Corporate consolidation , rising prices , and a trend of prioritizing investor compensation in the heat pump market could work against federal spending designed to promote adoption of heat pumps , according to a paper published by the American Economic Liberties Project . American Prospect , an independent news organization , reported on the paper in an article headlined , “ Private Equity Intensifies Rollups of HVAC Installers .”

The American Economic Liberties Project , a Washington , D . C ., group that opposes economic concentration , released the paper , titled , “ Lessons From the Heat Pump Market : Why Market Structure Analysis Matters for Effective Industrial Policy Design and Implementation ,” on Oct . 16 .

The paper examines the market for residential heat pumps , which are supported by the Inflation Reduction Act ( IRA ) as energy-saving technology . Because the IRA supports heat pumps in the form of demand-side subsidies — which pay for part of the cost to a final buyer in purchasing the technology — the IRA itself largely overlooks the market structure and supply chain for the manufacturing and installation of heat pumps , from global manufacturers all the way down to local installers , according to the paper .

“ We find several concerning trends in the market for heat pumps that industrial policy implementation should take into consideration ,” the paper states in an executive summary . “ First , heat pump manufacturers continue to pour enormous amounts of their financial resources into investor compensation in the form of dividends and stock buybacks , rather than making larger investments in expanding capacity . Second , acquisition activity among these manufacturers appears to

be speeding up in the wake of the IRA ’ s passage , with a few multibillion-dollar deals already announced or recently consummated . Third , there are concerning signs that consolidation at the local level of installation and distribution may lead to price increases down the line , with manufacturers acquiring regional distributors and private equity firms acquiring HVAC installers at a concerning rate . With the price of heat pumps continuing to rise , the risk is that the increased demand from

IRA subsidies may simply be captured by consolidating interests in the heat pump supply chain , meaning that final consumers and buyers will not benefit directly from the IRA ’ s subsidies .”

The American Prospect notes that the paper makes several recommendations to promote competition , including limiting shareholder compensation , promoting productive capacity , and mandating interoperability standards for residential heating .

“ The administration ’ s turn to industrial policy marks a significant win for those who believe government is a key pillar for building a resilient and just economy , yet its success hinges on maintaining competition as these key sectors are supported ,” said Erik Peinert , research manager and editor at the American Economic Liberties Project . “ Without competition , these large-scale subsidies worsen our current concentration crisis and undermine the policy ’ s success .” l FON

28 NOVEMBER 2023 | FUEL OIL NEWS | www . fueloilnews . com