Heat pumps are becoming a hotter topic in the clean energy future


Original Publication


Renewable Energy

Offshore Wind

Submarine Cables

Amid the growing list of pathways consumers and businesses have available to pursue the cleaner energy future, including the typical options they’ve heard time and again (like electric vehicles or solar panels), one that’s more recently popping up on the popular radar: heat pumps. Of course, heating buildings has been seen as essential for decades, so why are heat pump opportunities catching headlines now? And how do they differ from the alternatives to heating homes and businesses that have been steadily used over the years?

Leaning into heat pumps, people have increasingly discovered, can be one of the key ways to decarbonize, especially as the technological focus increases and public policy takes notice of the opportunities. But these trends don’t mean that everyone is on the same page with this journey, so keep reading to start to fill in some of the blanks about heat pumps at this moment in time.

Defining submarine cables

The advent of submarine cables is nothing new, with communications taking place via submarine cable for over a century and a half. In fact, the first transatlantic cable connecting the United States and Europe saw President James Buchanan exchange telegraphs in 1858 with Queen Victoria. But it’s the recent growth of offshore wind energy, with the first major offshore wind farm deployed in Europe in 1991, that has been the turning point of using submarine cables for power transport.

Submarine cables may also be called subsea cables or undersea electric cables. The term refers to physical wiring infrastructure meant to transport electricity over any distance that requires cables laid at the bottom of a waterway (e.g., the ocean floor) such that the source of the power and its ultimate consumption can be connected despite the body of water separating them.

While submarine cables for communications may look different, submarine power cables have some specific characteristics to them:

Regulations: all submarine power cables installed must be in compliance with the international standard IEC 60288.

Current Type: these cables can be designed to carry alternative current (AC), optimal in cost for shorter distances, or direct current (DC) when longer distances require improvement in electrical efficiency.

Voltage: AC cables will range from about 7 kilovolts (kV) to 525 kV, while DC cables may carry up to 725 kV.

Size: submarine power cables will typically range from 70 millimeters (mm) to 210 mm in diameter.

Distance: AC submarine cables are optimized for distances of about 80 kilometers (km) or less, while longer cables (which can reach longer than 700 km) will use DC technology.

Cost: While communication submarine cables may cost $30,000 to $50,000 per km, submarine power cables can cost over $2.5 million per km.

Market analysts highlight the most notable manufacturers of submarine power cables to include ZTT, The Okonite Company, TE Connectivity, SubCom, Saudi Ericsson, Prysmian Group, NKT, Nexans, and more. As this market continues to grow, legacy companies as well as new players are expected to continue entering the market to try and take advantage of that new and emerging demand.

Submarine power cables as a clean energy technology

While submarine cables aren’t a new development, they are freshly being thrust into the focus thanks to the role they play in the energy transition. This rise in attention has come thanks to two angles:

Tech Advancement: First, the technology has progressed such that these projects are more cost effective and efficient than ever before, opening up new possibilities.

Demand Growth: With international pressure for carbon-free energy rising, anything that can move the needle to put more renewable energy on the grid is seen as critical. These opportunities have led to increased investment in submarine cables.

Specifically, the key role in renewable energy for submarine cables that’s emerged in the past decade is with offshore wind energy. Any generation source off the coast will need cables to bring that power from the turbines to the shore where it can be connected with the grid like any other energy source. But with optimal siting of offshore wind taking place 20 kilometers or more off the coast, connecting these turbines to the grid is no afterthought, which is where submarine cables come into play.

The offshore wind sector started slow, and in 2018 about three-quarters of less than 20 gigawatts (GW) of capacity came from the UK and Germany alone. By the end of 2021, though, several record-breaking years brought total global capacity past 50 GW, including new technologies like floating offshore wind bringing new possibilities and new markets like the United States entering the offshore wind space.

Other renewable energy sources can utilize submarine cable advancements as well, including tidal energy, wave energy, or even floating solar that may be paired with offshore wind. More renewables sited in the waterways means more growth in submarine cable demand.

Why are we hearing about heat pumps more today?

"Submarine cables are also opening new opportunities for simple electricity trade between countries"

So, if heat pumps were first imagined and implemented across the 19th and 20th centuries, why does it seem that now there is newfound excitement for them and an urgency to shift to using them more?

Looking at the numbers reflects that recent spike. According to the International Energy Agency (IEA), heat pump sales made a notable jump of 11% in 2022, reflecting back-to-back years of growths exceeding 10%. This growth is encouraging, but it’s only the beginning according to the energy experts at the IEA who see heat pumps as a key part of the battle for fighting climate change.

Specifically, IEA estimates that heat pumps must comprise 20% of all global building heating by the end of this decade if we are to remain on track to meet existing climate commitments. And that’s why the world is hearing more and more about heat pumps now, as the technology represents not only an advanced and modern tool for the comfort needs of heating a building, but they are able to accomplish that task in a cleaner, less polluting way than the alternatives that have long been the norm, namely gas furnaces or direct burning of fuels that both release direct greenhouse gas emissions.

What can heat pumps actually do in the decarbonization battle?

"Demand for submarine cables is only increasing as energy transition efforts ramp up"

The crux of how heat pumps benefit the climate is that they operate using electricity rather than the direct burning of fossil fuels or other carbon-emitting sources. The logic of leaning into heat pumps parallels the push towards electric vehicles (EVs), electrifying buildings and electrifying transportation. Just as the world has experienced a major push to replace gasoline-powered cars that directly burn fuel and emit carbon with every mile they drive with battery-powered cars charged by the grid, the goal with heat pumps is to meet our space heating needs using an electric technology that can then replace the burning of fuel that emits carbon into the atmosphere every time someone cranks up the thermostat. At the same time, heat pumps offer homeowners and facilities managers added advantages: they reduce heating costs, they insulate building owners from volatile price spikes in fossil fuels, and they reduce reliance on burning fuels that may create indoor air quality health hazards.

