Fifty years ago, natural gas transformed homes with instant heat and hot water. But the days of gas and other fossil fuels dominating domestic fuels may be numbered. Rapidly evolving policy in the EU is searching for technologies to speed up electrification and decarbonization.
Heat pumps could be part of the answer, binding households once and for all into reducing carbon emissions. Our experts in new energy technologies, Fei Wang and Ben Gallagher, and Murray Douglas, European gas, explained the options.
What is the technology?
Heat pumps are a proven technology, a heating and cooling system that’s ready for mass deployment. Two types are suitable for residential or commercial use – air source and ground source. Unlike a combustion boiler, they don’t produce heat but work like a fridge, transferring heat from a coil outside the building to a second coil inside using a refrigerant. The process can be reversed for air-conditioning in summer. They run on electricity, ideally zero-carbon renewables.
The big advantage is the heat pump’s exceptional energy conversion rate. A modern gas boiler has an efficiency rate of around 80%, with 20% lost in the process. Heat pumps can have 300% efficiency, generating 3 kilowatts (kw) of thermal energy for every 1kw consumed.
How big is the opportunity?
Huge. Over one-third of global energy demand is space heating in the residential and commercial sectors, served by a mix of fuels. Gas is the incumbent fuel in Europe (43%) and an important part of the mix in the US (40%), where electricity already has the biggest share (44%); while coal dominates in Poland and China. Oil and LPG are still widely used globally where communities are remote from gas infrastructure.
The penetration of heat pumps into the market today is minuscule. But the opportunity is massive – many multiples of the 20 million systems installed world-wide.
What’s holding heat pumps back?
First, the upfront costs of installation. These can be up to US$15,000, about five times the cost of an average gas boiler. Yet the heat pump’s higher efficiency doesn’t fully compensate over the life of asset. New York state, for instance, has a cash incentive that makes it economical to switch from fuel oil, but it’s still not enough to beat gas.
Second, air source pumps, the cheaper of the two, see a decrease in energy efficiency as temperatures drop to sub-zero, though their performance in colder climates is improving. Ground source does work at low temperatures but is more expensive and needs outdoor space to lay the pipe system.
What’s the game changer for heat pumps?
All eyes are on European policymakers. The EU’s ‘Green Deal’ aims to accelerate the reduction in carbon emissions from 40% by 2030 to 50% to 55%. That won’t be achieved just by pushing coal out of the power mix – it needs to expand into non-power sectors. Some high energy-intensive industries like steel will take longer, so the focus has to be on transportation – and heating.
Residential and commercial space heating accounts for 11% of global emissions and is going to be in the crosshairs. Some European markets have already legislated against gas connections to new homes and commercial premises. The key question is whether heat pumps can make the big breakthrough to displace incumbent fossil fuel-based heating in existing homes. States in the US, including New York and California, are leading policy advocates of heat pumps.
The ability to reverse heat pumps is a real bonus. They can be a one-stop shop to decarbonise both heating and air-conditioning.
What are the implications for future gas and electricity consumption?
The EU’s 2030 targets are ambitious and may rely mostly on squeezing coal out of the power market. Heat pumps’ economics are just one barrier – the skilled workforce to roll out the systems at scale isn’t there yet. It could be that, like electric vehicles, heat pumps go mass market in the 2030s rather than this decade.
The potential loss of gas demand by 2040 could be substantial – we reckon as much as 25% lower in the residential sector to get on the pathway to reach the Green Deal’s ultimate goal of net-zero emissions by 2050. That’s around 50 billion cubic metres, or 10% of total demand, in the EU27 plus UK today. Meanwhile, switching from fossil fuels to heat pumps will drive up electricity demand, adding to pressure on power infrastructure.
What does it take to be a mobile worker in Mumbai, one of the world’s most populated and congested cities, with more than 20 million residents?
Just a bike and a smart phone, according to Swaminathan Subramanian, the chief people officer of Reliance Capital. The company’s mobile workers often take to bike, motorcycle, or moped as they sell mass-market financial products such as mutual funds and life insurance, meeting their clients where they live or work. Some of those clients have extra funds to save or invest for the first time, thanks to rising incomes in India.
Other employees for Reliance, especially those who maintain relationships with its wealthiest clients, work more traditionally and commute to company headquarters, so they can meet their clients in a more formal office setting.
