Cecilia Ling, Investment Banking Analyst – Cecilia.ling@szc-group.com

The Heart of Building Comfort: A Deep Dive into HVAC System
 What is HVAC
HVAC refers to the technology used for indoor environmental comfort within buildings, including residential homes, commercial buildings, industrial spaces, and vehicles. HVAC systems play a crucial role in creating comfortable and healthy indoor environments, improving energy efficiency, and ensuring safety and productivity in various settings.

H stands for heating. HVAC systems provide heating during colder months to maintain comfortable indoor temperatures. This can be achieved through various methods such as furnaces, boilers, heat pumps, or electric heaters.

V stands for ventilation. Ventilation involves the exchange of indoor and outdoor air to maintain indoor air quality. Proper ventilation helps remove indoor pollutants, control humidity levels, and replenish oxygen. What will happen if there is no ventilation? All the carbon dioxide goes to the AHU through the return duct, and gets filtered there, and goes back to the room. When carbon dioxide continues to go to that room, the amount of oxygen decreases and all the people will have an uncomfortable situation, where they will not be able to work properly. To avoid such problems, the fresh air duct is connected from outside in the return duct of AHU. When the outside oxygen and carbon dioxide mix, we can maintain the required amount of oxygen in the room.

AC stands for air conditioning. HVAC systems also provide cooling during warmer months to regulate indoor temperatures and reduce the dust. There is a lot of dust in the air that may come in from outside. So filter all these dusts through a filter and eliminate moisture through a moisture eliminator and send the good quality air to the room is the meaning of air conditioning.

 Benefits of HVAC
Utilizing a properly functioning HVAC system offers numerous advantages for both building managers and occupants. For example:
1. It enhances indoor air quality by providing ventilation and air filtration, promoting a healthier environment.
2. HVAC systems contribute to increased comfort by regulating indoor temperatures consistently throughout the year, which can improve productivity and wellbeing of the building’s occupants.
3. Maintaining HVAC systems optimally ensures energy efficiency, leading to cost savings and reduced utility bills.
Overall, HVAC systems offer comprehensive control over temperature, air quality, and energy usage, thereby improving comfort, health, and sustainability in buildings.

 Three Major Trends for HVAC
Data Aggregation:
Many building owners seek to centralize all possible data about the equipment in their buildings in one place, enabling insights and optimizing performance. Products have existed in silos for years, but by bringing all the data together, new insights can be derived. If the data collected is of the right quality, it can also be successfully used for purposes other than its original one. For example, avoiding sensor duplication reduces carbon footprint in buildings, while leveraging machine learning on datasets can optimize building performance. Aggregation of building data makes it easier to compare the performance of different buildings and best practices can be propagated to less performing buildings. However, a large number of different product features and system functions can make comparisons difficult, and this has led to the second trend.

Simplification:
Amidst the complexity of HVAC systems, there is a trend towards simpler solutions. This is motivated by the need for easier comparison of functionalities and the integration of higher-level logic, particularly in the context of residential smart home ecosystems like Matter, where interoperability drives consistency and simplicity. Homeowners are also focusing on residential smart home ecosystems. For example, the emerging Matter communication standard facilitates enable the connectivity among various products. To ensure smooth operation of such ecosystems, products openly disclose their features, fostering interoperability and driving consistency and simplicity. Rather than competing based on the quantity of features, products may vie for ease of interaction and excellence within the ecosystem.

Demand Response:
Rising electricity costs are spurring interest in HVAC systems capable of responding to hourly rate fluctuations, with the potential to significantly reduce peak energy consumption. Such systems offer benefits such as grid stability, cost savings and the opportunity for financial rewards through efficient energy usage. Depending on the heating equipment, it can account for up to 80% of a building’s energy consumption, making it ideal for reducing peak energy consumption. Reducing the fan power of air handling units or turning off electric heaters can quickly reduce power consumption. This will have an impact on the quality of the indoor environment, but it can be addressed if handled properly.

