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The wave of Connected Air Conditioning is coming to Europe

The US AC control market was hit first by the digital revolution, with companies such as Nest, Ecobee and Honeywell becoming the three best sellers of smart thermostats, but AC in the US and AC in Europe are two completely different systems. The first is a centralised system with one thermostat in the middle of it; the second is made of room by room units of AC which are each controlled with an infrared remote in most cases.

In Europe, connectivity specialists have decided to start with smart thermostats (for boilers) and connected radiator valves (TRVs), the two main control products in the largest EU countries. More recently, they have also been looking at other kind of products controlling space heating, hot water or space cooling, and it is now clear that Air Conditioner controls are one of the next growth potentials.

AC sales in Europe have continued to rise in recent years. In the past, mostly southern regions with a Mediterranean climate clearly had a need for AC in homes. Countries such as Italy, Spain and Greece are some of the biggest markets in terms of penetration rate, with over 30% of homes equipped. In recent years, however, increasingly hot summer peaks have occurred frequently in Europe, and many countries broke historical temperature records. The International Energy Agency predicts the demand for AC will therefore double in the next 20 years.

graph showing steady increase in temperature since 1850

European average temperature over land areas relative to the pre-industrial period. Source: European Environment Agency.

As for other HVAC systems and emitters, connectivity enables customers to better control and program the temperature to fit their life patterns, or even provide an automated version with sensors or geo-fencing if required, but there could even be more benefits added to connecting AC:

  • Manufacturers claim that connected AC will provide up to 30% in energy savings, by reducing energy waste during times where cooling isn’t needed. While these claims depend on so many factors, we tend to agree that customer behaviour leads to electricity waste when equipped with poor controls.
  • The voice interface and smart speaker market will help boost sales as it has done for other smart home devices. Electric heating and cooling typically have quick response time and thus are well suited for voice control, whereas boilers have a much longer reaction time.
  • Customers are more and more interested in air purification, a feature sometimes provided by AC companies. Connected controls could help monitor the air quality and react based on the insights collected, without the customer intervening.
  • Connectivity is an essential part of Heat as a Service propositions, and so will it be for Cooling as a Service. Engie already provides an early version of cooling as a service in France, charging €39 / month for 3 years, with connected controls for some AC brands.

The European market is progressively getting ready for connected home products. From Delta-EE’s research, the European connected home energy market is expected to grow at ~30% per year in most countries. Customers gradually understand the benefits of connectivity which will lead to less barriers to sell new products, including the connected AC which enables the right temperature at any time. Each time a new product is released, there is an increasing chance that customers will have heard of some sort of connected climate control products, and therefore the barrier of awareness and lack of appeal will reduce.

Two battles are emerging in connected AC controls

Like for connected heating, connected cooling will see two very different markets emerging initially:

  • The market for pre-connected AC appliances
  • The market for connected thermostats for AC

Both markets will develop almost independently from each other, as both are targeting different audiences.

  • The market for pre-connected AC appliances

AC companies will sell AC appliances with a built-in connectivity to allow customers to control their AC remotely.  The main AC companies in Europe (such as Daikin, Mitsubishi and Samsung) started the conception of connectivity for AC since 2009. The first rollout to market was during 2014 / 2015. For most companies we interviewed, a Wi-Fi option or an embedded Wi-Fi module is an indispensable feature for all the top-end AC products, and this is gradually being set up for lower product ranges. Today, 12% of AC units installed are connected or connectable.

  • The market for connected thermostats for AC

Connected control specialists target the existing installed base of AC units and aim to retrofit the thermostat with a connected version. These control companies started by providing alternative control solutions to replace the traditional remote control often found linked to an AC unit. The products mainly enable customers to control, program and automate the AC the AC features such as temperature and hours of usage. Some control companies such as Tado also aim at providing advanced features to help customers improve the ambient air quality. In 2019, these companies sold connected AC controls to around ~30k households across Europe, their main markets being Italy, France and Spain.

pie chart showing connected AC sales in 2019 in Europe: 11% retrofit and 89% new sales

In comparison, the market for boiler connected controls saw a similar trend back in 2015, and it was hard to tell which of the two worlds (boiler companies or control specialists) would win out over time. There have been cases where the two partnered, either to install the product onto a boiler (e.g. Viessmann and Tado) or by creating a combined product (e.g. Vaillant and Netatmo). But generally, the large boiler companies thought they were better off doing it themselves, which resulted in the creation of huge business units focusing on connectivity. And today the battle between the two world is still going!

Will we see the same happen for AC? Here are a few thoughts on what it could turn into:

Global tech companies such as LG, Samsung and Panasonic are building their connected home platforms, and they are also some of the largest AC manufacturers. In this case, AC controls are integrated in the overall connected home solution. To illustrate this, Samsung’s smart home mobile application has 100,000,000+ downloads in the Google Play Store. This means Samsung can be much quicker than traditional HVAC companies at creating robust connectivity for its AC units.

Control companies clearly want to be the turn-to companies for all kinds of connected climate controls. They have developed a lot of products for heating in the last few years and are now starting to specialise in cooling as well to provide a full climate control offering. More and more companies try to have a full portfolio of connected controls for hot water and space heating / cooling, for all types of emitters (under floor, ventilation, radiators, direct electric heating etc.), and customers who will have several systems in their homes might as well chose a unique platform to control their indoor climate.

In conclusion, Air Conditioning is no doubt going to be one of the next big battles for the connected home market. There is every reason to believe customers will want to install cooling in their home, and the industry of global AC companies and control specialists are going to fight hard for this prize. Connectivity will become a must have for anyone who wants to be successful in this space.

 

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Sunday, 17 October 2021

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