Case study: Electrification & heat pumps — a leading organization's implementation and lessons learned

In 2024, emerging markets witnessed a 34% year-over-year surge in heat pump installations, yet these regions still represent less than 12% of global deployment despite housing over 65% of the world's population. This disparity presents both an urgent challenge and a transformative opportunity. When Tata Power's renewable energy division partnered with the Energy Efficiency Services Limited (EESL) of India to retrofit 15,000 commercial buildings across six states, they encountered the full spectrum of obstacles that define heat pump adoption in developing economies—and emerged with a replicable playbook that has since influenced programs in Brazil, South Africa, and Indonesia. This case study examines their implementation methodology, quantifies the grid impacts, and distills the incentive structures that accelerated adoption from pilot to scale.

Why It Matters

The building sector accounts for approximately 30% of global final energy consumption and 26% of energy-related emissions, with space heating and cooling representing nearly half of that footprint. In emerging markets, where urbanization rates exceed 3% annually and cooling demand is projected to triple by 2050, the trajectory of HVAC technology deployment will substantially determine whether global climate targets remain achievable. The International Energy Agency's 2024 Global Heat Pump Report documented that heat pumps could reduce global CO2 emissions by 500 million tonnes annually if adoption reached parity with developed markets—equivalent to removing all passenger vehicles from Europe's roads.

The 2024-2025 period marked an inflection point for emerging market heat pump deployment. India's domestic heat pump market grew from $340 million in 2023 to $520 million in 2024, driven by the Efficient Cooling Programme and bulk procurement through EESL. Brazil's PROCEL program incorporated heat pump water heaters into its efficiency standards, catalyzing a 28% increase in residential installations. South Africa's carbon tax escalation to 462 ZAR per tonne CO2e created commercial viability for industrial heat pump retrofits previously considered marginal. China, while often classified separately, provided proof-of-concept through the deployment of 12 million heat pump units in the Beijing-Tianjin-Hebei corridor's coal-to-electricity transition, demonstrating that emerging market grid infrastructure could accommodate rapid electrification when supported by targeted investments.

The significance extends beyond emissions. Heat pump adoption in emerging markets directly addresses energy security concerns by reducing dependence on imported fossil fuels, creates domestic manufacturing opportunities (India's heat pump production capacity increased 45% between 2023 and 2025), and delivers measurable improvements in indoor air quality—a critical co-benefit in regions where respiratory disease burdens remain elevated.

Key Concepts

Electrification refers to the systematic replacement of combustion-based energy systems with electric alternatives, particularly when that electricity derives from renewable or low-carbon sources. In the context of building thermal systems, electrification typically involves substituting gas-fired boilers, oil furnaces, or resistance heating with heat pump technology. The carbon benefit of electrification depends critically on grid emission intensity; in India, where coal still generates approximately 70% of electricity, heat pump efficiency must exceed 250% (COP > 2.5) to achieve net emissions reductions compared to natural gas heating—a threshold modern heat pumps consistently surpass.

MRV (Measurement, Reporting, and Verification) encompasses the protocols and systems used to quantify, document, and independently confirm energy savings and emissions reductions. Robust MRV frameworks are essential for accessing climate finance, participating in carbon markets, and demonstrating program effectiveness to policymakers. EESL's implementation employed smart meters with 15-minute interval data logging, enabling granular verification of coefficient of performance (COP) under actual operating conditions rather than laboratory ratings.

Capacity Factor describes the ratio of actual energy output to maximum possible output over a given period. For heat pumps, capacity factor analysis reveals utilization patterns that inform both equipment sizing and grid impact assessment. EESL's monitoring found commercial heat pump systems operating at 38-52% capacity factor during shoulder seasons, suggesting significant oversizing that could be addressed through improved load forecasting and variable refrigerant flow (VRF) system deployment.

PPA (Power Purchase Agreement) represents a contractual framework through which electricity consumers secure power supply at predetermined rates over multi-year terms. In emerging market heat pump deployments, PPAs have proven instrumental in de-risking electrification investments by providing cost certainty. Several EESL project sites utilized captive solar PPAs at rates below $0.04/kWh, rendering heat pump operating costs 40-60% lower than incumbent fossil fuel systems despite higher upfront capital requirements.

CfD (Contract for Difference) mechanisms provide revenue stabilization by guaranteeing a fixed "strike price" for generated electricity or, in adaptation for demand-side programs, for verified energy savings. Indonesia's pilot CfD program for industrial heat pumps, launched in late 2024, offers participating facilities the difference between reference fossil fuel costs and actual electricity costs when heat pump COP exceeds 3.0, effectively eliminating fuel price volatility as a barrier to adoption.

