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  • Writer's pictureGayané Grigoryan

Critical analysis of external environment, emerging trends and impact on the air cooling industry.

10 air conditioners will be sold every second over the coming years, as the air-cooling demand is expected to triple by 2030 due to rising temperature.


Current provision of air-cooling is locked in a controversial cause-effect loop, where demand for cooling energy drives further increase in greenhouse gas(GHG) emissions and results in even more global warming - requiring further cooling. Exhibit 1.

The pace of evolution of air-conditioning industry is alarmingly slow even considering best available technology, the industry products only reached 14% of their maximum theoretical efficiency limit.

Bringing into the picture emerging wider macro environmental signals makes the future of air-cooling look even more controversial; and as Richard Branson mentioned “the air conditioning industry is particularly ripe for disruption”.


While traditional wider environmental scanning helped to identify threats, opportunities and the impact of each factor separately, it’s equally important to consider collective impact of these factors as a driving force behind potential disruption and change in the industry value chain.


The following infographic (Exhibit 2.) represents air-cooling industry disruption model based on identified broader environmental factors transforming the industry and its value chain.


The collective power of these forces brings in the wind of changes into the industry’s value creation, configuration and capture processes emphasising the need for sustainable, affordable cooling as a social imperative and synonym for comfortable living.

At the same time, it puts a pressure on the industry providers to explore sustainable pathways deploying digitalisation and circular economy principles including servitisation.


Reflecting on their nature these disruptors are classified as drivers, barriers and enablers:


Drivers. It is projected the world will become 1.5C warmer by 2030, and will require an increase in cooling capacity by 22,2%. The UAE economy is set for a fast recovery from the impact of COVID-19, for the projected period of 2021-2026 GDP per capita will grow at an annual 2,5% rate. Population annual growth rate will be 1,5%, urbanisation will be 87% with estimate to grow at 1,5% annually, unemployment rate will remain as low as 7% for the projected period. A combined effect of the above mentioned drivers will created ripe conditions for an exponential rise of capabilities to meet comfort cooling needs.


Barriers. Concurrent with the drivers is the increasing recognition of cooling as a social imperative and mitigation of its negative impact on the environment. The industry greenhouse gases (GHG) emissions are projected to increase from 7% to 12%. Also, cooling will continue to remain as a key contributor of total energy consumption worldwide and in the UAE (75% at the pick summer time). This reality is tied up with the mounting geopolitical pressure by international multilateral agreements, such as UN Sustainable Development Goals (SDGs), Paris agreement of 2015, Net-Zero pathway and the UAE Government’s consistent attempts to mitigate the industry’s negative impact by introducing restricting policies and regulations.


Enablers: Smart tech and digitalisation will continue shaking the industry by becoming key enablers to overcome inertia of the barriers and create new value.

One of the most prominent trends in the air-cooling industry is the uptake of smart HVAC systems, which offer better controls, building automation capabilities, advanced monitoring systems, internet of things (IoT)-enabled temperature controls, and smart thermostats. These technological trends are particularly going to have the highest potential impact on the environmental and economic sustainability by 52-56% .

Digitalisation will effect every part of the industry value chain with the end goal of making all involved stakeholders “borderless”. Digitalisation enabled game changers such as supply automation, predictive analytics, consumption monitoring, infrastructure hyper-connectivity, consumer data tracking will provide a distinctive competitive advantage and positively impact on financial profitability by 4.5-6.5% CAGR.


Change in Value: Above specified factors along with a range of others such as generational shift (Millennials, Gen-Z) and Covid-19 impacted consumer habits will bring up changes in both air-cooling production and consumption domains with the strong focus on sustainable cooling.


As some global best practices showcase circular economy and servitisation are becoming key stepping stones for sustainable cooling allowing up to 40% energy savings on consumer side and up to 20% cost reduction on the production side.


References:

  1. International Energy Agency (IEA), “Future of Cooling” report, 2018

  2. World Economic Forum, Demand for cooling is blind spot for climate and sustainable development, 2020

  3. “Solving the global cooling challenge” report , Rocky Mountain Institute , 2018

  4. The Global Cooling Prize by Virgin: https://www.virgin.com/virgin-unite/latest/introducing-the-worlds-most-climate-friendly-air-conditioners , 2021

  5. Capitalising on disruptive change, Deloitte, 2017

  6. Sustainable knowledge group, UAE Circular Economy Policy. February, 2021

  7. “Solving the global cooling challenge” report , Rocky Mountain Institute , 2018

  8. Various sources: World Bank, IMF, Dubai Statistics Centre.

  9. “Net-Zero Cooling, climate action pathway co-authored by the Carbon Trust, Cool Coalition, Kigali Cooling Efficiency Program, 2021

  10. “Cooling for all - the 18th SDG” article, Climate and Clean Air Coalition, 2018

  11. Circular on Cooling Regulatory Framework Activation, UAE Department of Energy, April, 2021

  12. UAE HVAC Market Research Report, Prescient & Strategic Intelligence, September, 2020

  13. “Tech for Good, smoothing disruption, improving well-being” discussion paper, McKinsey GI, 2019

  14. IDC Servitization Barometer: Charting your pace to are revenue streams, white paper by IDC, 2019

  15. Cooling as a Service (CaaS), new approach to cooling. Kigali Cooling efficiency program.https://www.k-cep.org/wp-content/uploads/2018/07/Cooling-as-a-service-Knowledge-brief-6.7.2018_Final_online_v1.pdf



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