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    Chiller Industry Adapts to Change

    Dec. 1, 2007
    Contracting Business interviewed several leading manufacturers and contractors to learn their opinions on where the industry stands in relation to chiller technology, system changeouts, training, and public relations. Though these inteviews don’t represent all the viewpoints of industry in its entirety, they provide insight into the status of the chiller replacement market from the people on the front line.

    We’re one year closer to January 2010, a key deadline as it relates to the elimination of CFC and HCFC refrigerants used in chillers and other refrigeration systems.

    Contracting Business interviewed several leading manufacturers and contractors to learn their opinions on where the industry stands in relation to chiller technology, system changeouts, training, and public relations. Though these inteviews don’t represent all the viewpoints of industry in its entirety, they provide insight into the status of the chiller replacement market from the people on the front line.

    CB: Is the industry behind when it comes to replacing older chillers with new equipment that uses environmentally friendly and acceptable refrigerants?

    Kelly Romano: It’s a customer-driven decision to repair or replace, typically based on what makes financial sense. As new products continue to become more efficient, it’s easier for the customer to choose to replace rather than repair a chiller that’s 20 to 30 years old. Today, some chillers provide three to fouryear paybacks. As technology continues to narrow the payback period, it becomes an easier decision for customers to replace.

    Larry Kouma: The replacement of old CFC-using chillers certainly hasn’t gone as quickly as many of us would have expected. But at this point, with approximately 40,000 older units still in the field, there’s growing economic justification for owners to replace them. With the CFC phaseout dating back to 1995, the newest CFC chillers out there are now about 12 years old, meaning repair and maintenance is starting to get more costly. In newconstruction projects, however, we’re definitely seeing specifications calling for HFC-only chillers or those using natural refrigerants that have no phaseout associated with them.

    Dave Holmquist: Yes, the industry is behind in its efforts to replace outdated chillers. Most customers look at return on investment (ROI), and there’s not sufficient motivation to replace a chiller that’s operating properly.

    Pat Rucker: We don’t think so, for several reasons. When the regulations became effective, many chillers were retrofitted to use the new environmentally acceptable refrigerants. At the same time, an intensive campaign was launched to make all machines leak-free. To avoid refrigerant loss, machines were tightened and high efficiency purge systems were added. Alarms and leak monitoring equipment were installed to alert operators to the slightest of leaks. We very seldom need to add refrigerant today when servicing this equipment.

    Randy Seaman: Even though here in Western Michigan we’re blessed with a large number of green buildings and green construction, there are still a lot of people who are very money conscious. That means let’s fix it, let’s “band-aid” it together.

    We’ve got some customers who have multiple chillers, back-up chillers, and they just let that equipment slide. They want us to fix the one that they need, don’t worry about the other one. There’s a lot of that going on.

    Dick Starr: The kW cost per ton has a huge impact now. The newer chillers are just that much more efficient, so if you can prove you can provide that kind of efficiency, and can show a five-year or better payback, then people will listen.

    Chiller Roundtable Participants

    Manufacturer Manufacturer Manufacturer Contractor Contractor Contractor Contractor
    Larry Kouma, director, large tonnage packaged chillers, Johnson Controls - YORK Products. Kelly Romano, president, Building Systems and Services, Carrier Corporation. Dan Williams, director, product strategy and systems, Building Systems and Services, Carrier Corporation. Dave Holmquist, technical manager, central chillers, Owens Corp., Minneapolis, MN. Pat Rucker, president, Entech Sales & Service, Dallas, TX. Randy Seaman, president, Seaman’s Heating/ Refrigerating/ Air Conditioning, Grand Rapids, MI. Dick Starr, president, Enterprise HVAC, Twinsburg, OH.

    CB: Is part of the answer the issue of ‘repair versus replace?’

    Kouma: Without a doubt, we’re very lucky to have many skilled service technicians who find ways to keep older equipment up and running, sometimes just to get through “one more season.” That keeps owners from having to make large capital outlays for new systems.

    But there comes a point where the repairs themselves become quite costly.

    Rucker: Customers always start with weighing the repair versus replacement cost, but there are other factors that they must think about. Rising energy costs force them to consider how much more efficient the new chillers really are. In some cases, old centrifugal chillers are more efficient than replacement screw chillers. Another factor is the cost and availability of parts for the older chillers.

