As originally published in Properties Magazine
By: ProcurementIQ Analyst, Deonta Smith
As climate change prompts volatile temperatures and weather patterns across the United States, offering a wide range of system solutions has become particularly important to today’s HVAC suppliers. In some parts of the country, summer temperatures have reached historical highs in recent years, while in other areas periods of rainfall have been uncharacteristically long. To combat climate change, suppliers have even introduced a range of new technologies and installation methods, and the federal government has been offering incentives to urge buyers to purchase more environmentally friendly systems. With warming weather patterns showing no signs of subsiding and HVAC system installation and repair prices rising, there is no better time for contractors, homeowners and property managers to invest in modernizing their systems.
Rising Temperature & Demand
In the past decade, average temperatures have been consistently rising. According to NASA and the National Oceanic and Atmospheric Administration (NOAA), 2016 was the warmest year globally, 2015 was the second warmest and 2017 was the third warmest since records began in 1880. This trend has affected a number of states, especially Idaho, Nevada and Texas, which have seen the most significant temperature increases, according to Global Engineering Associates.
With the summer season approaching and construction activity surging, the use of HVAC systems is expected to rise. Furthermore, the percentage of homes in the United States with air conditioners has been increasing, and as a result, demand from homeowners and other residential property owners has grown. Similarly, demand has risen among businesses. Owners of office spaces and commercial buildings across the country have been spending more on HVAC system construction and maintenance in an effort to maintain comfortable temperatures in their structures.
Unfortunately for buyers, the price of HVAC system construction and maintenance has been increasing in line with demand. Contractors typically include the cost of materials and equipment in their service bids, so any increase in the price of HVAC equipment, refrigerants or aluminum ductwork will raise the total cost of services for buyers. According to ProcurementIQ, HVAC and refrigeration equipment and material purchases account for an estimated 44.2% of the average service provider's cost structure. As service providers have taken on more work during the past three years, the price of replacement parts for air-conditioning, refrigeration and forced air heating systems has been rising at an estimated average annual rate of 1.2%. This price is expected to grow at a faster rate of 2.6% in the three years to 2021. Because the cost of installation and maintenance is expected to increase in line with equipment prices, buyers should engage in service agreements now.
Incentives to Adopt New Technology
The market for HVAC installation is highly saturated, with nearly 90% of U.S. buildings already having systems installed, according to the Washington Post. However, studies have shown that some coolants used in older systems produce harmful emissions that may contribute to environmental damage and warmer climates. In addition, older units consume a considerable amount of energy, which drives up oil and gas production, leading to higher emission levels. As such, tax credits have been offered to buyers of energy-efficient HVAC systems as part of recent federal government efforts to reduce the country’s greenhouse gas emissions. Government tax credits for installing HVAC systems with qualifying energy-efficiency ratings were originally set to expire at the end of 2011, and again in 2016. However, these credits were renewed in February 2018 to incentivize residential and commercial buyers to upgrade and retrofit their HVAC systems.
As buyers become more interested in reducing their environmental footprint, HVAC manufacturers have produced more energy-efficient systems infused with green technologies to generate new sources of demand. As a result, modern HVAC systems have better air barrier enclosure systems, which improve energy efficiency by 20% or more. However, these products are more expensive, and the improving technologies will push up the price of their construction and maintenance services. Furthermore, inspections will increase following the installation and repair of a system; according to energystar.gov, improper installation reduces system efficiency by up to 30%. While government incentives are still being offered, ProcurementIQ advises buyers to procure HVAC installation services now prior to further price growth.
Savings in Taking Action Now
As contractors, homeowners and property managers increasingly seek more economical and environmentally friendly solutions for battling warmer temperatures, adaption serves as the most important trait of the HVAC system construction and maintenance market. While the price for installation and maintenance services has risen, it is also important to act now due to the future uncertainty of tax credits paid to buyers; the rising federal budget deficit could prompt Congress to end the energy-efficiency program.