ARC analyst: Energy issues spur changes in HVAC market

Joe Gillespie, analyst for the ARC Advisory Group, recently completed his report, “HVAC Control Systems Worldwide Outlook,” which is available at He discussed the report’s finding and trends ahead of this month’s AHR Conference in Orlando with Plant Engineering: PE: Identify some of the key market drivers in the HVAC market.

January 1, 2010

Joe Gillespie, analyst for the ARC Advisory Group, recently completed his report, “HVAC Control Systems Worldwide Outlook,” which is available at . He discussed the report’s finding and trends ahead of this month’s AHR Conference in Orlando with Plant Engineering:

PE: Identify some of the key market drivers in the HVAC market. How do those factors affect plant managers and those in charge of capital budgets?

Gillespie : There are several forces driving the HVAC market but the energy management craze is, without a doubt, having the largest impact. Volatile energy costs and tightening government regulations helped open businesses eyes to the economic, social, and environmental benefits of optimizing energy consumption.

In the past, energy efficiency wasn’t a primary concern for plant managers or company executives because energy costs were perceived to be a small fraction of total costs and the majority of executives’ focus was on reducing fixed costs, not variable ones. This perception has faded, however, and plant managers must now look for ways to reduce energy consumption without sacrificing plant performance. Up to this point, however, manufacturing plants have been slow to adopt energy management initiatives and intelligent HVAC controls.

In adverse economic climates, decreasing consumer demand for products leaves manufacturers with less capital to invest in equipment and software. In this environment, all capital expenditures are closely monitored and heavily scrutinized. The executives in charge of capital budgets are responsible for finding a delicate balance between preserving capital in a challenging economic environment and making strategic investments that will benefit the company over the long term. These executives must also consider the one-time government subsidies currently available for capital investments in equipment that lowers energy consumption.

These subsidies become even more attractive when you examine the likelihood of the government imposing increasingly tough regulations on energy efficiency and emissions in the near future. Astute executives recognize these factors and are becoming increasingly familiar with the ability for the latest generation of HVAC control technology to help them find this delicate balance.

PE: One big change for plant managers has been the emphasis on energy efficiency as a cost center for the plant floor. How does that change the way plants buy and specify future or retrofit HVAC projects?

Gillespie : One important change is that the new emphasis on energy efficiency is further spurring adoption of HVAC control systems in plant environments, particularly in the semiconductor, pharmaceutical, and food and beverage industries. In new plants, HVAC control and energy management initiatives will be considered during plant design. For retrofit projects, a strategic implementation plan that minimizes plant downtime should be carefully considered.

In both project types, plant managers will gravitate towards a system that is flexible, can be controlled remotely via the internet, reports system performance in real time, quickly identifies and transmits alerts, seamlessly integrates with enterprise management systems, makes energy savings visible and quantifiable, and demonstrates a quick ROI.

Plant managers will place higher emphasis on the total cost of ownership of a system instead of focusing solely on the initial implementation costs.

PE: We hear a lot about smart buildings as they apply to commercial structures, but the same can be true for industrial facilities? What kinds of products and innovations are we seeing in the market? Why should plant managers consider this kind of technology?

Gillespie : ARC believes the industrial market is heading towards a model that provides an integrated holistic energy management solution that will monitor, analyze, and optimize all sources of energy consumption in a plant, not just the HVAC system, and deliver this information to an enterprise management system in real time.

These initiatives will leverage proven concepts utilized in building management, plant asset management, and resource management such as intelligent sensors, web enabled networks, variable speed drives/motors, and advanced control algorithms as well as newer technologies like demand response, vibration harvesting, heat/steam recycling, and onsite renewable energy production. Digital systems that measure, monitor, and analyze energy information and can quickly react to dynamic plant and energy conditions in order to maximize output while keeping energy costs minimal are becoming an essential tool in a plant manager’s arsenal.

There are numerous reasons plant managers should consider these technologies, but most importantly they should realize that energy management initiatives and the concept of sustainability are not fads; but rather a paradigm shift.

The responsibilities of plant managers are changing, and energy consumption is now another variable that must be considered in their complex production equations. A refusal to acknowledge or adapt to this change may compromise a plant manager’s job security.

PE: Overall, what does the U.S. market look like for HVAC? What are the next cool things headed down the line?

Gillespie : The majority of business in the US HVAC market in 2010 will be generated from existing commercial and institutional buildings. It is estimated that three-quarters or more of all projects in the US will be retrofit projects in the next few years. This is due to the aging inefficient infrastructure and government stimulus funds allocated to upgrading the energy efficiency of existing buildings in the U.S.

The majority of HVAC and energy management projects in industrial manufacturing facilities will also be retrofit projects over the next few years. The global economic climate has led to low capacity utilization rates in most industries, which means manufacturers are not building new plants, and will have no problem ramping up production when demand returns; without the need for new factories.

The US government has also made a commitment to update its aging electrical grid. The stimulus package allocates over $11 billion to the modernization of the grid. The new Smart Grid will have a drastic impact on businesses and manufacturing in the U.S. with the most pervasive changes being real time energy pricing determined by the current demand load on the grid and the ability for companies to sell excess energy back to the grid.

This creates incentive for companies to not only reduce their overall energy consumption but also meticulously monitor energy usage and identify spikes in daily energy prices to quickly reduce consumption, delay certain operations until energy prices are lower, or switch power sources (i.e.: internal generation) so energy costs can be kept to a minimum. To accomplish these goals and accurately track energy prices, alter production to optimize energy consumption, and visualize the process and cost savings, advanced digital control systems are necessary.

PE: What’s the single biggest factor a plant manager should consider when looking at their overall HVAC equipment?

Gillespie : Plant managers should ensure their HVAC and energy management systems provide visibility into the energy and cost savings generated by the system, the health of the system and its components, the plant’s reduced environmental impact since installation, and historical trend data.

The ability to easily quantify and report the savings generated by the system to executives is nearly as important as the overall reduction in energy costs. These systems should also be able to quickly recognize and adapt to ever-changing process conditions, such as variable energy costs, to optimize production while minimizing energy consumption.

Plant managers should also consider the long term needs of the plant, such as the ability to economically expand/reconfigure the system as plant needs change. Modular systems that allow incremental additions, communicate with third party products via open bidirectional communication protocols, and utilize comprehensive wireless mesh networks create a flexible system that can easily be expanded upon or altered as plant environments change.

A flexible system protects a company’s HVAC system investments well into the future and provides an easy migration path to future system upgrades. This helps minimize downtime and maximize plant performance when incremental additions to the system are installed.

According to ARC Advisory group analyst Joe Gillespie, new plants will have HVAC energy efficiency built right into them, while existing plants may be able to take advantage of government subsidies when retrofitting existing plants.