    Seaman: We don’t replace chillers very often. When it’s time for a new chiller, usually one of the “Big Three,” Carrier, Trane, or York will sell it direct. They bypass the contractor in a lot of areas.

    Most often, if our customer doesn’t see a very quick payback period offered by a new chiller, they’ll just opt to fix the one they’ve got.

    CB: How much is the struggling residential new construction market impacting the commercial market, if at all? Is it impacting your business?

    Seaman: Yes. Those residential contractors have to do something to make their house payments, so they’re starting to drift into the commercial market. Many of the lesser complicated new construction projects are probably being priced by the residential contractors who are just trying to find something to do. I think most of the commercial contractors are getting pushed into more sophisticated systems.

    The residential contractors’ wage structure and benefit structure is often less than their commercial counterparts. So they can bid lower and get the work. And, for simpler systems and repairs, they may be able to handle it fine. But certainly not chillers.

    Romano: The housing market has not yet affected the chiller business. Globally, we saw commercial HVAC up in the mid-teens in 2006, with a high single digit percentage projected for 2007. While the commercial market could slow slightly due to carry-over effects of the residential housing decline and its impact on the economy, overall the market should remain healthy.

    Kouma: We see the residential market as separate, with a different cycle. All aspects of our commercial business are experiencing a very robust market at this time.

    CB: Each year, manufacturers present new evolutions of control technologies onto their chiller equipment. How does this new “smart” technology impact the marketplace? Is it as beneficial as we like to think it is? Are building owners buying it?

    Holmquist: Building owners are buying it, however, facility managers are more cautious. They definitely want qualified contractors working on their equipment.

    Williams: In the chiller segment, product integrated controls have been a given for a number of years to help optimize chiller performance. In the near future, technology will allow for dynamic chiller plant optimization using prognostics and diagnostics.

    Kouma: We’ve developed improvements in control capabilities along with upgrades in the chiller hardware, all aimed at more uptime and greater energy-efficiency of the equipment. Especially in the chiller market, the market expects and demands this evolution. And we have a track record of proven performance — seen in the customer’s lower utility bills — to support this.

    Seaman: The manufacturers are doing a very good job of making their systems as efficient as they can. And they could even do better, but they have to be competitive with the next guy.

    It seems like everybody is always held back by the lowest common denominator. It’s too bad, but the person with the lowest price usually gets the job. And I say that’s too bad because that’s not usually the person who is leading in technology. So we’re all held down, to a certain extent, by the price of the lowest bidder.

    Rucker: The smart controllers are providing customers with much better efficiency and better information about their chiller plant. Some controllers still have bugs that need to be worked out. Most of the time, customers don’t know what they’re getting, but as they learn what the controllers can do, they accept and appreciate them.

    Chiller training is essential as technology continues to improve. Entech, for example, offers chiller teardown classes for anyone interested in continuing education. And, competitors are welcome.

    CB: The Green Building movement is slowly working its way through the marketplace. How is it impacting your business? From a manufacturer’s standpoint, is the movement creating more cost or more opportunities, or both? If so, why? If not, why? From a contractor’s viewpoint, can you make money doing green work? Can you share how going green contributes to your profitability?

    Starr: In this area, the manufacturers are ahead of contractors. There probably is a need for more chiller education and replacement education than is currently available. There are enough misgivings by contractors about some of the newer technologies, such as the series 400 refrigerants, and so forth.

    Now, it seems like the whole green building influence is just starting to catch on. It’s obviously more effective in government or institutional buildings, than in private industry. The green impact, coupled with higher energy costs, is starting to make some sense to people. I believe we’re just now on the front end of a brand new awareness.

    Everybody wants to say that “green” doesn’t cost any more, but I’m not yet seeing that. Where it allows an owner to differentiate, it makes a ton of sense — for example, schools or the Red Cross are in it more for the social consciousness. But for the private industry, going green still depends on the bottom line.

    Romano: Green is definitely an opportunity. Buildings are responsible for 40% of total energy use in many countries. Energy use is increasing at an annual rate of 3% in the U.S. alone and growing rapidly in countries such as China and India. A recent study by the World Business Council for Sustainable Development indicates that worldwide building energy consumption is expected to grow 45% over next 20 years.