“We have a very heterogeneous workforce,” Subramanian says.
Subramanian’s job includes crafting policies and finding technology that can meet the needs of all of Reliance’s 25,000 employees, while also attracting the right new talent to drive the financial conglomerate’s nine lines of business.
The opportunity is huge for a well-regarded financial services company like Reliance Capital in India, which at its current GDP growth will add 140 new million new households to its middle class in the next decade. Even more importantly, that economic growth should lift nearly 25 million households out of poverty during the next 10 years, reducing the share of households below the poverty line to 5%, down from 15% today. Reliance Capital, founded in 1986, is in its 13th consecutive year of growth. The company had total assets of Rs 79,207 crore ($11.3 billion) as of June 30, 2019.
With so many customers and so many employees needed to serve them, Reliance Capital launched an initiative called the “HR 360-degree project,” using Oracle HCM Cloud. The project aims to unify human resources processes across the nine business units and improve the work environment.
Subramanian explains that the team called the project “HR 360” to reflect the idea that it covers employee HR processes from “hire to retire.” Project leaders evaluated the offerings of several technology providers with that start-to-finish goal in mind. The company ultimately chose Oracle HCM cloud because its various modules could help automate recruiting, onboarding, goal-setting, performance evaluation, and pay—“the whole nine yards of the employee lifecycle,” he says. The cloud aspect ensures that Reliance Capital is always using the most modern HR applications, automatically updated by Oracle. Reliance Capital turned to Oracle HCM Cloud to unify human resources processes across nine business units and improve the work environment.
The selection team also considered Oracle HCM Cloud’s ability to connect effectively with some of the company’s other important applications, particularly its existing financial platform, so his team could factor in budgets while making HR decisions. Subramanian envisions the finished architecture as a wheel, with Oracle HCM Cloud at the center, connecting with other applications and the various Reliance Capital entities.
The first phase of the HR 360 project went live in March 2019, offering core HR services to 8,500 employees. The company’s many remote workers especially appreciate the ability to access the system through a mobile device. Also popular is the self-service feature that lets employees make changes to their personal data, apply for days off, and look up benefits enrollment.
The second phase of the implementation ended in October 2019 when the ninth and final Reliance Capital business unit went live with the new HR platform, making it available to 16,000 more employees. This phase also added Oracle HCM goal-setting and performance management. In all, the HCM project took 18 months.
To handle the business opportunity offered by India’s improving economy, Reliance Capital built a new jobs website and began expanding its effort to attract new workers using the recruiting capabilities of Oracle HCM Cloud. The recruiting portal has already attracted 2,500 job applicants. “In the previous environment, all the recruiting was handled manually,” Subramanian says.
Did You Know That?
With all systems go, Subramanian’s HR team took two additional steps to encourage the large employee workforce to embrace Oracle HCM Cloud.
“This was an opportunity for us to rejig our processes and adopt the best international practices that Oracle HCM brings to the table.”
First, the more than 100 HR professionals in all nine Reliance Capital subsidiaries got together and mastered the new system before it went live so they could tutor other employees. Next, the HR team created a series of online learning modules called “Did You Know That?” Each module explained how to perform an HR task that employees could reference while learning the new system. As an example, where the nine companies each had their own method of accounting for full-time employees, contingent workers, and part-time workers, now all the companies use the same process, vastly improving what Subramanian calls “data sanctity.”
Employees embraced the new system more easily than the HR team expected. “We had expected inertia,” Subramanian says. “But thankfully adoption of the new system was much faster than anticipated.”
Employees recognize the new system gives them instant access to accurate data, which makes their jobs easier. They can quickly take care of administrative matters like updating their addresses and personal information, reporting sick days, and signing up for benefits. At the same time, all employees fall under consistent HR programs and practices, regardless of where in Reliance Capital they work.
“They’re now free to entirely focus their time and efforts on the business,” Subramanian says. “This was an opportunity for us to rejig our processes and adopt the best international practices that Oracle HCM brings to the table.”
The work is far from done, though, as the HR team listens carefully to employees’ feedback about the system.
“We didn’t do a victory lap at go-live,” Subramanian says. “We actually took that as the starting point, added employee feedback, and embarked on a continuous improvement journey.”