, because the energy needs of the building sector for indoor climate control are increasingly at the center of European sustainable development efforts. Companies that can provide energy efficient heating and cooling solutions for buildings will benefit from this new push from the EU. The Swedish company NIBE is one of the pioneers in this field.
The European Commission’s “Fit for 55” package is a firm commitment by the EU to the goal of achieving climate neutrality by 2050. Without this package, the EU would miss its target and only achieve a reduction in emissions of perhaps 60%. Previous climate legislation primarily targeted the decarbonization of the power and industrial sectors, neglecting other climate violators. As a result, emissions in the electricity and industrial sectors have fallen sharply in recent years, while emissions in the construction and transport sectors have barely budged or even increased. Thus, the two sectors are responsible for 35% and 22% of EU emissions respectively, and now run the risk of feeling the heat as new measures are introduced.
Heating and energy prices could increase
At 35%, the building sector is particularly important. A wide range of measures are currently being considered, including one new EU Emissions Trading System (ETS) for buildings and road transport, new energy taxation in Europe and higher targets for renewable energies. If the package is adopted, climate policy measures could affect the daily lives of ordinary citizens through higher prices for heating and energy. This carries the risk of political controversy or even social unrest if no solution can be found for vulnerable households.
The new focus of EU climate policy is expected to significantly boost demand for energy efficient indoor climate solutions, as heating and cooling of buildings accounts for 50% of the Confederation’s total energy consumption. Sustainable solutions in these areas can make a significant contribution to reducing energy consumption and emissions. NIBE has been manufacturing such products for almost 70 years and they are used in a wide variety of building types.
Founded in southern Sweden, the company has grown over the years into an international group with 16,500 employees, whose business activities include not only energy-efficient heating technologies, but also intelligent indoor air conditioning systems. With its product line of heat pumps, boilers, water heaters, electric heaters, free-standing fireplaces and intelligent control systems, the company offers technologies that allow private and industrial households to regulate their indoor climate in an environmentally friendly manner and thus reduce heating costs.
High growth potential for energy efficient heat pumps
The company’s energy-efficient heat pumps, in particular, have high growth potential in the future, as Decarbonizing the building sector becomes a far-fetched idea without such solutions. The company manufactures ground source, air-to-water and extract air heat pumps that transfer heat stored in the environment to indoor spaces. An important effect of this is that heating energy from sustainable sources is likely to be exempt from price increases caused by new climate regulations. Already now, the “Climate Solutions” division of the company, which includes heat pumps, represents 74% of the company’s turnover. Against the background of EU climate targets, the European heat pump industry is expected to experience double-digit growth over the next five to ten years, benefiting NIBE’s products through organic growth and M&A. Risks that could affect this growth scenario include the ability of government to provide the right incentives to encourage widespread adoption of energy efficient heat pump solutions among the population. In addition, potential alternative technologies, such as hydrogen heating technologies, are already under development but are in their infancy and are not yet competitive.
M&A activity is an important part of the company’s strategy. Over the past decade, acquisitions have driven around 10% of annual sales growth. The company should be able to maintain this pace in the future, although there is a risk that potential acquisition targets will become more expensive due to the attractiveness of the sector. A key part of the strategy is to acquire smaller businesses to accelerate the installation of sustainable heat pump systems and expand the geographic reach of the business. In addition, the continuous improvement of energy efficiency is an important objective of the company. This includes develop more efficient motors and smarter controls, as well as new environmentally friendly refrigerants that can efficiently transport heat and cold over wider temperature ranges, while posing less of a risk to the environment in the event of leakage or disposal.
Thanks to its innovative technologies, NIBE has the potential to contribute to the socially fair implementation of the “Fit for 55” plan in the building sector. . On the one hand, NIBE’s products can reduce the negative environmental impact of the heating and cooling needs of buildings in the EU and, on the other hand, mitigate the controversial effects of the new EU climate policy on private households by considerably reducing heating costs.
However, the initially high investment costs are often a barrier – an interplay of political and private initiatives and efforts could provide the necessary funding and help unleash the full potential of these new technologies faster and more widely.