For many, the current global climate is a stormy and turbulent sea to sail in while, for others, it is a lucrative and promising testbed for innovations. The HVAC industry sits in the middle of this storm as one that is adversely affected but also as the one that can influence the effects of the storm. The industry is empowered by a rise of innovation such as products becoming more and more efficient, new fuels being tested to make product use cheaper and greener and business models being disrupted by the integration of digital technology.
One of the innovations in HVAC is the creation of advanced services such as Heating-as-a-Service, Cooling-as-a-Service and, more generally, Equipment-as-a-Service. These services are a result of ‘Servitisation’ – a transformation of product-led businesses from making and selling products to providing a combination of products and services. Such a combination aims to deliver the outcomes expected from a product’s use.
SHARING THE RISK
The energy crisis is the most prominent challenge faced by the HVAC industry. Governments around the world are demanding their residents reduce the consumption of energy, while harsher climate conditions demand increased consumption of heating and cooling. IEA reports that 50% of world energy consumption is from heating. Additionally, the war in Ukraine has created insecurity in the supply of energy, especially that derived from fossil fuels.
Gavin Hindle, commercial director of Byworth Boilers, experienced a change in customer demands for its steam boilers. “The energy crisis has increased the demand for multi-fuel boilers. Customers want fuel resilience and so we did significant work with customers changing their boilers to be as fuel-agnostic as possible enabling them to hedge between different fuels because natural gas, the original choice, is very expensive at the moment,” he reasons.
In the cooling industry, Kaer has developed Cooling-as-a-Service (CaaS) to better support its customers. “The energy crisis is a very important issue for businesses who are looking to create more value for their customers. For us, there are three reasons to servitise,” explains Dave Mackerness, director, Kaer. “The first is customer experience, the second is sustainability and the third is financial. But, when it comes to a buying discussion, if the energy prices are extremely high then the cost of running these air conditioning systems is very high. With the Cooling-as-a-Service model, we can provide more energy-efficient cooling using environmentally friendly equipment, and if you multiply that by the energy prices, that makes a big difference.”
ENABLING STAKEHOLDER EDUCATION
Knowing how to extract maximum value out of a product is often something that customers overlook, especially if the product does not relate to their core business activity. Businesses have faced prolonged breaks in operations, due to the global pandemic, and this can mean equipment maintenance has been reprioritised.
Extreme climate conditions can mean overuse of equipment leading to reduced life and immediate efficiency drops. While all of these challenges are outside of a manufacturer’s control, customers may associate the resulting suboptimal performance with the equipment’s quality and reliability, which adversely affects the manufacturer’s business. However, the challenge here is not about whose responsibility it is to look after the product.
ACCELERATION OF DECARBONISATION
While decarbonisation has several definitions, the general aim is to reduce the carbon footprint, specifically greenhouse gases such as CO2 (carbon dioxide) and CH4 (Methane) of a process, an organisation, an industry or a country. The HVAC industry commonly uses natural gas or electricity, which contributes heavily to the industry’s carbon emissions.
The heating equipment manufacturer industry in the UK is one of the key stakeholders in the HVAC industry affected by decarbonisation legislation. Government legislation will outlaw the installation of gas boilers in new properties from the year 2025. James Galloway, former head of product marketing - commercial at Baxi Heating, can see that the company is operating in a turbulent market. “Decarbonisation is the single biggest disruption to the whole HVAC industry in many decades,” he says. “A majority of the industry is really built around selling gas boilers which are 90% of our revenue and that will die in a decade. This requires a robust route-to-market for technologies such as heat pumps, and rapid testing and launch of products such as hydrogen-powered boilers. Even if this is possible, the affordability of our customers hasn’t changed and infrastructure needs are still unmet.”
Businesses that are proactive with making and selling greener technologies do not see decarbonisation as a threat. For these businesses, decarbonisation is an opportunity to demonstrate their expertise and experience in mobilising modern and low-carbon technology.
Users of HVAC equipment are actively looking for businesses to help them decarbonise. This demand is not limited to manufacturing firms but extends to technology providers as well. BrainBox AI, technology innovators in the HVAC industry, use proprietary technology powered by artificial intelligence to reduce the emissions of buildings using HVAC equipment. “We help customers to dynamically reduce their operational emissions, without a human in the loop, by connecting their buildings to our AI,” says Omar Tabba, chief product officer at BrainBox AI.
NAVIGATION OF HVAC CHALLENGES
The HVAC industry faces complex challenges exacerbated by the global climate. The energy crisis has magnified the importance of efficiencies and through-life performance. Decarbonisation legislation has accelerated the decommissioning of old-fashioned technologies in the market, which deliver the majority of revenue for incumbent businesses. At the same time, technological complexity and the importance of maximising value from products have highlighted the lack of awareness and education across several stakeholders responsible for using the product. While these are all complicated challenges, businesses are not seeking a short-term answer. They are interested in a long-term business model innovation that ensures the resilience and sustainability of their businesses. Advanced Services developed through servitization are acknowledged as an effective route to sustainable competitive advantage. It is not difficult to see why that is the case. Unlike solutions targeting specific business processes such as optimising procurement (supply chain management), digitalising business systems (digital transformation), and providing a subscription option to customers (leasing and financing), servitization innovates the entire business model. It changes how a business creates, delivers and captures value with a highly customer-centric approach. This is a fundamental and therefore a longer-term strategic innovation.