European countries are widely regarded as being proactive in their efforts at coping with regulations set by the European Union (EU). Germany reportedly is no different, with the country setting its own targets in an earnest move to act in accordance with the region’s sustainability ethos. In light of this, how is Deutschland making headway following the ambitious goals it has set for itself? And how do homegrown manufacturers cope with increasingly stringent energy regulations and external factors related to pricing competition, among others, without compromising on their desire for maintaining global manufacturing excellence of home-grown brands?

Short- and long-term visions

“A lot of regulations and targets come from the EU directly,” says Daniel de Graaf, Scientific Assistant at the German Environment Agency (Section III 1.4 Substance-related Product Issues). “This holds true for refrigerants, as we have the F-gas regulation – everything put down there directly is also valid for German manufactures and end-users of air conditioning and other equipment, where F-gases are involved.”

Koen Bogers, Senior Executive Vice President, Building Technologies, Siemens Middle East, touches on how Germany’s green efforts are affecting the overall strategies of manufacturers. “Climate protection and energy transition are set political goals,” he says. “As a result, a number of political programmes were developed, such as the National Action Plan on Energy Efficiency (NAPE), the Energy Efficiency Strategy for Buildings and the German Climate Action Plan 2050, parts of which have already become laws and regulations. The basic principles are to expand the availability of renewable energies while markedly boosting energy efficiency at the same time, based on the motto ‘Efficiency first’.”

Adding to this, Maciej Danielak, Export Sales Director, Kampmann, says: “The HVAC industry has been severely affected by the Energiewende (energy revolution) and the Ecodesign Directive. Especially following the ever-tightening energy requirements for heating/cooling and ventilation systems. One of the most obvious effects of the Energiewende is a significant reduction of HFC products.”

Robert Compton, Economic promotion – Energy Efficiency & Smart Cities, Germany Trade and Invest, says that energy efficiency and sector coupling in heat and transport have also moved into focus in recent years. In Germany, he says, final energy consumption in buildings has fallen 11% since 2008 – in part due to renewable heating requirements and the broad range of government support on offer. “So yes, policy has influenced energy consumption here,” he says, “[but] there’s still a lot more to do.”

For its part, the German Environment Agency (UBA), de Graaf says, has no direct collaborations with companies, though it is in contact with associations and a number of manufacturers. Overall, de Graaf believes that the situation is “ambivalent” and relevant stakeholders are not responding “appropriately” in all perspectives. “When it comes to prohibition of certain equipment, it is crystal clear what manufacturers need to do and what they need to comply with,” he says. “For example, you are not allowed to put refrigeration in the market with a refrigerant that has a GWP of more than 2,500 from 2020 on. How are they going to replace R-404a, which has a GWP of more than 2,500 – 3,922, to be precise?”

There are already alternatives in the market, de Graaf says, in terms of refrigerant and refrigeration equipment, emphasising that appropriate action can be taken in response to the prohibition. “There is also [the issue of] how to reduce the amount of HFC,” he adds. “The HFC phase-down, which is put forth in the F-gas regulation (Regulation (EU) No. 517/2014), does not prohibit, apart from refrigerants with a GWP of 2,500 or more, particular refrigerants. It is the general decline of the bulk of refrigerants. It’s going down quite fast – by 2030, only 21% of the reference amount is left to put on the market, a cut of almost 80%. You don’t see reaction that is appropriate. This regulation means that the average GWP, which is 2,100 in Europe, must go down to an average GWP of 450.”

This means, de Graaf says, refrigerants that are still currently being allowed, such as R-410A, which has a GWP of 2,088, can no longer be the solution in many applications. “There must come something else today,” he says. “Now – not in 10 years.”

“We see some alternatives,” he remarks, “but some of these alternatives are not really appropriate, like R-32, which still has a high GWP, to really react appropriately to the shortages that we will encounter in the next years. There are still R-410A appliances being sold. There’s only moderate movement in the right direction, and halogen-free natural refrigerants with negligible GWP are still rather the exception than the rule in air conditioning.”

