Technology and Market Overview

This chapter provides an overview of the technology and market that are the focuses of this report: commercial natural refrigerant chillers and heat pumps with a capacity of 30–400kW (8.5–113TR). The chapter covers technology first and then takes a brief look at the various applications for commercial natural refrigerant chillers and heat pumps. It continues with a short history of these technologies in Europe before moving onto opportunities for them in two emerging sectors.

Chillers provide cooling by removing heat from a secondary fluid loop, typically water, water–glycol or brine. The system operates on a vapor-compression cycle: A liquid refrigerant absorbs heat from the building’s fluid loop inside an evaporator, causing the refrigerant to evaporate into a low-pressure gas while chilling the secondary fluid. A compressor then pressurizes this gas, raising its temperature so that a condenser can reject the accumulated heat to the environment, reverting the refrigerant back into a liquid – in the transcritical cycle CO₂ (R744) is a supercritical fluid – to repeat the cycle.

Chillers can be either air-cooled or water-cooled. The difference is how the heat from the refrigerant is rejected to the environment:

Heat pumps work by moving heat from a source, such as the ambient air or a nearby river or lake, to a sink, which is most often water or water–glycol. The natural refrigerants used in these heat pumps boil at extremely low temperatures, which enables heat pumps to gather heat even at exceedingly low ambient temperatures.

The system operates on a vapor-compression cycle: A liquid refrigerant absorbs heat from the ambient air or a water source, causing the refrigerant to evaporate into a low-pressure gas. A compressor then pressurizes the gas, raising its temperature. The high-heat gas is rejected into the heat sink via the condenser, reverting the refrigerant back into a liquid – in the transcritical cycle, CO₂ is a supercritical fluid – to repeat the cycle.

Because they use electricity to produce heat, heat pumps are a crucial technology for decarbonizing buildings and industry, two sectors that have historically used fossil-fired boilers to produce heat. Crucially, natural refrigerants allow modern heat pumps to achieve the high flow temperatures required by existing commercial radiator networks without a severe penalty to efficiency.

In addition to air- and water-source heat pumps there are also ground-source heat pumps. Across all three, the heat sink is almost exclusively water in a secondary loop or buffer tank. Within these groupings, further distinctions can be made between monobloc or split systems.

A reversible heat pump can provide both heating and cooling but not at the same time. Employing an internal four-way reversing valve, the system changes the direction of the refrigerant flow. When switched to cooling mode, the heat source and sinks are reversed: The indoor heat exchanger functions as the evaporator, and the outdoor heat exchanger takes the condenser role, with the heat from the facility water loop rejected to the ambient air, water source or ground.

A four-pipe/polyvalent heat pump can heat and cool simultaneously. When operating in cooling mode alone, it rejects heat to the external source/sink using dedicated heat exchangers. When there is a simultaneous demand for cooling and heating, the heat extracted from the cold water loop is redirected directly into the building’s hot water loop.

CO₂ is unique compared to naturals and synthetic refrigerants because of its low critical temperature of around 31°C (87°F). When CO₂ rejects heat above that point it does not condense but remains a supercritical fluid that simply cools as it gives up heat. Rejecting heat at high pressure requires robust compressors and components. For years these components were scarce and expensive, and while they are more readily available today, they still carry a higher upfront cost than components rated for lower pressures.

However, that same behavior makes CO₂ unusually versatile across temperature extremes. In heat pumps, the gradual cooling of the supercritical fluid matches the gradual warming of a water loop especially well, letting CO₂ units deliver high flow temperatures without the efficiency penalty that condensing refrigerants incur. This is a particular strength in producing high-temperature heat and in heat recovery. In chillers, CO₂ performs well at low evaporating temperatures, making it a natural fit for sub-zero process cooling.

Hydrocarbons, chiefly propane (R290), are highly efficient refrigerants that are flammable. As such, charge sizes are limited by safety standards, and units are generally installed outdoors or in ventilated enclosures so that any leak disperses safely. Their operating pressures and thermodynamic behavior otherwise sit close to those of the synthetic refrigerants and they share some of the same components as well.

Propane’s efficiency and its use of many of the same components as synthetic-based chillers make it a straightforward substitute, from a thermodynamic standpoint, in air-cooled comfort and process cooling applications. In heat pumps, isobutane (R600a), butane (R600) and pentane (R601) deliver high flow temperatures at moderate operating pressures, matching or exceeding CO₂’s high-temperature capability without its high-pressure cost.

