Europe's record-breaking heat waves are driving spikes in demand for air conditioning

Published Mon, Aug 4 20251:14 AM EDTUpdated Mon, Aug 4 20254:25 AM EDT

April Roach @/in/april-roach-901033140/@April__Roach

Key Points

Heat waves and longer summers, as well as cultural shifts and income changes, are boosting demand for air-conditioning units in Europe.
Energy demand from the sector, which is responsible for cooling everything from households to hospitals and hot data center equipment, is often overlooked.

Heat waves and longer summers are driving seasonal spikes in demand for cooling units, highlighting the need for efficient technologies and adequate power supply to keep Europe cool. This year is set to bring another record hot summer, with temperatures reaching as high as 39 degrees Celsius in Paris. The increase in heat, as well as cultural shifts and income changes, is boosting demand for air conditioning (AC) units, according to a report from the International Energy Agency published last week. Total ownership of AC units remains relatively low at 20% in Europe, the IEA data showed. Meanwhile, AC penetration in the U.S. is as high as 90%, according to the U.S. Energy Information Administration. But that could change: McKinsey partner, Paolo Spranzi, told CNBC that there's been something of an "acceleration" in the European cooling market, particularly on the back of this year's heat waves. "Things are changing because we see more often and more frequent, longer heat waves, also in the northern part of Europe where there is the lower penetration." Energy demand from the sector, which is responsible for cooling everything from households to hospitals and data center equipment, is often overlooked as more visible sources of emissions from sectors such as cars and aviation tend to take center stage when it comes to government policy. Energy demand from cooling could nearly triple by 2050 if left unchecked, according to the IEA. Because heating and cooling in buildings amount to 20% of global carbon dioxide emissions it's a "real key enabler" of global emissions and a significant factor to consider when it comes to how newer generations of air conditioners can drive sustainability, Spranzi said. A 'cyclical' shift? During this year's heat waves, France, which has fairly low air-conditioning ownership, recorded an electricity peak that was 25% above the off-season average, the IEA said. Earlier in the year, a widespread power outage that hit Spain, Portugal and the south of France highlighted the importance of energy security and of making sure the region's grids are robust enough to deal with increased work loads. "Air conditioning was considered as a luxury, or even as a waste of money, given also the high electricity costs that were here in Europe," Spranzi said, adding that other factors include the rise of work from home and younger generations being less likely to see AC as a luxury. The shift is mostly "cyclical," Spranzi said, with clients telling him that they see 2025 as a "lucky year" — indicating that there is some uncertainty as to how long the trend will last. However, he noted that he still expects "good growth" in the market — somewhere in the mid to low single digit range. Household income also plays a major role, according to the IEA, with access to cooling remaining "highly unequal" around the world. In countries such as France (18-26%) and Germany (19%), AC penetration remains fairly low, according to Fabian Voswinkel, energy efficiency policy analyst at the IEA. Meanwhile, southern European countries such as Spain and Italy (around 50%) and Greece (60%), the penetration is much higher. Voswinkel explained that while there is rising demand for both portable units and full air-conditioning systems that are built into people's homes, there is a difference in the pace of that increase. The latter takes more time to install and will often stand as a one-time purchase. It therefore manifests as a slower trend, whereas the demand for portable units that lead to sellers talking of "queues for several months until way after summer," constitutes more "spiky" demand. HVAC boom In addition to soaring demand for portable AC units, firms such as Johnson Controls , which specializes in buildings technologies, have seen increased appetite for heating, ventilation and air conditioning (HVAC) technologies for data centers, health care, manufacturing and commercial real estate. "We're working closely with leading hyperscalers to shape the future of data center design, with a particular focus on thermal management," its chief sustainability officer, Katie McGinty, told CNBC. "As AI adoption accelerates, so does the need for smarter, more efficient cooling systems, making HVAC a critical enabler of digital transformation." For McGinty, increased demand for HVAC technology also offers an opportunity for business to save on costs and align their operations with broader environmental goals. She highlighted another booming trend that is dominating the sector: a rise in heat pumps. The devices offer a "two-in-one" solution as they provide both heating and air conditioning. Countries across the EU are helping the boom by introducing legislation that encourages households to install the units. McKinsey's Spranzi also said that heat pumps are the core market where his clients are making most of their profit, with innovation driving the need for green, smart and integrated products. "The switch between the gas boiler into the heat pumps is what everyone's talking about and investing in. There is a lot of interest from private equity firms and a lot of movement with companies acquiring each other to really increase the scale to being able to invest more in R & D for example," he said. In 2019, the top five players were accounting for 45% of the European HVAC market, whereas last year, the top five were accounting for 55% of the overall market in Europe, he said. Grid pressure The outlook for European electricity load growth is "complex," with many varying factors contributing to utilities' forecasts of annual growth of 1-8% over the next five years, depending on the country, according to McKinsey's Diego Hernandez Diaz. He told CNBC that one of the specific drivers that will push up demand is growing adoption of HVAC systems and cooling technologies in homes and buildings, which adds to the electrical load. "At the same time, two important factors may counterbalance that. First, improvements in efficiency mean that more installed cooling capacity does not necessarily lead to proportional increases in consumption. Second, industrial electricity use, which still accounts for a large share of total demand, continues to decline. Taken together, these forces could leave overall demand relatively stable." Diaz said. "And yet, when you consider the factors I've outlined above — historical trends, efficiency improvements, and a continued decline in industrial electricity demand — while some utilities may see more volatility or localized peaks, our view is that the broader system impact is likely to remain modest. The overall picture remains one of rebalancing versus sustained upward pressure." Read more We’re in the era of heat pumps — a market that experts say is ‘set to skyrocket’ Extreme heat is turning electricity cutoffs into new political battle for power companies World swelters through its hottest summer on record for the second year running Despite expectations of a "modest" impact on electricity demand, the question remains as to the burden on the grid. Some countries are likely more prepared than others. In France, for example, electric heating is already widely used during the winter and the energy mix is also highly dominated by nuclear energy, IEA's Voswinkel said. In comparison, Germany, which mainly uses gas heating, has grids that are not dimensioned for a large amounts of electric heating. Grids are currently expanding across Europe to allow for additional loads from cooling, electric vehicle charging, heat pumps and the electrification industry. "But at this very point, if now very suddenly, all the Germans were saying, I'm going to buy a portable air conditioner plug in the evening, it might become tight," Voswinkel said.