    Facts and trends such as these tell us that green buildings are the future of our industry, and of our planet. Sustainable designs that minimize the environmental impact over the life of the building are critical.

    Kouma: We’re focused on helping to create “smart environments” that are more comfortable, safe, and sustainable. We address that through equipment and controls, service, consulting, performance contracting (including green performance contracting), and so on. In the chiller market, the green building movement has not dramatically affected equipment design; all major manufacturers have been working for a long time toward better efficiency, use of environmentally responsible refrigerants, appropriate sound reduction, and more.

    Where we do see a direct impact is in the demand for our application expertise in the design of new, high-efficiency systems. That, in turn, creates more opportunities, and that will accelerate as the greenbuilding movement expands, and life-cycle cost analysis grows in importance with it.

    Seaman: The Green Movement is affecting Western Michigan pretty significantly. I have three guys going through the accreditation for LEED (Leadership in Energy and Ennvironmental Design) this winter, because some of the major manufacturers around here are very energy-conscious. It’s the same way with some of the “money” we have in this area from people who fund things such as museums. If they allow any money out of their foundations to help any buildings in the area, they’re leaning heavily towards using only LEED accreditated contractors.

    Rucker: We’re not involved in the plan/spec market where the Green Building movement is prevalent, but we see it creeping into the retrofit area. It’s definitely going to cost more and we will need to get up to speed on all the record keeping that is required.

    CB: What impact will foreign products have on the U.S. market in the next 10 years? How do you see this influencing your business?

    Romano: We’re starting to see foreign product enter the chiller marketplace and expect that to continue. For example, absorption chillers have entered the U.S. market because of the relatively large markets that exist internationally. We also see non-chiller systems competing in the traditional chiller areas. Variable refrigerant flow (VRF) is a system foreign producers have used overseas, and these systems are now showing up in the U.S.

    Williams: Alternative system solutions are becoming more commonplace, driven by rising energy prices and sustainable design practices.

    Holmquist: Foreign products will increase over the next 10 years, and will provide more options to contractors and owners.

    Rucker: Some of these products are driving down the cost of equipment. The products seem to be very reliable and the international manufacturers are introducing some new technology to us that they have been using for years. They will be a big factor in the market.

    CB: Will equipment performance standards and certification play an increasingly more important role in the next decade?

    Romano: Standards are critical to help drive performance. There are several of them, most notably the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) requirement for minimum efficiency (ASHRAE 90.1). The standards affect all chillers, and we’re investing heavily to improve product efficiency.

    Holmquist: Yes, the talk for chillers is always COP and KW/ton. Manufacturers are looking to lower both all of the time.

    CB: For contractors, what technologies are on the horizon that could help make it easier to grow your business? For manufacturers, what new technologies do you see impacting the number of new chillers sold and installed?

    Romano: Looking at core technology areas, such as compression and heat exchanger technology, we’ll continue to see more system integration within the HVAC industry, but also more building-wide integration combining lighting, HVAC, fire/security and distributed power generation.

    Williams: I believe hydronic systems will evolve in their ability to deliver benefits including flexibility, efficiency, ease of installation and individual zone control that are used on large-scale commercial complexes halls, high-rise office buildings and airports. I also foresee more hybrid VRF systems (combination of refrigerant and water), as end users seek to reduce the refrigerant charge quantities in the occupied space.

    Seaman: With more sophisticated equipment and systems, a higher class of contractors will be needed. Which means, a contractor who invests heavily to train technicians, is gambling that the demand for those guys will pay back that cost as well as the cost for their increased wages and benefits.

    Starr: We’re a systems integrator, so in our case, the more there’s an ability to put communication and control on an open protocol — LonWorks, BacNet, ModBus — the easier it is to integrate and the easier it is for the owner to integrate other equipment and have it work in unison with the chillers.

    Rucker: Wireless technology is the biggest new technology that is changing the business. Wireless communication equipment and software continue to evolve at a rapid pace and will help streamline piles of paperwork involved with service work. Soon, service calls will be stored electronically, making for easy access.