Main hurdles facing the industry

An issue may be the cost-prohibitive nature of new technology that is more compliant with emerging regulations. De Graaf, however, disagrees. “I think it’s less about the cost,” he says. “We observe that equipment with natural refrigerants – they are 10-20% more expensive, but this is only the initial investment – also show better energy efficiency of use. So, if you take a 10-year period, you have savings in energy efficiency. We have our eye on that; it’s not the cost factor.” Additionally, de Graaf says, once these appliances are sold in larger quantities, the difference in price will go down to nearly zero.

What he does consider to be a legitimate challenge, though, is the existing mindset and encouraging people to move out of their comfort zone. “When you go to the alternatives, be they unsaturated HFOs or natural refrigerants, you have to deal with flammability and toxicity,” de Graaf says. “A lot of manufacturers – the craftsman that have to install [them] – are reluctant to deal with something they haven’t dealt with.”

Essentially, de Graaf says, it is an issue of training and education. This lack of knowledge, he stresses, is much more of a hurdle than the cost. On the topic of CFCs and HFCs, both more or less have the same flammability profiles and do not pose much of a concern, he says. However, with regard to refrigerants, such as propane, ammonia and HFOs, he adds, there arises a need to deal with something new. Most, he says, are not keen on learning new things about refrigerants, especially if they have been in the sector for a while.

For its part, UBA, de Graaf says, aims to inform the general public as well as the refrigeration and air conditioning sector with what is happening. “We have already started giving and making reports, doing research and making publications, so people and companies are more aware of what is coming. That’s the most important thing we can do. In the end, it is up to the end-user and up to the company as to what they offer as alternatives to HFC refrigerants.”

Bogers also observes a need for the industry to evolve and adapt to demands: “Suppliers are driven to offer new, smarter and cheaper solutions, as political regulations and medium-term trends demand,” he says. “They have to renounce their ‘old ways’ and realign their market presence and offerings.”

The effect of Europe’s HFC phasedown on Germany

UBA recognises hurdles that manufacturers have to deal with. de Graaf says the 10-20% increase in the prices of refrigerants, which started back in 2014 following the announcement of the new F-gas regulation, is one of them. “We had several of these price hikes,” he says. “Up till now, there was information from a big German wholesaler, who recently announced further price increases, although he already had price increases a few months ago.”

This has further driven the demand for water-based systems, Danielak says, which were already very popular in Europe. “Now, they are becoming even more important,” he says, with the burgeoning prices of refrigerants. “In addition, the investment costs of HFC components are not competitive anymore for water-based units.”

De Graaf says that ammonia is also becoming the refrigeration of choice among cold stores and is becoming more common in the process cooling of large-capacity projects. “The people working with ammonia are really convinced,” he says. “It’s a really good choice and an energy-efficient refrigerant. In air conditioning, we see some projects that are implemented with ammonia, but [it’s] rather a rare thing at the moment’ it’s still mostly HFCs. When it comes to shopping malls and buildings, they also have ammonia. When it comes to chillers – small- or medium-range – it’s predominantly HFC, but R-290 (propane) is a viable alternative here. Ten thousand chillers are running on R290 in Europe already.”

In addition to adjusting to the HFC phasedown regulations, manufacturers must take into consideration the demands of end-users. de Graaf says that convincing end-users that they also have a part to play is also a problem. “For a lot of end users,” he says, “refrigeration and air conditioning is just a part of their business, and they produce something completely different.” Thus, de Graaf says, it is difficult to convince end-users of issues such as regulations and shortages, and to encourage them to switch to more efficient systems in the near future. “It’s about investment cost,” he says. “People have to invest not only money but also time, and need to inform themselves. They are often quite reluctant, [they think] we just keep on going with the equipment we have and why shouldn’t it work well in the future?”

de Graaf believes that as time goes by, this will only become more of a problem, as at some point the shortage of refrigerants in the market might mean some end-users may no longer be serviced due to changes in terms of refrigeration or lack of expertise, which may, in turn, lead to downtime in the production. “There should be measures taken before it becomes critical to a lot of end-users,” he says. “There is a need for joint action, from associations and the administrations, in order to raise awareness of the problems ahead of us.” de Graff says that for the most part, the issue of lack of training and knowledge capacity is not confined to Germany, but is prevalent in Europe and, to some extent, in the rest of the globe.

