Stephan Eugster (Vontobel) | 55% – that’s 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 target, everyone will have to fasten their seat belts, because the energy requirements of the building sector for indoor climate control are increasingly becoming the focus of European sustainability efforts. Companies that can supply energy-efficient heating and cooling solutions for buildings will be able to benefit from this new push by the EU. The Swedish company NIBE is one of the pioneers in this field.
The EU Commission’s “Fit for 55” package is a firm commitment by the EU on the goal of achieving climate neutrality by 2050. Without the package, the EU would miss its target and only achieve an emissions reduction of perhaps 60%. Previous climate legislation has mainly targeted decarbonization of the power and industrial sectors, neglecting other climate offenders. As a result, emissions in the power and industrial sectors have fallen sharply in recent years, whereas emissions in the buildings and transportation sectors have either barely budged or even risen. Thus, the two sectors are responsible for 35% and 22% of EU emissions, respectively, and are now running the risk of feeling the heat as new measures are introduced.
Heating and energy prices could rise
At 35%, the building sector is particularly significant. A broad set of measures is currently being contemplated, including a new EU Emissions Trading Scheme (ETS) for buildings and road transport, new energy taxation in Europe and higher renewable energy targets. If the package is adopted, the climate policy measures could affect the daily lives of ordinary citizens through higher heating and energy prices. This carries the risk of political controversy or even social unrest if no solution can be found for vulnerable households.
The EU’s new climate policy focus is expected to significantly drive demand for energy-efficient indoor climate solutions, as heating and cooling of buildings account for 50% of total energy consumption in the confederation. Sustainable solutions in these areas can make a significant contribution to curbing energy consumption and emissions. NIBE has been manufacturing such products for almost 70 years, and they are used in a wide range of building types.
Founded in southern Sweden, the company has grown over the years into an international group with 16500 employees, whose business activities include not only energy-efficient heating technologies but also intelligent indoor climate control systems. With its product range of heat pumps, boilers, water heaters, electric heating elements, free-standing fireplaces and intelligent control systems, the company provides technologies that allow private and industrial households to regulate their indoor climate in an environmentally friendly way and thus reduce heating costs.
Strong 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 farfetched idea without such solutions. The company manufactures ground-source, air-to-water and exhaust-air heat pumps that transfer heat stored in the environment to indoor spaces. An important effect of this is that sustainably sourced heating energy is likely to be exempt from price increases caused by new climate regulations. Already now, the company’s “Climate Solutions” division, of which heat pumps are a part, accounts for 74% of the company’s revenues. Against the backdrop of EU climate targets, the European heat pump sector is expected to grow at double-digit rates over the next five to ten years, benefiting NIBE’s products thanks to organic and M&A growth. Risks that could affect this growth scenario include the government’s ability to provide the right incentives to encourage broad-based adoption of energy-efficient heat pump solutions among the population. Further, potential alternative technologies, such as hydrogen-powered heating technologies, are already under development but are still in their infancy and are not yet competitive.
M&A activities represent an important element of the company’s strategy. Over the past decade, acquisitions have driven approximately 10% of annual sales growth. The company should be able to keep this pace up in the future, although there is a risk that potential acquisition targets could become more expensive due to the attractiveness of the sector. A key part of the strategy is to acquire smaller companies to accelerate the installation of sustainable heat pump systems and expand the company’s geographical reach. Furthermore, the continuous improvement of energy efficiency is an important goal of the company. This includes developing more efficient motors and smarter controls, as well as new, environmentally friendly refrigerants that can transport heat and cold efficiently over wider temperature ranges, while posing fewer risks to the environment in the event of leakage or disposal.
Thanks to its innovative technologies, NIBE has the potential to contribute to the socially equitable 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 requirements of buildings in the EU and, on the other, cushion the controversial effects of the EU’s new climate policy on private households by significantly reducing heating costs.
However, the initially high investment costs are often a hurdle – an interplay of political and private-sector initiatives and efforts could provide the necessary financing and help to unleash the full potential of such new technologies more quickly and more broadly.