Ammonia (R717) is incredibly efficient but it is toxic and mildly flammable. As such, it has historically been confined to large, water-cooled plants housed in dedicated machinery rooms and run by trained personnel. The advent of low-charge ammonia — which substantially reduces the charge size compared to a traditional system — has been the key to downsizing the technology, and manufacturers now offer packaged and even air-cooled ammonia units at commercial capacities.

In chillers, ammonia is the long-standing workhorse of industrial and process cooling, and low-charge designs now bring that efficiency into commercial-scale units. In heat pumps, it is well established in industrial systems but less common at commercial scale.

Process cooling involves the removal of heat from industrial equipment and materials. A chilled fluid, often water or water–glycol, cools the equipment or material, with the heat transferred to the chiller’s refrigerant loop and rejected to either the ambient air or a cooling tower.

Process cooling is essential to many industries, including:

Ammonia is a natural fit for the heaviest process-cooling loads, and low-charge units now extend that reach to commercial-scale applications. Hydrocarbon chillers are a practical fit for plastics manufacturing, pharmaceutical production and other industries with above-zero process cooling needs. CO₂ chillers are better suited to applications requiring sub-zero glycol temperatures, such as brewing and cold stabilization in winemaking.

Process heating involves delivering heat directly to industrial equipment and materials using hot water or steam. In heat pump systems, heat is absorbed from a low-temperature source, such as ambient air, wastewater or waste heat, and upgraded by the refrigerant loop before being transferred to the process fluid.

At the commercial scale covered in this report, heat pumps are mostly used for smaller, distributed process heating needs rather than large centralized industrial loads. Relevant applications include:

CO₂ heat pumps are especially well suited to this scale of process heating, efficiently delivering water at 90°C (194°F) or higher for the hottest applications. Hydrocarbon heat pumps are an efficient option for moderate process temperatures at similar capacities. Ammonia heat pumps remain less common at this scale, having historically been concentrated in larger industrial installations above 400kW.

Chillers can provide comfort cooling in offices, hotels, airports and other large residential and non-residential buildings. A chilled water loop is circulated through the building to air-handling (AHU) or fan coil units. The heat transferred to the water is cooled by the chiller’s refrigerant loop and rejected to the ambient air or a cooling tower.

Hydrocarbon chillers have been deployed safely in commercial comfort cooling applications (see Secon’s “Deep Dive”). Low-charge ammonia chillers are increasingly offered for comfort cooling as well. For buildings requiring seasonal flexibility, a reversible heat pump can replace a standard chiller, switching between comfort cooling in summer and space heating in winter without separate systems.

Heat pumps are used for space heating and domestic hot water production in commercial buildings. Using ambient air or a water source, the heat pump warms the building’s water loop up to 70°C (158°F) and distributes it to either AHUs or fan coils units. Buildings with underfloor heating require lower temperatures of up to 45°C (113°F). Domestic hot water is heated to 60°C (140°F). Heat pumps are also used in district heating systems. Commercial-scale heat pump units can be deployed in parallel or cascaded configurations to serve smaller district heating networks.

CO₂ heat pumps are particularly effective for producing domestic hot water. Hydrocarbon heat pumps deliver high flow temperatures efficiently at lower operating pressures, a complementary fit for space heating across the building’s water loop.

Variable refrigerant flow (VRF) systems use a single outdoor unit with inverter-driven compressors and electronic expansion valves to modulate refrigerant delivery to multiple indoor units simultaneously, enabling independent zone-by-zone heating or cooling across large commercial buildings. VRF circulates refrigerant directly to each indoor unit, eliminating the intermediate water loop and reducing the system’s overall footprint. Reversible VRF configurations function as heat pumps, extracting heat from outdoor air for space heating.

The path to natural refrigerants in VRF remains uncertain. The only manufacturer to have publicly committed to a natural refrigerant VRF product is Daikin, which unveiled a CO₂ VRV (variable refrigerant volume, its trademark for VRF) system for the European market at ISH 2025 in Frankfurt.² At the time of this writing Daikin has not provided an update on the launch of its CO₂ VRV system or shared details regarding sales or installations.

Data centers have historically been air-cooled, but the rise of high-performance computing and artificial intelligence has pushed server rack density from 15–30kW to more than 100kW. At these densities air cannot be circulated fast enough to dissipate the heat, and data center operators have turned to liquid-cooling systems, which leverage fluids that have a heat-carrying capacity thousands of times higher than air. These fluids are typically cooled by chillers.

