7 forces model
How to use the model
It is necessary to quantify the forces to obtain a balance and to detect the timewise development. Often it is of big complexity to calculate specific values and many of the factors are difficult to predict and may even not yield with the same metrics. Thus it is much more effective to use a qualitative approach like to use the model in a workshop with company experts and to quantity the forces in a simple way (like assigning numbers from 1 to 3 etc.). Such approach can deliver more trend based inputs and most importantly facilitate a structured discussion.
Refrigeration, and, in hot climates, air conditioning are vital for mankind to maintain and develop society. Food security and safety are basic strong values that have fuelled the historical developments of refrigeration. Productivity and comfort are benefits from developments within air conditioning. Consequently, technologies have developed during the last century to satisfy these needs. At that time, the risk versus benefit was acceptable – however – accidents caused by leakages of flammable or toxic refrigerants led to development of "safe" refrigerants. The introduction of the CFCs and later on HCFCs did solve safety problems, but environmental risks were not considered until the 1970s. The severe consequences of a continued use of CFCs then became obvious leading to a global agreement to phase out CFCs. The solution to the ODS problem was found through the development of HFCs, which did not compromise safety. However as we know today, HFCs would become a main global warming source unless new technologies could be developed and applied.
The question is now what will drive development of these new technologies and importantly at what speed. The ideal scenario is a global regime to set the frames for national legislation that would provide industry a well defined and level playing field, and the motivation to invest and develop products. The Montreal Protocol has been a good example of how a global regime can motivate technology shifts effectively. The Kyoto protocol was not effective because of lack of global commitment and a much more complicated scope, which only indirectly addressed HFCs. Finally a HFC phase down was amende to the Montreal Protocol in 2016.
Industry today has to develop products for many refrigerant solutions within each application. It is in each case up to the manufacturers to decide if products should be developed, and if yes, to what type of product should be developed. The availability of approved components for new applications using low GWP refrigerants is a necessity. As a manufacturer of components, Danfoss has within recent decades been faced with the challenges of developing and introducing components for new refrigerants. The scenario is always complex as it implies technical challenges, safety issues which must be managed in a controlled way, and the challenge of choosing the priorities and time schedules in a complex and uncertain regulatory arena.
Innovation comes from new framing opportunities to create value. If energy prices are very low no energy efficient solution will be made and if legislation does not force developments of new refrigerants and systems nothing will happen despite cost and logistics optimization. Looking at basic technology, the refrigeration and air conditioning for many years were an industry with modest innovation rates. Many concepts have been used for decades and thus production and logistics are mature and highly optimized. Most innovation has come through electronics – again due to cost and logistics issues. However – during the last ten years sparks of non-cost driven innovation have run through the industry due to demands on energy efficiency and refrigerants. Making drastic changes to controls and components using new refrigerants are time consuming and expensive. From a business point of view the market can be critically small and regulated by diverse local legislation which makes it difficult to establish viable business plans. The lever has not yet reached the stage were the lamp will show its viability light for incremental development. Often projects encompassing low GWP products have been categorized as strategic or high risk. Whatever you call them, such pioneering projects are necessary for our industry and appeal to the entrepreneurial forces in the company. New ideas developed together with universities and customers and the reuse of proven concepts in combination with challenging new materials have been the case for the developments of Danfoss CO2 valves during the last decade.
Seven different forces are important for the decision of developing products. In a mature market there will be a equilibrium between these forces and incremental development results.
The equilibrium is interrupted by ex market forces such as environmental concerns, resulting in new legislation calling for innovation, and suddenly the game changes. This is exactly what happens when low-GWP refrigerants become necessary for environmental reasons. Standards and legislation become driving forces.
S&L is the predominant mechanism for pushing the development in a certain direction. Bans, taxes and to a certain extent voluntary agreements have shown to be very effective. This creates the necessary confidence for the industry to invest resources in development.
Looking at the global picture of legislation a very fragmented situation is evident. The EU has regulations and high taxes that go beyond the Montreal Protocol, while the US and Asia closely follow the Montreal Protocol obligations. Several countries are giving incentives for use of green technology either by direct financial support or by reduced demands on efficiency. Most regions and countries will try to enable industry to live up to legislation by investing in research programs with industry participants. Investing in research programs with focus on reducing the environmental impact - whether it is energy efficiency or low GWP refrigerants - has led to good industry spin offs. Universities provide a very good pre-competitive environment where new technologies are evaluated before potentially being later adopted by industry. However – while differences in S&L may be a temporary advantage for some countries or regions, a growing S&L patchwork is definitely not beneficial globally on the long run. If the patchwork of regulation continues to grow and diverge country by country, market complexity will grow, not adding value at all. Likelihood for more global alignment is increasing with the amendment of the HFC phase down in the Montreal protocol. Even regions will solve the phase down challenges by different means technology development will be pointing at the same direction.
In 2002 the EU introduced the MAC directive and in 2004 the F-gas directive. While the MAC directive bans refrigerants beyond a GWP level of 150, it created a push to develop new solutions for to replace R134a in automotive air conditioning. In 2003 Denmark added a very high HFC tax and in 2007 a maximum charge cap of 10 kg HFC was added beyond the F-gas directive. This forced the food retail industry to look for alternatives to HFC refrigerants and initiated a development of CO2 based refrigeration systems. Even new system builders emerged in successful companies. It is interesting to take a look at the technology development within this application.
