I have recently been inspired to write a response to a great article by Renew Economy http://reneweconomy.com.au/20
Hot Water Market in Australia – Drivers & Controllers
Great article, as a manufacturer and distributor of Air Source Heat Pump water heaters (made under our design licence in China), I know the Australian hot water market better than most. I have some insight that might be relevant to this discussion in terms of the Australian domestic market.
Firstly, it is interesting to see that just days after the death of a car manufacturer (Toyota) in Australia, we start seeing in the press calls for higher vehicle emissions standards. There is actually a link between the car manufacturing industry and hot water industry in Australia. We have substantially lagged behind every other developed nation on car emissions standards, in fact, we don’t even have car emission standards! Why? Because the cars made in Australia tend to be large 6 cylinder, highly inefficient vehicles. We don’t have emissions standards because the majority of cars we make in Australia wouldn’t meet them.
Now the same thing is happening in our locally manufactured hot water industry. In 2007 at the COAG meeting, all state and territory governments (Tasmania exempt) committed to the "phase out of electric hot water systems" in favour of less emission intensive alternatives such as Gas, Solar and Heat pumps. Over the next 5 years these commitments were implemented in some form or another, although no state reached the point of actually banning electric systems. However, in the last year or so these laws have all been officially reversed in NSW & QLD, the two states with by far the highest level of installed electric hot water systems (combined they would represent 70% or so of all installed systems) in Australia. When you consider the hundreds of millions of dollars that have gone into promoting low emission hot water through state & federal rebates & STC certificates, it seems crazy that we would now start rolling back on our commitment to these technologies and the phase out of high emission electric systems. However, when you start scratching away at the surface you begin to reveal the underlying forces driving the market.
Firstly, the Australian hot water market is dominated by two major companies, one is responsible for around 55-60% of all sales and the second, represents 20-25% of the market. Both these companies manufacture in Australia as well as importing product from overseas. One of the companies is controlled overseas and the other is a locally controlled company. This duopoly is the main reason why Australian’s have not enjoyed lower cost solar hot water systems, despite what would seem significant increases in the size of the market (it has shrunk back significantly over the last year). Unlike solar PV, Solar Hot water & heat pump hot water systems have not seen dramatic falls in purchase costs that are typically found when the volumes increase and economies of scale are reached. This is mainly because, unlike the Solar P.V market in Australia which is comprised of thousands of "importer/manufactures" that compete against each other and help to lower prices, competition in the hot water market is extremely limited. There are only 7 Solar Hot Water Manufactures/Importers in Australia that I could confidently say are selling more than 500 systems per year and only 4 doing the same volume in Heat Pumps. Again, out of these 11 companies 2 own 80% of Solar Hot Water Market and around 60% of the heat pump market.
Importing hot water systems into Australia is a much more complex procedure than importing solar PV. This is due to the inherent safety issues that could arise from poor quality water heaters such as Legionella disease and the potential contamination of water supplies. However, leaving safety standards aside which most countries would adhere to and any product from a quality overseas manufacture would meet.
There are also a number of unique features in the Australian market that need to be taken into account when designing a suitable hot water system. These include; Tank Size (ours tend to be much larger then overseas due to off peak tariffs), Thread connections, electrical supply, etc. This makes it extremely difficult to take an "off the shelf product" from an overseas factory and sell it into Australia (we spent over 3 years designing ours to meet the market needs). Once a product passes Australian standards, the company then struggles to make an impact on the market due to the control of the duopoly and lack of opportunity for a customised product. For example, General Electric has had their heat pump on the Clean Energy Regulators Register and eligible for STC’s credits for over two years, however to the best of my knowledge they have never sold one locally. I could only guess that this is because it is not viable to take the model into production here. This is a great shame for Australian consumers as the G.E American model sells for between $999 – $1299 in the United States, as opposed to our equivalent that sells for between $2499 – $3499. Having more models at this price point would have a major impact on our local market, making the move away from electric hot water systems much more affordable and realistic for the local consumer.
However, G.E is just one of a dozen or more very large companies that have product certified and ready for sale in Australia but have not moved forward and begun distribution. I believe this is largely due to the failure of the government to follow through on their commitment to introducing low emission water heaters. Why did our government not move forward, when others around the world are (America has put in place legislation phasing out electric hot water systems over 50Gallon (190L) in favour of heat pumps from the start of 2015)? This is because the local manufactures did not want it.
This is despite three Regulatory impact statements and hundreds of pages of documents that concluded that the net economic benefit of switching to low emissions technology would far out way any potential loss for local manufacturers. Overseas studies have also shown that due to the purchase patterns of hot water, entrenched brands with distribution would still dominate markets if they choose to import rather than manufacture product locally.
The claim given by politicians was that the switch to low emissions water heating was too high a burden to expect consumers to bear. Despite the fact that they would benefit from much lower electricity bills in the long run. This is certainly true of locally sourced low emission water heaters, however when you can source high quality products from international suppliers and deliver them to consumers for around 50% less (this is even before economies of scale are in place) this argument does not stack up.
I remember having a conversation with one of the big two state manager for NSW around five years ago, and he said "hot water manufacturing in Australia is safe as it is not feasible to ship air from overseas". What he meant is that electric storage systems are bulky products and it is not worth manufacturing overseas and then having high transport costs plus import duties. This is not true for example with continuous flow gas water heaters for which the vast majority are imported and rebadged in Australia.
However, while it is not worth importing an electric hot water system say from China or Thailand as it will cost $300 landed (250L electric landed att 1AUD – 1USD) and one can only presume the local manufactured price is a similar amount or less. Although, when you start adding solar panels, evacuated tubes or heat pump compression systems to these tanks and suddenly the price versus the locally sourced products drops significantly and importation becomes a lot more viable. This is why we will not see cheap low emission hot water systems in Australia anytime soon.
Don’t believe me, but has anyone heard a peep out of the two major players in regard to the Ret Review, when this could have a major negative impact on support for Solar & Heat Pump water heaters in Australia? No! Did anyone hear major backlash from these companies when the phase out of electric hot water systems was slowly dismantled? No! They don’t want to switch to Solar or Heat Pumps because it’s hard and they would not be competitive. The government does not want to switch to Solar or Heat Pumps because it’s hard and we might lose another 1200 jobs (The number of employees, employed by Australian hot water manufactures in Australia. Although realistically the number of job losses would be far less as only a percentage of these are involved in the manufacturing side and even then this would not die completely).
Now I am certainly not knocking locally made product or against Australian jobs. I live in this beautiful country and employ people myself. However, I think more people need to be made aware of what is really going on around them, whilst highlighting the true motivation behind certain government actions and policies.
By Simon Baird