2010 Hydronics: Going the energy efficient route
By Dan Foley
For many hydronics contractors, 2009 was not a great year for business. Due to the economic downturn, consumer confidence, and the housing slump, maintaining growth was a challenge for contractors, rep agencies, suppliers and even manufacturers. My company, based in the Washington, D.C. metro area was lucky enough to break even with 2008 revenues (approximately $3.5M) due to some existing projects booked that carried us through the year.
We are fortunate to be based in an area that weathers economic downturns well as our local economy is diverse. We are not dependent on one segment of the economy. High-tech firms, telecomm firms, defense contractors, bio med, military, government contractors, and of course, the federal government all stoke the local economy. When one sector is down, another seems to be flying. It has the net effect of flattening out the dips and downturns, which are inevitable. Other parts of the country which rely on one segment suffer when there is a downturn that affects that market. Auto manufacturing in Michigan and the real estate market in California are two examples that come to mind.
Within the past two years, my company has ventured in the solar thermal business. I used to turn this work away. After getting certified training from my primary vendor, Viessmann, I installed a simple DHW pre-heat system in my own home. I took on the work that I was turning away and now have over a dozen systems installed including DHW systems, pool heat and even combined solar/DHW/radiant system.
I see this as a growth area for hydronic contractors. We already have the skill set to install these systems. With the proper training, no industry is better equipped to install solar thermal systems. With the 30% uncapped federal tax credit available through the stimulus package as well as local and state incentives, the systems are more affordable than ever.
We recently finished a project in Maryland where my client ended up with $9,500.00 in combined tax credits and grants — 50% of the cost of the project. We anticipate a substantial increase in this part of our business in 2010, which is good news for my company and my suppliers.
The stimulus package has significantly increased our sales of 90+ condensing boilers and I see this trend continuing on an upward path. Clients are choosing the high efficiency boilers in replacement situations due to the lower energy bills, as well as the $1,500.00 tax credit. Some states offer additional incentives as well. I expect to see this trend increase in the coming year.
Our vendors are seeing this trend as well. My primary hydronics vendor, Thos. Somerville Co. has benefited from this dynamic. Jeff Riley, Somerville’s sales manager, had this to say about the 2010 hydronics market:
“Even with the challenging economy we have seen significant increases in our sales of hydronic products from radiant floor components through condensing boilers. Our customers are really "warming up" to selling comfortable hydronic systems with the focus on maximum efficiency. As a result our mod-con boiler business is striving. One genuine indicator of future sales is the number of requests we are receiving for trainings on hydronic products. It is an exciting time for wet heat.”
One successful contractor who has chosen not to participate in the recession is Alan Givens, president of Parrish Services, Manassas, Virginia. Alan’s company is closing out a record year and has predicted a monster year for 2010 — 40% anticipated growth from $10M to $14M. Alan attributes this anticipated growth to three things:
1. The federal stimulus package and associated tax credits;
2. The phase out of R-22 refrigerant; and
3. Pent up consumer demand.
Ninety-eight percent of the equipment his company installs qualifies for the incentive.
“My technician’s and sales force will only quote systems that are eligible for the tax incentives” said Givens. “I predict 2010 will be the best year for our industry in the last 20 years.”
I like Alan’s optimism. This is the attitude of a successful contractor and industry leader.
My good friend, Paul Pollets owns Advanced Radiant Technology based in Seattle. His company specializes in high-end residential and commercial radiant projects. Paul has seen his market tighten up as the free spending Microsoft millionaires and the high-tech economy has scaled back. Paul is a bit more cautious about the coming year.
“2009 hasn’t been kind to the radiant industry in the Seattle market. The downturn in the economy has been slow to recover, even in the land of Microsoft. We’ve seen a trend toward lower costing, an abundance of competitive bids that are often priced slightly higher than the cost of materials, and a ‘shopping’ tendency of homeowners and GCs. Value is seen on getting the lowest price, rather than a quality system installation. While these trends always have been present in the industry, they multiply with a bad economy where money is tight and prospects have seen a significant loss in their personal investments. The boiler replacement market also has been characterized by low pricing and the abundance of contractors willing to charge as little as possible to get the work. The reduction in fuel prices hasn’t helped the consumer to jump in and spend more for efficiencies, with little incentive for tax rebates. We can't afford to be complacent, just because fuel costs are lower today. They will rise again. The thermal solar DHW market seems active, but seems to have turned into a commodity with contractors offering and installing systems using Chinese panels at what seems like minimal profit.
“I’m hoping 2010 will bring more business. I am slightly pessimistic about the outlook, considering the mindsets of the customers I speak with daily, and the cutbacks from major manufacturers on staff and inventory. The industry needs more state and federal tax incentives and more local marketing and support from the manufacturers. Jumpstarting the economy is not easy. ‘Trickle down’ monies from mass transportation or road projects don’t necessarily translate to any increased business for radiant contractors,” said Pollets.
Pollets also has ventured into the solar thermal market and sees an increase in this type of work in the future. He recently completed a large solar project for a local college that was written up in several industry publications.
Clearly the growth areas will be in renewable energy sources such as solar and high efficiency boilers that qualify for incentives. John Vastyan, noted hydronics researcher and writer, has monitored the market’s pulse for decades.
“Here in the United States, overall, it looks like the hydronics industry, say, compared with the way things were in ’06, is down about 30 to 40 percent. That’s a huge loss of business and revenue,” he said.
“But, the influence of green — federally-pumped dollars on a massive scale, and the push for renewable energy and energy conservation — have helped to move things back in a better direction,” said Vastyan. “From what I’ve seen, things are improving, but it’ll take some time — several months — before contractors, reps, wholesalers and manufacturers will see the 20, 30 and 40 percent improvements. When that begins to happen, radiant tubing and boiler sales will begin to move up at a pace greater than the incremental improvements we’re seeing now,” said Vastyan.
I hope John is right on in his prediction, and I think he is. This is an exciting time to be part of this growing and changing industry. The resources are available to improve and increase our sales and profitability. I intend to put them to work in my company and I hope you do, too. May we all have a prosperous year in 2010!
Dan Foley is owner and president of Foley Mechanical, Inc. — an HVAC company based in Alexandria, Va. specializing in radiant/snowmelt systems. Dan began his career in the HVAC industry after earning his degree in Business Management from Virginia Tech in 1988. After spending 15 years at Arlington Heating and A/C, Inc., rising to the position of vice president, Dan Foley left the company in April, 2002 to start his own company. Dan has years of field experience installing and servicing radiant and hydronic systems to complement his managerial capabilities. He is an RPA certified designer and installer. Dan serves on the boards of his local ACCA, PHCC and RPA chapters. He is also a past president of the Radiant Panel Association. He holds Master HVAC and Master plumbing/gas fitting licenses in Virginia, Washing, D.C. and Maryland.