Public sector support driving trends

Germany’s government is aware of the role it has to play in encouraging stakeholders to invest time, money and effort to meet national targets. Bogers weighs in: “The primary driver is legislation, but also a social rethinking in favour of climate protection, as long as it makes economic sense.” Bogers emphasises that a healthy economy promotes a good business climate and strong market demand, which allows greater investment in building infrastructure to improve building performance. “Continued growth and a strong willingness to invest are forecast over the medium term,” he says. “The political objectives provide the guidelines.”

Compton adds: “Generous government funding programmes cover everything from energy-efficient construction and renovation; industrial heat recovery; and smart, low-energy District Heating networks through to simple actions, such as replacing inefficient household boilers,” he says. “In the heat sector, there has been a remarkable level of innovation with a clear trend towards heat pumps, District Heating and hybrid systems – especially in new buildings. We’re also seeing fuel cells being installed in German basements.” Danielak adds that political will has also driven greater awareness of the importance of indoor comfort and air quality, which he says is an increasingly significant topic across Europe.

Public sector campaigns have evidently also impacted the real estate market, as developers are moving towards more efficient solutions in an effort to comply with legal requirements, lower energy cost and ensure its competitiveness among end-users, who are becoming more aware of government-driven initiatives. Providing an example, Danielak says that the move towards lower energy consumption has prompted “many AC fans to be replaced with EC technology”.

David Miller, Managing Director of Ziehl-Abegg Middle East, elaborates on this further saying that electric motors and the associated fan technology are often “the biggest overlooked culprit” when it comes to energy consumption in HVAC products and building operations. To drive his point, he points to The International Energy Agency’s working paper stating that ‘Electric motors and the systems they drive are the single largest electrical end‐use, consuming more than twice as much as lighting, the next largest end‐use’. “With this statement made,” he says, “we see a greater emphasis on capital expenditures (CAPEX) versus operating expenses (OPEX) calculations in the early stages. We see this trend diffusing globally, as clients are far more focused on their payback periods for energy-focused equipment.”

Miller adds that Ziehl-Abegg is hoping to leverage its experience in the market “to match and exceed the market and the political requirements for fan solutions”, and focusing on innovations in products designed to fulfill the German and European regulations in terms of efficiency.

Germany is also turning its attention to existing building stock. Danielak says: “Buildings which are 70 or 80 years old are being massively renovated and converted. This is due to enhanced standards and energy efficiency [requirements] as well as a growing competition in the real estate market.” This, he says, is prompting manufacturers to design equipment specifically for refurbishments.

Although there is a long way to go for innovations to fulfill the requirements for 2050, Miller says that Ziehl-Abegg views this time as an opportunity to develop the right ideas and stay ahead of political requirements. “We even have a close look on the existing installed equipment,” he says. “Even though this is not on the political agenda we have ways to save huge amount of energy and running cost by refurbishing existing installations.”

Bogers adds that building operators must also take a more active approach to pursuing energy-efficient building operations. This starts, he says, with the requirements for new construction and renovations, but it can also mean better-qualified personnel or the outsourcing of services.

How does it maintain competitive advantage?
In light of this, how are German brands navigating increasingly stringent regulations and market demands without compromising their competitive advantage? Compton believes that while policy and regulations have played a part in encouraging innovation in the German HVACR industry, the country’s “fantastic R&D environment, leading technical universities, and highly skilled workforce play a much larger role”

For Danielak, it’s a matter of pride: “I believe that HVAC companies in Germany are mainly driven by technological expertise and interest as well as high quality demands to call their products ‘Made in Germany’.”

 Automation and smart systems pave the way
Technology is reportedly playing a more important role in helping manufacturers stay ahead, with Danielak describing increasing integration of smart systems as “palpable”. Talking of automation, in general, Danielak says: “This part of technical building equipment is very important for today’s customer. It increases customer comfort, but also it is important for the energy efficiency of the building.” He stresses, however, that it is important that the HVAC system is planned properly and efficiently, otherwise such systems will not work up to their potential.

In residential buildings, Bogers says, there is a clear move towards intelligent control and operation of the building and towards building technology, such as IoT, smart home, especially through information and communication technology, such as bus systems, wireless solutions, smart sensors, actuators and smartphone apps. “This brings building technology onto the smartphone, making it socially acceptable,” he says. In commercial buildings, Bogers says, the intelligent combination of HVAC, Building Automation and Control System (BACS) and building safety and security “offers opportunities for growth through new smart BACS solutions (smart building)”.