In the period from 2001-2005 the first generation of supermarket CO2 systems was built mainly as cascade systems still using a HFC or hydrocarbon system on top. From 2005-2009 about 300 transcritical systems were installed in Northern Europe /1//2/. Especially the Danish market favored introducing these systems in newly built stores, since there was really no other choice. A very well documented case from the Danish supermarket chain Fakta has shown that the CO2 solutions evolved from first to second generation systems. While first generation systems had difficulties in competing with conventional HFC solutions, the second generation systems showed remarkably improved performance and even outperformed HFC solutions on energy efficiency. This is no surprise and should be expected for new technologies but it also shows that new technologies have hard times when competing against mature solutions unless helped by legislation.
All companies face the challenge of optimizing their usage of resources and the obvious choice would always point at the safest and fastest return on investment. There are thousands of manufacturers of refrigeration and air conditioning systems. In such a competitive arena, it is risky for one firm to develop new products utilizing new refrigerants for a market with fragmented S&L and an uncertain outlook. Even many large firms are hesitant to proceed until they know that regulation will require their competitors to take similar actions.
A fragmented S&L picture leads to different base scenarios for the Industry players. First of all dependent on their main market legislation, some companies will see good opportunities in technology shifts while others with low market shares would have difficulties in arguing for developments.
The accumulated average Life Cycle Cost (LCC) of a product is a common measure to evaluate technologies and to determine Minimum Performance Standards (MEPS). The selection of refrigerants is seriously affecting this measure by its natural COP and other physical properties as viscosity, heat transfer properties, etc. Whatever refrigerant to select – a viable LCC solution must be visible. At the end only minorities can pay extra for green solutions. The challenging question is always how LCC will develop as technology develops. Experience with CO2 as a refrigerant has clearly indicate that LCC has developed better than predicted.
The technical ability to develop new products for new refrigerants with improved energy efficiency is a basic necessary factor. Competences within materials science, test procedures and engineering practices need to be available. With incremental development this is normally not a problem but in the case of transcritical CO2 the developed solutions were not based on common knowledge. Development of compressors and controls has been through a decade of intense competence development. The iterations between design and application feedback takes time. Infant diseases are dangerous to new technologies especially when these technologies are in direct competition with existing mature and optimized solutions. Anyhow, since the introduction of the safety refrigerants 80 years ago it should not be necessary to mention that the general technology development within our sector is at a stage were almost all types of refrigerants can be addressed in a safe and LCC optimized manner.
While CO2 components and controllers are challenging from a technical perspective due to high pressures and material compatibility concerns, hydrocarbons show a more complicated scenario. Thermodynamically, hydrocarbons are naturally very close to HFCs or HCFCs. As an example R290 has often been claimed to be a R22 drop-in, which is dangerously misleading in a broad sense. Technically R290 properties are close to R22 but seen from a safety perspective special precautions must be taken. This especially means that service technicians, who for decades may have been servicing non-flammable systems, suddenly have to change habits on systems that basically look and perform the same. As a component supplier it is very important to be sure that the markets are ready to handle hydrocarbons before approving sales, and that system manufactures can show their compliance to existing safety standards.
The figure below shows the process used when approving Danfoss internal standards for hydrocarbon components. A thorough risk assessment is made and approved by an insurance expert. The risk assessment contains various scenarios (examples) which at the end results in product type approvals and demands to products. Regional standards are evaluated and based on this a geographic release limitation is established.
A major factor in the risk discussion is the perceived versus real risk. The below figure shows the principle. The right decisions to create value for society must have the right balance between perceived and real risk. New applications of refrigerants will always be perceived with suspiciousness, but as time progresses the real and perceived risks will converge. Mature technologies may even be perceived less risky than reality – several examples in our modern society can be found, i.e., car driving. As illustrated in the figure these new refrigerants and solutions start out at both a higher safety risk and financial risk than the refrigerants and solutions in wide use today, and the perceived risk is even higher than the actual risk. With time, the new systems will likely create confidence in a wider market, and a good safety record would make both the system users and the public perceive the risk as smaller, and as the service sector learns to service the new systems, the actual risk would also fall.
Market readiness means the ability of the market to adapt to a new technology. This factor influences backwards on legislation as no country would close down its own market due to lack of service competences for new technologies. Education plays a significant role in making markets ready for introduction of new technology. Too few trained service people would result in higher risks for accidents and projected LCC would not reach the expected levels. As an example, however, not directly connected with refrigerants, an on site monitoring of heat pumps in the Danish market showed that a surprisingly high number of heat pumps yielded a far too low COP. The reason was to be found in installation and setting of the heat pumps where installers did not understand the relationships between the temperatures and COP. The same scenario could be valid for CO2 systems where energy efficiency depends heavily upon system settings. Not meeting expectations is poison for a new technology - a second chance will often not be given. Education and Training are today recognized as some of the most important factors for introducing low GWP refrigerants in the markets.
The development of standards is moving towards a wider acceptance of flammable refrigerants. The figure below presents an overview of the development of the main standards and the inclusion of flammable refrigerants.