    We think we’ll see a building control system that will integrate all energy savings devices and schemes now on the market such as variable speed drives, chilled water reset, and variable flows so they’ll all be controlled in unison to operate a building at the lowest possible cost, and still maintain comfort.

    CB: What type of training issues are there today? What training issues do you foresee in the future?

    Romano: Training is critical at all levels. Carrier is investing in training programs and resources for both our sales force and our customers under the banner of Carrier University. Carrier University offers everything from technician technical training to engineering courses to sustainability and green building topics. We’re also investing in new training methodology, using the latest in learning technology – streaming video webcasts, podcasts, blackboard, blogging, and more, to enhance our traditional classroom and technical training to keep up with the changing requirements and demographics of participants.

    Rucker: For contractors, the training dilemma today is the same as it has always been — trying to stay up with the latest technology. However, today the technology seems to be coming at us faster. For the future we see training becoming harder to obtain. The reason for this is that the equipment manufacturers are now committed to the vertical market concept. They not only want to make and sell the product, but they want to service it as well. They view service contractors as a threat to their success. We’re finding it more difficult to receive the type of training and information we need in order to provide proper service.

    Seaman: There’s a tremendous amount of good training out there. We pay a lot of tuition to external schools, and also pay for a lot of training in house. Many manufacturers and parts suppliers will come in and train us on their products, and there’s just a tremendous amount of new stuff to learn. And trying to get existing technicians to spend more of their time learning is tough. They only want to learn the things they’ll actually use on the products they work on.

    It’s great to have training on a brand new chiller, but if you never get to work on one, the training doesn’t matter. So training must be related to the things we do everyday.

    As far as getting people to learn, the better technicians will if they see that it’s practical and they’ll use it. The more equipment that gets installed, and the more people who see it, the more training there will be for it, and the more likely they’ll want to learn it.

    Starr: The technology or the skill set of the business that I hope gets more focus is the air- and water-balance side. I see this as having so much to do with keeping buildings healthy.

    I think training is all over the board, from air and water balancing, to building controls. Today, generation ‘X’ or ‘Y’ technicians have a little different attitude about training than my generation. They want snippets off a computer, and sometimes, with some of them, you don’t see the attention spans that you necessarily need.

    CB: More companies are involved in the commercial HVAC marketplace today than ever before. What are some of the competitive issues you face, and how are you dealing with them? What lessons are learned from this experience?

    Romano: I don’t focus as much on competitive issues but rather on what customers need. Carrier’s focus is on providing the best and broadest product line with the best customer and technical support in every market globally.

    Williams: The marketplace is growing rapidly and is very dynamic. Customers have a lot of choices and need to sort out all the different system alternatives that are available for both existing and new buildings. We’re involved in a global industry, and are always looking to bring best practices in product and system design from one region to another. We need to think globally, but recognize we must act locally in each market we serve.

    Holmquist: Contractors have ‘commoditized’ preventive maintenance. The programs are so cheap, there’s no money built in for technicians to spend the time to do a job right. Contractors, in many cases, sell maintenance as ‘loss leaders’ for all the repair work they get, because they aren’t doing preventive maintenance.

    This becomes an even bigger problem when there is a large influx of people from other parts of the business who don’t know how to price commercial work and who don’t have the technical skills to do a quality job. That negatively impacts the market for everyone.

    Seaman: In the long run, strong contractors will invest in training and technology, and will survive with not only the newer customer, but also with the newer, more complex equipment.

    In the short run, in some cases, the people who stand still, who don’t invest in the technology and training, have the advantage. That’s a “future” thing which, unfortunately, costs money. So for now, they can be the less expensive company. In a tight economy like we have here, customers think short-term.

    But will those companies be there when things turn around? People who think short term are taking big chances on that.

    In many ways, chillers reflect the “top of the line” in HVACR equipment. These complex, expensive units represent a large budget item for building owners and a huge technological investment by manufacturers. As such, how the chiller market reacts to challenges and change can serve as a bellwether for the rest of the industry.

    The commercial markets remain strong right now. Based on these interviews and your experience in the field, how would you answer some of these questions? We’d love to hear from you. Please drop us a line at letters@contractingbusiness. com.