 HVAC Industry Market Trends in 2024
“The HVAC industry in the USA is a major economic driver. HVAC companies generate $150 billion in annual revenue and employ over 1.5 million people in the U.S” (SBE 2024). The HVAC trends in 2024 reflect ongoing demand for HVAC services, particularly in regions with strong construction activity and a focus on energy efficiency and environmental sustainability. The HVAC market trends in 2023 indicated that the U.S. Midwest region accounted for the most HVAC industry revenue, comprising over 22.4% of the market. Growth in the construction industry was identified as a significant driver of demand for air conditioning contractors, with an emphasis on features like indoor air quality, natural ventilation, and energy consumption. The southern region of the United States experienced the highest revenue growth in the HVAC services market over the past three years. Additionally, the high penetration of air conditioning equipment in residential households, reaching nearly 90% across the country, continued to drive demand for HVAC equipment. However, the substantial energy consumption of air conditioning systems, which consume 6% of all electricity produced in the United States, resulted in significant annual costs for homeowners, totaling approximately $29 billion. As a result, over 50% of HVAC customers expressed willingness to pay for more eco-friendly and energy-efficient HVAC systems, indicating a growing market for sustainable HVAC solutions.

 Key Factors Influence Investments
The global HVAC systems market size was estimated at USD 233.55 billion in 2023 and is projected to grow at a compound annual growth rate (CAGR) of 7.4% from 2024 to 2030. The market growth is driven by the rising need for cost-effective and energy-efficient space cooling and heating applications in the commercial and industrial sectors. Furthermore, rising demand for the high seasonal coefficient of performance (SCOP) heating equipment, which can be efficient in both winter and summer, is expected to fuel the product demand. Moreover, the growing global population is increasing the requirements for affordable housing units and enhanced commercial infrastructure.

Nowadays, especially post-COVID, there is increasing focus on indoor air quality and ventilation in preventing the spread of respiratory illnesses, leading to increased awareness and investment in HVAC systems with advanced filtration and purification technologies. Additionally, the shift towards remote work and online learning increased the demand for HVAC solutions that provide optimal comfort and air quality in residential settings.

The growing popularity of Variable Refrigerant Flow (VRF) systems in the HVAC market is another factor influencing investments in the industry. VRF systems offer benefits such as improved energy efficiency, precise temperature control, and flexible zoning, which make them appealing to a wide range of customers. Additionally, the expanding construction sector, coupled with the need for advanced HVAC technologies, further stimulates investment in the global HVAC market. As construction projects proliferate, there is a rising demand for efficient heating and cooling solutions, propelling investment in innovative HVAC systems like VRF.

 Conclusion
The development of HVAC systems has significantly transformed the way we regulate indoor environments, offering a multitude of benefits for both building occupants and managers. From improved indoor air quality to increased comfort and energy savings, HVAC technology continues to play a vital role in enhancing the quality of life and sustainability in buildings. As advancements in technology and environmental awareness continue to drive innovation in the HVAC industry, we can expect further improvements in efficiency, integration, and eco-friendliness, ultimately shaping a healthier and more comfortable future for all. Additionally, the increasing emphasis on indoor air quality and ventilation, particularly in the post-COVID period, has spurred heightened awareness and investment in HVAC systems. Also, the rising popularity of some eco-friendly and energy efficient systems is attracting significant investment in the industry. As a result, the global HVAC market is experiencing steady growth, which presents lucrative investment opportunities in the industry.

 Reference:
1. HVAC system types: What are they & how do they work:
https://www.boxt.co.uk/air-conditioning/guides/hvac-system-types
2. TRANE: What is HVAC:
https://www.trane.com/residential/en/resources/glossary/what-is-hvac/
3. What is HVAC and How Does it Work (2024 Guide):
https://www.architecturaldigest.com/reviews/hvac/what-is-hvac
4. Three major trends in HVAC today:
https://mp.weixin.qq.com/s/nwD9RucW3I30kxLkn87Ezg
5. HVAC Industry Trends in 2024:
https://sbeodyssey.com/blog/hvac-industry
6. Industry & Market the HVAC Industry:
file:///Users/linglin/Downloads/study_id61572_heating-ventilation-and-air-conditioning-industry-worldwide.pdf
7. Statista:
https://www.statista.com/statistics/1057068/jobs-hvac-renewable-heating-cooling-industry-us-states/
8. How do HVAC systems work and what are their benefits:
https://les.mitsubishielectric.co.uk/the-hub/how-do-hvac-systems-work-and-what-are-their-benefits
9. Top HVAC and FM Industry Trends to Watch out for in 2024”
https://www.hvacrecruitment.com/blog/2023/11/hvac-fm-industry-trends?source=google.com

10 HVAC Systems Market Size, Share & Growth Report, 2030 (grandviewresearch.com)
HVAC Systems Market Size, Share & Trends Analysis Report By Equipment (Heat Pump, Air Purifier), By End-use (Residential, Commercial, Industrial), By Region, And Segment Forecasts, 2024 – 2030