Market Assessment of Multi-split Air Conditioning Systems in the Chinese and Global Market

Commercial air conditioning systems present a key opportunity for reducing greenhouse gas emissions by reducing fossil fuel-based electricity consumption through improved efficiency and through transitioning to refrigerants with low greenhouse gas warming potential (GWP). In particular, variable refrigerant flow (VRF) is a rapidly growing category of multi-split air conditioning (AC) systems that now accounts for a quarter and more than half of the global and Chinese markets, respectively.  This report reviews the multi-split AC market in China and its key demand growth drivers, followed by a detailed market assessment of the Chinese multi-split market by size and capacity, by efficiency levels, and by manufacturers. A summary of the global market and recent technology trends and refrigerant choices is also provided to inform revision of the 2008 China minimum energy performance standards (MEPS) for multi-connected AC equipment and revision of MEPS for multi-connected AC equipment globally.

China’s commercial air conditioning market is driven by the country’s economic growth, strong real estate market and rebounding construction market. VRFs are increasingly replacing chillers, and are also driven by demand from expanding home improvement and furnishing sales, e-commerce platforms and growing demand from younger generations of homeowners. The regional distribution of VRF sales remain fairly steady, with half of the sales coming from the economically developed Eastern coastal region which still has significant potential for growth, followed by the hot and tropical Southern region. North and Central China together accounts for another quarter of sales. In terms of specific end-use sectors, East China dominates in terms of residential, office and commercial AC demand, while North and South China face stronger demand for commercial ACs than residential ACs. As a result of these demand drivers, VRFs have grown from the second largest product category amongst packaged multi-split AC products in terms of market value, with 11% market share in 2015 growing to 50.3% market share in 2017 with total market value of 40 billion RMB. After VRFs, chillers and unitary ACs are the second and third largest product categories.

For both residential and commercial multi-split ACs, common configurations include large outdoor unit capacity with 4 or more indoor units of varying capacities. For residential VRFs, the most common configuration includes 5 indoor units with each main room of the residence (including bedrooms and living rooms) having one indoor unit while for commercial VRFs, mini-VRF system with 4 indoor units are the most common. Defining the specific number of indoor units for testing in the test methods that accompany the revised MEPS will help address possible efficiency comparability issues between models with different configurations and number of indoor units.

In terms of efficiency, China introduced its MEPS for multi-split ACs that include VRF systems in the same product category as fixed-speed, variable-speed and digital scroll units in 2008. This current MEPS applies to all units with nominal cooling capacity of 28,000 W or greater, and uses Integrated Part Load Value (IPLV) for cooling as the energy efficiency metric. Since 2012, market survey data shows that the model-weighted efficiency of all products has increased by more than 50% varying by the capacity.  For variable-speed multi-split units in particular, the model-weighted average efficiency is relatively high in the range of IPLV cooling values of 7 to 8 W/W in 2015 but could include prototype models with limited availability. In 2016, however, the model-weighted average efficiency declined slightly in for the smallest cooling capacity class as some lower efficiency multi-split models entered the market.

In the Chinese multi-split AC market, there is a significant difference in the sales distribution by energy efficiency grade as defined by the China Energy Label efficiency thresholds included in the 2008 MEPS for fixed-speed multi-split ACs versus variable-speed and digital scroll multi-split ACs. While the average efficiency of variable-speed and digital scroll multi-split units are already in the range of Grade 1 (most efficient) efficiency as defined by the 2008 MEPS, fixed-speed units are generally in the range of Grade 3 and 4 efficiency. There was little change in the sales distribution by efficiency class for all three product types. This suggests that with the exception of fixed-speed multi-splits that continue to lag in efficiency improvements, existing efficiency thresholds based on the 2008 MEPS are no longer effective in differentiating among the efficiencies of variable-speed and digital scroll multi-splits sold on the market.

In terms of the landscape for manufacturers, the Chinese multi-split AC market has historically been dominated by major Japanese brands including Daikin, Hitachi, Mitsubishi Electric, and Toshiba, which had the largest market presence and continue to show robust growth. Over the last few years, however, Japanese brands are facing growing competition from domestic Chinese manufacturers including Gree, Midea, and Haier with a combined market share of nearly 30% in 2017. The market is also seeing very small but growing shares from American brands including Johnson Controls, Carrier, Trane, and York and McQuay and European brands such as Dunham-bush and Bosch.

Globally, China has also been a key driver of global VRF sales, reaching over 1.3 million systems in 2016. In 2016, China accounted for the majority of global VRF sales with 54% share, followed by Europe, Japan, and South Korea, each with shares of around 10%. In terms of global technology trends, the highest efficiency VRF systems in the U.S. market have achieved Integrated Energy Efficiency Ratio (IEER) of over 9 W/W and Energy Efficiency Ratio (EER) of over 4 W/W for units in the 20 to 28 kW cooling capacity range. Mitsubishi Electric has also introduced the first hybrid VRF system that utilizes a hybrid branch controller to provide simultaneous heating and cooling with heat recovery, with a model introduced in May 2018 for the United Kingdom market that uses alternative, low-GWP R-32 refrigerant. Because R32 is considered a mildly flammable but safe refrigerant, research groups such as the Japan Society of Refrigeration and Air Conditioning Engineers have started to conduct risk assessments to understand the probability of fire incidents under different scenarios. Further research will help address possible safety concerns with using R32 as an alternative refrigerant for VRF systems in the future. 

We conclude that:

Ÿ  Demand for multi-splits is growing rapidly not only within China as a result of strong economic growth and commercial building (as well as some residential) demand for cooling services, but is also driving global VRF sales.

Ÿ  Domestically, Chinese manufacturers are emerging as new players in the multi-split AC manufacturing industry.

Ÿ  Market survey data show that the average energy efficiency of all three types of multi-split AC systems have far surpassed the existing 2008 MEPS efficiency requirements, suggesting that more stringent requirements are needed to reflect rapidly changing market conditions.

Improving the stringency of multi-split AC MEPS in China will bring significant economic, energy and emissions benefits to China and globally as the Chinese multi-split market