The inventor of the air conditioner, Carrier, is shifting focus to home heat pumps.

• The company that was founded by Willis Carrier and has been in business for nearly a century is undergoing a transformation due to the growing demand for heat pumps and other HVAC climate technologies. These technologies have been outselling fossil fuel furnaces for the past two years.
• Carrier's chief technology and sustainability officer, Hakan Yilmaz, stated that HVAC is currently at a turning point.
• By 2050, the demand for cooling HVAC systems is predicted to triple due to the increasing population of 2.8 billion people residing in hot climate zones, with only 8% currently utilizing such systems.

Heat pumps are highly efficient and cost-effective alternatives to conventional fossil-fuel furnaces and air conditioners, despite being around for decades.

Heat pumps are gaining popularity among homeowners due to various reasons, including tax credits and rebates offered by the federal government and states to reduce greenhouse gas emissions and promote renewable energy.

The company, founded by Willis Carrier and nearly 100 years old, is transforming itself to take advantage of the growing market for heat pumps and sustainable HVAC technologies.

"David Gitlin, Carrier Global Chairman and CEO, emphasized the importance of HVAC in achieving sustainability, stating that it is a critical component in the "megatrend" of sustainability, during a meeting with investors in February."

In 2020, after being spun off from United Technologies and divesting several non-HVAC businesses, Carrier made its largest bet yet on the heat pump boom by acquiring Germany's Viessmann Climate Solutions for approximately $13 billion. Along with proprietary heat pump technology, Viessmann offers renewable energy capabilities, home battery storage, smart home system controls, and applications that can be integrated to drive energy efficiency.

The HVAC industry is at a turning point, with a significant shift toward electrification, moving away from fossil fuel-burning boilers and furnaces to heat pumps, according to Hakan Yilmaz, Carrier's chief technology and sustainability officer. Additionally, the demand for cooling is expected to triple by 2050, as 2.8 billion people live in hot climate zones and only about 8% have access to HVAC today. The massive scale and consumption of energy required for resiliency pose a significant challenge for the industry, but also provide an opportunity to capitalize on the growing demand for sustainable solutions.

Heat pumps have a history dating back to 1850s

Heat pumps were invented in the 1850s and have been used in homes since the 1960s. These devices use electricity to transfer heat from a cool space to a warm space, making the cool space cooler and the warm space warmer. Modern heat pumps are three to five times more efficient than fossil-fuel furnaces and work well even in extreme temperatures.

An air-source heat pump system typically consists of an outdoor unit that resembles a central AC device and an indoor unit that circulates warm or cool air through ducts and vents or ductless mini-splits.

Heat pumps can reduce greenhouse gas emissions by up to 80% when using cleaner electricity and by 20% when using fossil fuel-generated electricity, according to the International Energy Agency. These devices account for 30% of global energy consumption and contribute to 26% of energy-related GHG emissions in residential and commercial buildings, as per the IEA.

In 2023, air-source heat pumps surpassed fossil-fuel furnaces in sales for the second consecutive year, as reported by AHRI, the trade association representing HVAC manufacturers. Rewiring America, a nonprofit promoting mass-scale electrification, estimates that 16% of U.S. homes currently use heat pumps for heating and cooling. In September, the U.S. Climate Alliance, comprising 25 governors, pledged to achieve 20 million heat pump installations by 2030, with the goal of ensuring that at least 40% of the benefits accrue to disadvantaged communities.

In the U.S., so far cold states are leading the way

Heat pumps are increasingly popular for air conditioning in southern states, but Maine has the highest adoption rate, with 100,000 units installed two years ahead of schedule and a goal to install another 175,000 by 2027. This contradicts the notion often promoted by the oil and gas industry and utilities that heat pumps are not effective in below-freezing temperatures and therefore require a fossil-fuel furnace as backup.

Consumer Reports' senior home and appliances writer, Tobie Stanger, stated that new heat pumps designed for cold weather can effectively go to five degrees, and are widely used in Nordic and European countries. A Consumer Reports analysis found that heat pumps use far less energy than other heating systems in cold climates. According to Dave Lis, director of technology market transformation at Northeast Energy Efficiency Partnerships (NEEP), air-source heat pumps can work as a home's main heating system in almost any climate.

Carrier plans to expand its heat pump offerings by adding models from Viessmann, which already has a presence in the U.S. market. Beyond its sustainable energy technology and product portfolio, "one of the reasons we acquired Viessmann was because of its experience in training dealers and installers and helping customers understand the benefits of its products," said Milena Oliveira, Carrier's chief marketing and communications officer.

Carrier is offering training, education, advertising, and promotional support to its nationwide network of around 2,100 authorized dealers, not only for heat pumps but also for ancillary products such as smart thermostats and energy storage batteries. The company aims to capitalize on the growing importance of home energy management by encouraging dealers to shift their focus from selling products to selling solutions and components.

Mark Prodan, the operations manager of M&M Plumbing and Heating, a Carrier dealership in Indian River, stated that their heat pump business experienced a growth of approximately 35% last year. He predicts that it will likely increase by another 40% to 50% this year.

Heat pumps are often overlooked as an energy-efficient and cost-effective solution, but once customers are educated on their benefits, they are usually receptive to using them.

Prodan stated that on-site and remote training of M&M's sales and service staff have been beneficial. The company has a website with knowledge-based videos, calculators that demonstrate cost savings to customers, and an app for service guys that can scan bar codes to retrieve information and manuals.

Getting tax credits and rebates while they last

Homeowners can receive a 30% federal tax credit for purchasing and installing Energy Star-certified air-source heat pumps, including Carrier and other brands, up to $2,000 annually. This credit covers any related insulation, ducting, mini-splits, and electricity upgrades.

Several states and local utilities provide financial incentives, some based on income levels. For example, Connecticut offers a rebate of up to $15,000 for qualifying heat pumps, while New York State issues rebates through utility companies that can range from $8,000 to $12,000. Maine offers between $4,000 and $8,000. The Energy Star website has a "rebate finder" that provides information by zip code.

The cost of installing a heat pump system can vary greatly depending on several factors, including brand, size, location, and job complexity. According to Consumer Reports member surveys, the median price paid for a ducted heat pump between 2018 and 2023 was $8,348. On the other hand, mini-splits can cost anywhere from $2,000 to $6,000 per unit, plus installation.

Heat pumps can generate savings by eliminating the cost of fossil fuels, even when factoring in the price of electricity. Homeowners switching from inefficient HVAC systems that run on fuel oil, propane or traditional electric resistance (like baseboard heat or electric furnaces) can save around $1,000 per year.

In 2024, Carrier is projected to have sales of $26.5 billion, which is an 8% increase from its 2022 sales of $20.4 billion. Despite this growth, the stock has been stagnant in recent times.

"As a sustainability-focused, higher growth, pure-play company, this year is significant for us as a company, according to Gitlin, who stated this in a recent call with analysts. We will begin to see the tremendous benefits from the combination of Viessmann."

"Deane Dray of RBC Capital Markets stated that when companies make significant changes to their product portfolio and divestitures, it highlights the importance of management expertise and skills. He added that he approves of the approach taken by these companies, particularly in the case of the heat pump focus, which not only makes economic sense but also has a positive impact on the environment."

Dray anticipates higher margins, more services, and more aftermarket revenues as Carrier aims to achieve net-zero GHG emissions in its own operations by 2030 and across its value chain by 2050. The recent stock retreat, he says, does not concern him.