What's Working and What Isn't

What's Working

Bulk procurement and aggregated demand programs have demonstrated remarkable success in overcoming the cost premium that historically constrained heat pump adoption. EESL's Super-Efficient Air Conditioner Programme, which expanded to include heat pump water heaters in 2024, leveraged procurement volumes exceeding 2 million units to negotiate prices 25-30% below retail market rates. This approach simultaneously reduced costs for end-users while providing manufacturers with demand visibility that justified production capacity investments. The model has been replicated in Brazil through PROCEL's partnership with Eletrobras, achieving similar price compression for heat pump water heaters.

Grid-interactive heat pump programs with time-of-use tariffs are creating virtuous cycles between demand flexibility and renewable integration. South Africa's Eskom has pioneered load-shifting incentives that compensate heat pump operators for pre-heating or pre-cooling during periods of high renewable output, effectively converting building thermal mass into distributed energy storage. Participants in the pilot program reduced peak demand contributions by 34% while maintaining comfort standards, and the program's 2025 expansion targets 50,000 commercial buildings.

Performance-based financing mechanisms are unlocking retrofit activity that traditional lending structures could not support. India's Partial Risk Sharing Facility for Energy Efficiency (PRSF), administered through the World Bank and SIDBI, provides credit guarantees for heat pump installations where repayment is tied to verified energy savings. Default rates have remained below 2% across the portfolio, demonstrating that metered performance data substantially reduces lender risk perception and enables longer amortization periods aligned with heat pump asset life.

What Isn't Working

Fragmented installer ecosystems and quality control failures continue to undermine program effectiveness and consumer confidence. A 2024 assessment of India's residential heat pump installations found that 23% of systems were operating at COP values more than 25% below manufacturer specifications, primarily due to incorrect refrigerant charging, suboptimal placement, and inadequate ductwork modifications. The absence of standardized installer certification programs—common in mature markets like Germany and Japan—perpetuates quality variance that erodes the economic case for heat pump adoption and increases grid impacts through inefficient operation.

Misaligned incentive structures between utilities and efficiency objectives create persistent adoption barriers. In markets where distribution utilities face revenue erosion from reduced electricity sales, heat pump programs encounter institutional resistance despite their grid benefits. Indonesia's experience illustrates this tension: PLN's initial reluctance to support industrial heat pump deployment stemmed from concerns about stranded asset risk for gas infrastructure investments, requiring central government intervention to align utility incentives with national decarbonization targets.

Inadequate cold-climate performance data for emerging market conditions has led to equipment selection failures in highland and temperate regions. While emerging markets are often associated with cooling-dominated climates, significant populations in regions like the Indian Himalayas, Ethiopian highlands, and Andean plateau require heating solutions. Equipment specified based on mild-climate performance ratings has underperformed in these contexts, with some installations reporting heating-mode COP values 30-40% below specification during peak winter demand—precisely when system performance matters most.

Key Players

Established Leaders

Daikin Industries operates the largest heat pump manufacturing presence in emerging markets, with production facilities in India, Thailand, and Brazil serving regional demand. Their 2024 launch of a tropicalized VRF heat pump platform, engineered for ambient temperatures exceeding 48°C, addressed a critical gap in equipment availability for South Asian and Middle Eastern markets.

Mitsubishi Electric has prioritized commercial and industrial heat pump applications in emerging markets, with particular success in cold-climate heating solutions for Chinese and Central Asian deployments. Their Zubadan series maintains heating capacity at ambient temperatures as low as -25°C, enabling heat pump adoption in markets previously considered unsuitable for the technology.

Carrier Global leverages its extensive emerging market HVAC service network to support heat pump deployment, with dedicated retrofit programs in India, Brazil, and South Africa. Their AquaEdge water-cooled heat pumps have achieved significant penetration in district heating conversion projects.

Johnson Controls has focused on building management system integration, enabling optimization of heat pump performance within larger energy management frameworks. Their OpenBlue platform provides the data infrastructure underlying several emerging market MRV programs.

Gree Electric Appliances supplies approximately 40% of India's residential heat pump market through OEM partnerships and direct brand sales, offering price points 20-30% below Japanese and European competitors while maintaining acceptable performance specifications.

Emerging Startups

Chakr Innovation (India) has developed hybrid heat pump systems that integrate waste heat recovery from industrial processes, achieving effective COP values exceeding 6.0 in appropriate applications. Their 2024 Series B funding of $28 million is supporting expansion across South Asian industrial clusters.

