Controlling HVAC intelligently

The HVAC controls market exceeded $10 billion in 2006 and is forecasted to continue growing at a compounded annual growth rate of nearly 4% over the next five years, hitting $13 billion in 2011. One of the key factors contributing to the growth is the drive to upgrade and efficiently operate the aging facilities in the mature markets of North America and Europe.

By Jared Malarsky, China business manager, ARC Advisory Group, Dedham, Mass. November 1, 2007

The HVAC controls market exceeded $10 billion in 2006 and is forecasted to continue growing at a compounded annual growth rate of nearly 4% over the next five years, hitting $13 billion in 2011. One of the key factors contributing to the growth is the drive to upgrade and efficiently operate the aging facilities in the mature markets of North America and Europe.

In response to increasing interest in this market, ARC Advisory Group , Dedham, Mass., conducted a study to validate the trends and drivers affecting this market. Although the HVAC controls market is stable, it is nonetheless undergoing some significant changes, as ARC’s research identified. This article highlights findings in the report concerning manufacturers and buying preferences of owners that are of interest to the engineering community.

System upgrades and replacement represent 28% and 25% of revenue, respectively, and these numbers are higher when only looking at the developed markets of North America and Europe, owing to their installed bases. Traditionally, once a supplier installed a proprietary system in a building, the supplier could count on many years of steady replacement and upgrade business. As today’s building owners become more sophisticated, they value the flexibility of pursuing best-of-breed solutions.

However, at the end of the day, most building owners are cost-conscious and want to replace or upgrade only bad components, not the entire system. Owners also want to be able to place multiple buildings on a single network integrating systems from different suppliers. In this way, the installed base is driving the move toward open platforms and easy IT-based integration between newer systems and legacy systems.

With this shift, a dilemma crops up in the minds of suppliers. As the open systems that suppliers reluctantly have developed begin to allow existing customers to shop around when upgrading or replacing system components, more pressure is put on suppliers to differentiate in order to maintain the relationship with their customers. Suppliers have responded by offering innovative hardware. However, there will be less of a distinguishing characteristic going forward, because many of the controllers and associated hardware devices can be sourced cheaply as commodities from low-cost manufacturers in Asia.

At your service

Service is where leading suppliers can best leverage their decades of experience and engineering resources, and this is where most suppliers are making their most concerted efforts to differentiate themselves.

According to the report, service accounts for nearly two-thirds of revenues for most leading suppliers, and this is the fastest growing revenue source relative to hardware and software. Most suppliers are expanding their direct service forces in a two-part strategy. First, they want to capture as much service revenue as possible; second, the complexity of their systems keeps increasing, so they want more control over the quality of the customer experience.

The in-house training and specialized product expertise of direct supplier-employed staff is becoming more critical for installation, commissioning, and maintenance. There is still an enormous need for skilled technicians, and this remains one of the most interesting contradictions in the market. On one hand, new systems feature improved interoperability, remote, real-time management over the Internet, more user-friendly human-machine interfaces, and enhanced optimization intelligence and automation; on the other hand, there is an increasing requirement for IT networking and programming skills to make all of this work.

The HVAC industry’s adoption of IT standards serves to simplify the management of building data. The operating system is located on a Web server at a safe, central location, data are stored centrally on historians, and Internet-enabled thin client workstations, laptops, and even PDAs are used to monitor and control a building or buildings. The data and control commands also are packaged in a way that equipment and control systems from differing vendors are more likely to recognize.

Integrating HVAC systems without the use of IT standards historically has required expensive customization, which hinders building owners as they acquire buildings with differing automation systems. When building data are repackaged using standardized Internet communication protocols, it reduces the amount of customization required and makes it possible to use existing Internet infrastructure. However, the migration requires:

The buy-in and support of the building IT department, because they control the network

Stronger IT skills on the part of the people who install, operate, and maintain these systems.

A lack of mutual understanding between IT engineers and facilities managers is a common problem. This human factor needs to be addressed for a system to be implemented and operated effectively. Education, communication, and leadership at a senior level are essential to overcoming this issue. This is relevant from both a sales and operations point of view, and numerous supplier executives explained that the customer’s chief technology officer and chief information officer are becoming just as important in the bidding and implementation process as the traditional facilities manager.

Finally, suppliers responding to the ARC survey report that customers in educational markets often buy systems for a network of buildings. This could consist of a public school system spread out across a town or city, or a university with dozens of buildings on a sprawling campus. Such schools are in a unique position to leverage the networking capabilities and multi-vendor interoperability of modern Web-based control systems to consolidate many buildings onto a centralized control system. This reduces staffing levels and provides a single point of control. This is in stark contrast to the office building sector, where ARC has identified a disconnect between owners, who usually want to build the building as cheaply as possible, and tenants, who want a comfortable and convenient environment.

End users benefit by outsourcing this responsibility to experts while they focus on their core competencies. Suppliers, systems integrators, and contractors should evaluate their capabilities in this area and anticipate the evolving needs of the increasingly sophisticated, cost-conscious, and environmentally friendly building owners.

Survey methodology

This report looks at who are the leading suppliers of HVAC control systems, what challenges and opportunities are driving the market, and what the growth path is likely to be over a five-year forecast period. The market is broken down into segmentations including hardware, software, and services; world region; market sector or vertical; building size; and sales channel. Data for the report were gathered through interviews with senior executives of leading HVAC controls suppliers, secondary research, and from ARC’s extensive database.

ARC’s report focuses on the intelligent control portion of HVAC systems such as controllers, software, and human-machine interface, and excludes equipment such as chillers, fans, and sensors.

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