The urgency of a warming world is increasing demand for cooling solutions even as newer industrial applications in areas like data centers create more growth opportunities for new entrants and established vendors.
With the world still recovering from a global heatwave, the need for cooling solutions globally is becoming more apparent. Rapid industrialization and urbanization in developing economies, coupled with a re-shoring of industry in nations like the United States, are bringing new levels of demand to cooling technologies of all types.
Meanwhile, the economies of convenience ushered in by e-commerce and food delivery are adding more demand to the cold chain industry, while data centers to store, manage, and deliver the platforms for these services continue to expand — alongside newer innovations in information technology like artificial intelligence and blockchain, which have voracious energy and cooling needs.
Against this deluge of demand stands an increasingly robust regulatory environment, which wants to balance the need for more cooling solutions across industries with greater efficiency and more environmentally friendly inputs.
To highlight this point, the International Energy Agency has taken a strong interest in how cooling will impact energy demand over the next twenty-six years. Without significant investment in energy efficiency and behavioral change, the agency warned that the demand for space cooling would double energy consumption.
Image Credit: International Energy Agency
Data center demand growth and the explosion of advanced machine learning tools only compound the problem. In a recent report on electricity consumption, the International Energy Agency estimates the data center industry could add as much new demand as the entire nation of Germany by 2026. The agency notes that cooling represents 40% of total demand, with the chips accounting for another 40%.
The Industry Responds
Leading industrial companies like Carrier Global, Johnson Controls, Daikin Industries, Trane Technologies, and Schneider Electric are all adapting quickly to the new market dynamics.
Nearly all these companies are integrating machine learning and networking technologies into their offerings. Carrier and Johnson Controls pitch predictive maintenance, energy optimization, and enhanced user control as features of their latest systems.
Vendors like Honeywell are developing replacement refrigerants for HVAC systems. Since 2019, the company has been collaborating with Trane Technologies and Toshiba Carrier to introduce a new class of non-flammable refrigerants to comply with new regulations.
Sustainability also drives Trane Technologies’ Thermo King business to invest heavily in electrifying its cooling solutions. The cold chain transport company began trialing electric cooling solutions for trucking with Walmart and others in 2022.
These large vendors are also bolting on new business lines in the cooling industry to improve their performance as they see demand increase.
Data Centers Are the New Black
The surge in data center demand, driven by the exponential growth of cloud computing, artificial intelligence, and edge computing, is significantly reshaping the cooling equipment market.
With data centers consuming massive amounts of power and generating substantial heat, the need for advanced, efficient cooling solutions has skyrocketed. This has led to the adoption of technologies like liquid and immersion cooling, which are more effective for high-density servers.
Companies like Equinix and Intel are leading the way in deploying these innovative cooling systems across their data centers. The data center cooling equipment market is projected to grow substantially, contributing significantly to rising revenues in the cooling industry.
Spending on data center cooling reached $18.65 billion in 2023, according to data from Grand View Research, and could grow at a compounded annual growth rate of 16.8% over the next six years. The new data center industry represents one of the most significant areas for growth for many industrial suppliers — including power and HVACR. The rise in data generation and new tools like machine learning, which have more considerable power demand than traditional data centers, is a market ripe for new entrants — even among old-line industrial equipment manufacturers.
Image Credit: Grand View Research
Regulatory Pressures Create Opportunities
Even as demand soars, new regulations are being drafted to ensure that the cooling industry can manage its growth sustainably and advance its solutions to improve efficiency, reduce pollution, and reduce reliance on toxic chemicals.
One of the most significant recent changes in the HVACR regulatory landscape involves updates to energy efficiency standards. Starting January 1, 2023, the U.S. Department of Energy (DOE) implemented new minimum Seasonal Energy Efficiency Ratio (SEER) requirements. For central air conditioners, the minimum SEER increased from 13 to 14 in northern states and 14 to 15 in southern and southwestern states. Similarly, heat pumps now require a minimum of 15 SEER and 8.8 Heating Seasonal Performance Factor.
In addition to SEER, the industry adopted the SEER2 standard, which uses a revised testing procedure to reflect real-world conditions better. These changes aim to improve the accuracy of energy efficiency measurements and push manufacturers toward more energy-efficient technologies.
Refrigerant Regulations
The phase-out of high Global Warming Potential (GWP) refrigerants remains a central focus. The Environmental Protection Agency (EPA), under the American Innovation and Manufacturing (AIM) Act, has initiated regulations to phase down the use of hydrofluorocarbons (HFCs). Effective January 1, 2025, HVAC systems will transition to A2L refrigerants with a lower GWP but are mildly flammable. This shift requires significant adjustments in manufacturing, handling, and storage practices for HVACR equipment.
Leak Repair and Emission Reduction
The EPA has also tightened regulations on refrigerant leak repairs to minimize environmental impact. New rules mandate rigorous leak detection and repair standards for refrigerant equipment with a GWP above 53. These regulations require faster repair response times, comprehensive documentation, and strict adherence to prescribed submission formats for extension requests. This effort aligns with the Kigali Amendment’s goals to reduce HFC emissions by 50% by 2050.
Impact on the Industry
These regulatory changes have profound implications for the HVACR industry. Manufacturers invest heavily in research and development to create products that comply with the new efficiency and refrigerant standards. The transition to SEER2 and A2L refrigerants, in particular, poses technical and logistical challenges and opportunities for innovation.
Additionally, the cost of compliance may lead to higher prices for HVAC systems, impacting consumers and businesses alike. However, the long-term benefits include reduced environmental impact and lower energy consumption, ultimately supporting global sustainability goals.