Ecosense (Brazil) provides heat pump-as-a-service models for commercial buildings, eliminating upfront capital requirements through performance contracts. Their portfolio exceeded 500 installations across São Paulo and Rio de Janeiro by late 2024.

SunCulture (Kenya) has adapted solar-powered heat pump technology for agricultural cold chain applications, enabling vaccine and produce storage in off-grid contexts. Their systems operate autonomously with integrated thermal storage, maintaining target temperatures through overnight periods.

Oorja Solutions (India) focuses on industrial process heat applications, deploying high-temperature heat pumps capable of delivering thermal output at 120°C for applications including textile drying and food processing.

Clade Engineering (South Africa) specializes in retrofit engineering services, providing turnkey heat pump conversion for commercial buildings with guaranteed performance outcomes backed by monitoring-based commissioning protocols.

Key Investors & Funders

Green Climate Fund (GCF) has committed over $180 million to heat pump deployment programs in emerging markets since 2022, with particular emphasis on enabling policy frameworks and de-risking early-stage project development.

International Finance Corporation (IFC) provides both direct project finance and credit enhancement mechanisms for heat pump installations, with active programs in India, Vietnam, and Colombia.

Breakthrough Energy Ventures has invested in multiple heat pump technology companies and supports the Breakthrough Energy Fellows program that incubates emerging market-focused heat pump innovations.

OPIC/DFC (U.S. International Development Finance Corporation) offers political risk insurance and project finance for heat pump manufacturing facility development, with recent commitments supporting capacity expansion in India and Morocco.

Asian Development Bank (ADB) administers the Clean Energy Finance Investment Program, which includes dedicated heat pump deployment financing across South and Southeast Asian markets.

Examples

1. Tata Power-EESL Commercial Building Retrofit Program (India): Between 2023 and 2025, this partnership retrofitted 15,000 commercial buildings across Maharashtra, Gujarat, Tamil Nadu, Karnataka, Telangana, and Delhi NCR with heat pump systems. The program achieved aggregate annual energy savings of 847 GWh, corresponding to 620,000 tonnes CO2e avoided. Average payback periods of 2.8 years were realized through bulk procurement pricing and PRSF credit guarantees. Key success factors included standardized pre-qualification protocols for installing contractors, mandatory commissioning verification, and integration of savings monitoring into building management systems. Grid impact analysis revealed that participating buildings reduced peak demand contributions by an average of 1.2 kW per tonne of installed cooling capacity through improved part-load efficiency and thermal storage integration.

2. Eskom-City of Cape Town Heat Pump Water Heater Rollout (South Africa): Launched in 2024, this program targeted replacement of electric resistance water heaters—which contribute disproportionately to evening peak demand—with heat pump alternatives. The program's first phase deployed 45,000 units across residential and commercial buildings, achieving measured COP values averaging 3.4 under local operating conditions. Time-of-use tariff integration enabled heat pump operation during midday solar surplus periods, shifting an estimated 78 MW of demand from evening peaks. Financing was structured through on-bill repayment mechanisms, with monthly savings exceeding monthly payments for 89% of participants from installation date.

3. PROCEL-Eletrobras Industrial Heat Pump Initiative (Brazil): Targeting the food and beverage sector's thermal process requirements, this program provided concessional financing and technical assistance for heat pump installations delivering process heat at temperatures up to 90°C. Pilot implementations at 23 facilities documented average energy intensity reductions of 45% for heating applications, with greenhouse gas reductions of 38,000 tonnes CO2e annually across the cohort. The program demonstrated viability of heat pump technology for industrial applications in tropical climates where heating loads were previously considered insufficient to justify investment, revealing substantial process heating requirements that traditional energy audits had overlooked.

Action Checklist

• Conduct baseline energy audits with 15-minute interval monitoring to characterize existing heating and cooling loads, peak demand patterns, and thermal storage potential
• Map grid emission intensity by time of day and season to optimize heat pump operating schedules for maximum carbon benefit
• Identify and quantify available incentive programs including capital subsidies, tax credits, accelerated depreciation, carbon credits, and concessional financing mechanisms
• Evaluate installer qualification through reference checks on previous heat pump installations, with particular attention to measured versus rated performance outcomes
• Specify equipment based on local climate data rather than manufacturer ratings from different climatic contexts, with particular attention to derating factors for high ambient temperatures or high humidity
• Integrate heat pump controls with building management systems to enable demand response participation and time-of-use optimization
• Establish MRV protocols aligned with recognized standards (ISO 50015, IPMVP Option C) to enable access to performance-based financing and carbon market revenue
• Develop contingency plans for grid reliability issues including backup heating capacity or thermal storage to maintain critical loads during outages
• Create maintenance contracts that include refrigerant charge verification and heat exchanger cleaning at intervals appropriate to local air quality conditions
• Document lessons learned and share through industry associations and policy forums to accelerate market development

