Heat pumps

Europe re-accelerates on gas-price shock + REPowerEU; US digests 25C expiry

The European heat pump market re-accelerated in 2025-2026 after two years of decline. Residential heat pump sales rose 11% in 2025 across the European Heat Pump Association reporting members - the first year of growth since 2022. Q1 2026 sales rose 17% YoY across 11 reporting countries with ~575,000 units sold vs ~494,000 in Q1 2025. France, Germany, and Poland averaged 25% growth. The drivers are (a) the renewed gas and oil price spike following Iran's closure of the Strait of Hormuz in March 2026, (b) continued REPowerEU programme subsidies and Member-State fossil-boiler phase-out mandates, and (c) the working-through of 2023-2024 inventory overhang from the previous policy-driven boom-bust cycle. Meanwhile in the US, the federal 25C residential heat pump tax credit ($2,000/year) expired at the end of 2025, removing the primary federal subsidy. The combination of the A2L refrigerant mandate transition (effective 2025), a new-construction slowdown, and the 25C expiry produced a ~13% total-market decline in 2025. The 2026 recovery is tentative - AHRI heat-pump shipments rose ~10% in March 2026 YoY suggesting refrigerant supply has normalised, but Carrier Q1 2026 residential sales were still down 12%.

State of the art (2026)

As of mid-2026 the residential heat pump market is mature but regionally divergent. Europe has returned to growth after a two-year slump: EHPA members reported ~11% growth in 2025 (~2.62M units) and +17% year-on-year in Q1 2026, led by France, Germany and Poland. The US contracted ~13% in 2025 as the OBBBA killed the 25C credit at year-end and the A2L refrigerant transition disrupted supply; 2026 is a tentative recovery. Daikin, Mitsubishi Electric, Carrier (now owning Viessmann after its EUR 12B 2024 deal), Bosch and Midea lead volume. The live frontier is high-temperature industrial heat pumps reaching 150C+ process heat, where MAN, GEA and Johnson Controls compete.

Installation friction is the main brake on US retrofit adoption

Even with the 25C expiry, US heat pump economics relative to gas baselines work in most Southern and Southwest US markets at the margin. What holds back faster retrofit adoption is installation friction - typical installations require contractor site visits, sizing calculations, ductwork modifications, electrical-panel upgrades, and tradesman labour that has not historically specialised in heat pumps. Daikin launched a plumb-and-play residential air-to-water heat pump in April 2026 designed to reduce that friction; SPAN, Panasonic, and Mitsubishi are all pursuing similar pre-engineered system kits. The structural test is whether reducing installation friction generates the unsubsidised volume the 25C credit had been pulling forward. If Daikin Fit and similar plug-and-play systems gain meaningful share in 2026-2027, the US market normalises into a post-subsidy growth profile. If not, the US market stays compressed and Europe captures the global volume share.

Industrial high-temperature heat pumps are the 2027-2030 frontier

Residential and commercial heat pumps are commercially mature. The 2027-2030 expansion frontier is industrial high-temperature heat pumps - 100-200C process heat for food and beverage manufacturing, pharma, chemicals, paper-and-pulp, and district heating. The IEA estimates industrial heat pumps could displace a third of European industrial gas demand by 2035 if commercial parity is reached. MAN Energy Solutions, GEA, Johnson Controls, Carrier, Mitsubishi Heavy, Star Refrigeration, and Friotherm are competing on heat-pump designs that reach 165C+ process heat. The economics still depend on natural gas vs electricity price ratios; sustained European electricity-cost normalisation through 2026-2028 combined with industrial gas-decarbonisation mandates pushes the segment toward commercial parity. The structural question for 2027-2028 is whether the European industrial-heat-pump market scales fast enough to compensate for any sustained US residential softness.