That analogy to electric vehicles is also apt one for heat pumps when identifying the key challenges and potential counter arguments. First, some opposers will correctly point out just being electric does not make heat pumps (or EVs) free from carbon emissions, because their carbon footprint still depends on the carbon-intensity of the grid powering them. That said, in every region in the United States the average grid mix will be less carbon-emissive than direct burning fossil fuel alternatives. Not only that, but the U.S. grid is adding more clean energy sources each year, meaning the carbon footprint of heat pumps continues to improve after installation as the years go on.

Another challenge with the push towards heat pumps comes from the widespread equipment and component supply chain shortages the economy has experienced in recent years. Customers may have all the best intentions to dive into the cleaner alternative of heat pumps, but they may be faced with unexpected and extended delays before their equipment can be ready for delivery and installation.

Heat pumps, for their part, are also more challenging to install than a typical boiler, with sizing, siting, and installation requiring more customization than the traditional technologies. This reality requires more expertise, planning, and can be an impediment to speedier installations of heat pumps.

Lastly, the upfront costs for heat pumps can present a challenge, especially as heat pumps that are seeking to replace existing heating systems in a building and such retrofits can be expensive to undertake. Most sales of heat pumps tend to be concentrated in new homes or single-family homes for this reason, as multi-family homes, apartment buildings, and commercial buildings require more of a day-to-day interruption, longer timeline, and higher budget to retrofit. That said, the lower heating costs from heat pumps compared with the alternative do end up paying back on the investment.

Despite these challenges, though, the IEA data suggests that current installations are trending in the right direction to meet 2030 milestones. However, sales would need to expand by about 15% per year to get on track for forward-looking 2050 net zero goals.

Public policy push for heat pumps

"the Net Zero Industry Act in Europe directly increased investment and made more efficient the permitting process for heat pumps, and as a result, the growth in heat pump sales across the continent led the world, 40% growth year-over-year."

A key reason that heat pump sales are spiking comes from the public policy sector. Across the world, heat pumps are being encouraged by governments in the same vein as was previously seen with energy efficient appliances, clean energy generation, electric vehicles, and other advancements.

For example, the Net Zero Industry Act in Europe directly increased investment and made more efficient the permitting process for heat pumps, and as a result, the growth in heat pump sales across the continent led the world, 40% growth year-over-year. Europe even saw an additional bump for more heat pumps inspired by the fallout of the Russian invasion of Ukraine, where the continent was seeking to reduce its reliance on Russian natural gas (often used in Europe as a heating fuel). Heat pumps were found to be an immediate and actionable pathway to do just that.

In the United States, the Inflation Reduction Act, passed late in 2022, was heralded as the largest single piece of legislation for the clean energy future in U.S. history, and so unsurprisingly it included some heat pump focus. The IRA provided incentives for households to install heat pumps: a tax credit of up to 30% of the cost to purchase and install (good through 2032) a heat pump, up to a value of $2,000. The IRA also included a point-of-sale rebate for buyers under a certain income threshold. Because the IRA only passed towards the end last year, the results of these new incentives has not been measured yet in sales numbers, but no doubt the policies will only add to the existing momentum that had already seen heat pumps outselling gas furnaces in the United States.

All told, over 30 countries (representing over 70% of global heating needs) have public policies offering incentives and funds to encourage the sale of heat pumps.

Taking notes from the needle movers

The top manufacturers and installers of heat pumps vary by type of heat pump, region of installation, and more. That said, there are some notable gamechangers in the industry include the following:

Swedish manufacturer NIBE won the ‘Build It’ award for best heating product of the year for its air-to-water heat pump that tapped into the next generation of efficiency opportunities (advantageous for cost and energy).

Lennox partnered with the U.S. Department of Energy (DOE) on cold climate heat pump to unlock new opportunities.

Ariston tapped into innovative absorption heat pump to do more with heating in less physical space, critical where buildings face space limitations.

ThermoLift developed a fuel-dependent heat pump aimed at expanding cold region adoption where anxiety of typical heat pumps not being enough is stopping further expansion of sales.

Sunex is tapping into the smart future with autonomous heating systems to integrate efficiencies and digital opportunities.

Carrier intends to acquire Viessmann, a leading German heat pump manufacturer, with the aim to expand its presence in the European market and leverage Viessmann's distinctive distribution channels and innovative product range.

In March 2023 at Tesla’s Investor Day, Elon Musk and his team made waves when they noted that the company was seeking to expand into the heat pump market as a key way to decarbonize the global economy of the future. This interest should not be a surprise to those who have been following Tesla and Musk, after in-car heat pumps were used in the Model Y such that less energy was consumed by the heating needs of the car and thus extending the range of the EV. So, Musk noted he’s excited to expand that technology and its lessons learned into home heating ventilation and AC.

Getting involved

These developments in heat pumps only represent the beginning, and to meet decarbonization goals they are going to become more in the spotlight. Now is the time to get involved, as Thematica has done with our Thematica - Renewable Future fund that invests directly in companies such as Carrier, Ariston, and Sunex. Heat pumps are not a passing fad, they’re not going anywhere, and the sky is the limit for their potential to scale. Look to your investment portfolio as well as your homes and offices to identify where the innovation will continue to come as global heating decarbonizes.