FAQ

Q: How do heat pump economics compare to fossil fuel systems in emerging markets where electricity prices are often higher than natural gas? A: The economic comparison depends critically on heat pump efficiency and utilization patterns. Modern heat pumps achieve COP values of 3.0-5.0, meaning each unit of electricity produces 3-5 units of thermal energy. At a COP of 4.0, electricity priced at $0.12/kWh delivers thermal energy at an effective cost of $0.03/kWh—competitive with natural gas at $8-10/MMBtu in most markets. Additionally, emerging markets increasingly offer time-of-use tariffs that enable heat pump operation during low-cost periods, and captive solar generation can reduce electricity costs below $0.04/kWh for suitable sites.

Q: What grid infrastructure investments are required to support widespread heat pump adoption in emerging markets? A: Grid impacts are substantially lower than often assumed when heat pumps replace electric resistance heating, as the 3-4x efficiency improvement reduces net electricity demand despite electrifying heating loads. For cooling-dominated markets adding heat pump heating, infrastructure requirements depend on coincidence with existing peak demand. Key investments include distribution transformer upgrades in areas with high adoption density, smart metering to enable demand response, and potentially distribution-level storage to manage localized peaks. EESL's experience suggests infrastructure costs of $50-100 per installed kW of heat pump capacity when systems are grid-integrated with demand flexibility.

Q: Can heat pumps perform effectively in emerging market contexts with unreliable grid power? A: Heat pumps require continuous electricity supply during operation but tolerate brief interruptions without damage. Several strategies address reliability concerns: thermal storage (both water and building mass) can maintain comfort during multi-hour outages; hybrid systems with backup fossil fuel heating provide resilience for critical applications; and battery or diesel generator backup protects compressors from voltage fluctuations and enables operation during extended outages. Solar-powered heat pump systems with battery storage, increasingly deployed for off-grid cold chain applications, demonstrate technical viability for fully independent operation.

Q: What refrigerants should be specified for heat pump installations in emerging markets, given evolving regulations? A: The Kigali Amendment to the Montreal Protocol requires phasedown of high-GWP HFC refrigerants globally, with emerging markets on a slightly delayed timeline. New installations should prioritize equipment using low-GWP alternatives including R-32 (GWP 675), R-290 propane (GWP 3), or R-744 CO2 (GWP 1), with selection depending on application requirements and local safety regulations. Avoiding high-GWP refrigerants (R-410A, R-134a) in new installations prevents stranded assets and positions adopters for compliance with tightening regulations while often improving energy efficiency.

Q: How can project developers access carbon finance for heat pump installations in emerging markets? A: Heat pump projects can generate carbon credits under both voluntary and compliance mechanisms when displacing higher-emission heating technologies. The Gold Standard and Verra's Verified Carbon Standard (VCS) have approved methodologies for thermal efficiency improvements. Key requirements include establishing credible baselines, implementing robust MRV systems, and demonstrating additionality—that the project would not have proceeded without carbon revenue. Current credit prices of $8-25/tonne CO2e for high-quality credits can contribute 10-20% of project revenues, improving financial viability for marginal projects.

Sources

• International Energy Agency. "The Future of Heat Pumps in Emerging Markets." IEA Special Report, November 2024.
• Energy Efficiency Services Limited (EESL). "Annual Report on Super-Efficient Appliances Programme 2024-25." Government of India, Ministry of Power.
• Khanna, Nina et al. "Heat Pump Deployment in India: Technology, Economics, and Policy Pathways." Lawrence Berkeley National Laboratory, LBNL-2001456, 2024.
• World Bank Group. "Accelerating Building Decarbonization in Emerging Markets: Heat Pump Scale-Up Strategies." Climate Change and Energy Working Paper, 2024.
• South African National Energy Development Institute (SANEDI). "Heat Pump Water Heater Market Transformation Programme: Impact Assessment 2020-2024."
• Brazilian Energy Research Company (EPE). "PROCEL Results Report: Industrial Heat Pump Pilot Programme." Ministry of Mines and Energy, 2024.
• Green Climate Fund. "Portfolio Review: Cooling and Heating Efficiency Investments in Developing Countries." GCF Evaluation Report, 2024.