Bogers also highlights the pivotal role that BACS plays to maintain high energy efficiency in a building. “BACS is the tool that ensures the correct and optimal interplay of all technical systems, in accordance with building operation requirements,” he says. In his view, BACS will become the interface to the smart grid and will need to receive and “process important control information from the electrical supply network – weighing building operation versus grid stability and electricity availability vs. price”.

By popular demand
Danielak says that another way German companies can maintain their leading position in international markets is through cultivating a strong customer service and after-sales infrastructure. End-users, he says, are showing increasing awareness of sustainability, energy efficiency and design, noting that, in turn, the manufacturer must also provide service, consultation, expertise and honesty.

Bogers, commenting on the trend of rising expectations among end-users with regard to HVAC systems, believes that with the technical complexity already quite high, HVAC costs have, thus, risen considerably and that this is an aspect that must be actively considered. “Rethinking needs to start there,” he says. “How can the required HVAC systems be simplified and made easier to operate, thus reducing operating costs? In this respect, the BACS sector faces a major task and challenge.”

‘Made in Germany’ R&D
The drive of local companies to maintain the avowed manufacturing excellence that their brands have been associated with has also translated to significant investment in R&D in order to keep up with the differing external requirements. “We invest on average 5-7% of our annual turnover in R&D,” Miller says. This, he adds, has been a strategy to ensure the company’s competitive advantage.

Matthias Kasprowicz, Regional Managing Director of TROX, also sharing the company’s commitment towards R&D, says: “Our company profits are re-invested into R&D and product development. This is the legacy of Mr Trox.” Kasprowicz says this was showcased in the fire protection and ventilation system the company implemented in the Elbphilharmonie concert venue in Hamburg, which opened earlier this year, providing an example of the company’s experience dealing with acoustically sensitive sites. “In our R&D facilities, we have our own acoustic laboratory with two reverberation chambers,” he explains “These correspond to the recommendations for reverberation chambers of DIN EN ISO 3741).”

Bogers, sharing recent R&D initiatives at Siemens, such as Building Energy Management System (BEMS) for behind-the-meter optimisation, talks of leveraging the integration of renewables and energy storage and enabling buildings to participate in the energy market, which offers flexibility and control reserves. The development, he says, was “in a joint R&D project with Siemens CT and EM, in the city of Aspern, Austria”.

Leveraging expertise worldwide
With German manufacturers embracing new technology, commitment to after-sales and a drive towards R&D, Compton believes that navigating the external forces has helped, rather than hindered, them. “The German HVACR industry has long focused on producing quality, high-precision, dependable and durable products,” he says. “Indeed, there is a clear focus on manufacturing especially efficient products. I would suggest that the relatively tight efficiency regulations in Germany – in the construction sector, for example – and long-term energy price developments have contributed to German companies having the edge when it comes to high-efficiency HVACR systems.”

Compton adds that German manufacturers can capitalise on the growing awareness of climate change and tighter efficiency regulations to further drive their growth. “With awareness of climate change increasing globally, and most markets introducing tighter efficiency regulations, German manufactures are well placed to meet global demand.”

Manufacturers are leveraging the expertise gained from the significant investment directed towards R&D by transferring their knowledge to other parts of the world, particularly in the Middle East, which they have long recognised as a vital market.

Daniealak, sharing project references across the world, names current projects such as Tencent Headquarter in Beijing, the Abu Dhabi Plaza in Astana, the Huamin Park in Moscow, the Business Center in Vienna as well as the Andreasturm in Zurich. “I clearly see a great potential for our customers from the Middle East region,” he adds.

Kasprowicz also makes a case for the strong presence of TROX in the GCC region, citing the deployment of TROX’s air-distribution technology at the Dubai Opera House. The company, he points out, has also been involved in a number of other venues, such as the Opera Muscat; the National Museum Doha; the Museum of Islamic Art, Doha; The Ittihad Museum in Dubai, the Louvre in Abu Dhabi and many stadium projects.

Similarly, Bogers remarks that Siemens Building Technologies is developing the technologies needed for the future and making them market-ready. “Innovative nations in the Middle East and in Europe,” he says, “are learning from each other’s vision and ambition and adapting these technologies to local conditions.”