Although natural refrigerant chillers remain a small fraction of the data center cooling market, hydrocarbon and CO₂ units are gaining traction as end users face growing pressure to reduce refrigerant emissions and improve energy efficiency at scale. Ammonia chillers are used as well.

Integrated systems meet simultaneous demand for heating and cooling by recapturing waste heat from the cooling process. A chiller with heat recapture, for example, can cool a building’s IT equipment while using the recovered heat for space heating. Hotels and hospitals similarly recapture waste heat from comfort cooling or refrigeration to produce domestic hot water.

Both hydrocarbon and CO₂ technologies are used in these configurations. Hydrocarbon systems can recover heat for use within a localized circuit to preheat domestic hot water, for example. CO₂ systems can extract heat from a cooling loop and upgrade it to the higher temperatures required for space heating or hot water distribution across larger networks. Ammonia integrated systems are more common in industrial settings than at the commercial scale covered in this report where recaptured waste heat warms water and cleans and dries process equipment.

The chiller was invented by Willis Carrier in 1922, with the first installations providing comfort cooling for department stores and movie theaters in the United States.³ While Carrier used ammonia in some of its early commercial air-conditioning systems in the U.S., its chillers used the synthetic refrigerant dilene.

The history of the heat pump is almost equally as long as that of the chiller. In 1938,⁴ the world’s first heat pump was installed at the Zurich town hall.⁵ The water-to-water heat pump was manufactured by Escher Wys (now Friotherm) and used the Limmat river as its heat source. Along with space heating in the winter it provided comfort cooling in the summer and used R12 refrigerant.

CO₂, propane and ammonia were used in HVAC&R in the early 1900s, but the rise of synthetic refrigerants in the 1930s pushed CO₂ and propane to the sidelines. Ammonia didn’t face the same fate and continued to be a force in industrial refrigeration. In commercial chillers and heat pumps, however, synthetics would be the only option for decades to come.

In the mid-1990s Gustav Lorentzen’s research into CO₂ and subsequent development of the transcritical cycle revived interest in CO₂ as a refrigerant. In 2001 the transcritical CO₂ cycle showed its potential in Japan with the launch of the first Eco Cute hot water heat pump, designed for residential applications.⁶ By the end of the decade transcritical CO₂ had begun to carve out a niche in the European commercial refrigeration sector.

The late 1990s saw the groundwork laid for commercial hydrocarbon heat pumps. Swedish manufacturer NIBE and German manufacturer Alpha Innotec (AIT) began building propane heat pumps to provide residential space heating and domestic hot water.⁷ The ‘90s also saw the development of low-charge ammonia systems, which enabled the refrigerant to be used in a wider range of industrial applications, including smaller-scale process cooling.⁸ Italian manufacturer Zudek and Scottish manufacturer Star Refrigeration were two of the pioneers of this technology.

The development of the market for transcritical CO₂ refrigeration systems led to an increased availability of compressors and other components specifically designed to withstand high pressures. In 2006 Star Refrigeration built a CO₂ chiller to cool servers at the London branch of the Dutch bank ABN Amro.⁹ The Scottish industrial refrigeration manufacturer supplied a 300kW chiller to cool the bank’s “15 high-performance servers.”

It was around this time that European manufacturers began developing commercial propane chillers. Italy-based Euroklimat entered the market in 2006, and in 2010 Secon was founded in Germany with the goal of manufacturing chillers that only use natural refrigerants, specifically hydrocarbons. The Lithuania-based refrigeration systems manufacturer Refra began building natural refrigerant-based chillers in 2011.

The commercial heat pump market developed slower due to a variety of factors. For CO₂ this included the aforementioned lack of availability of components rated for high pressures – mostly compressors – along with the perception that the transcritical cycle was efficient only in specific applications.¹⁰ A lack of components, specifically scroll compressors, was also an impediment to the development of commercial propane heat pumps, as were fears of the refrigerant’s flammability, which impacted allowable charge levels.

Support for this nascent market came from the EU in the early 2010s. The EU-funded NxtHPG project was launched in 2012 with the goal of developing “several reliable, safe, high efficiency and high capacity heat pumps working with the two most promising natural refrigerants: hydrocarbons and CO₂.”¹¹ The project wrapped in 2016 with the successful development of five prototype units, including reversible systems, ranging in capacity from 30kW to 60kW (8.5TR to 17TR).

Natural refrigerants received a boost with the 2014 revision to the EU F-gas Regulation, which included an f-gas quota system and GWP (global warming potential) limits for HFCs (hydrofluorocarbons) in new equipment (see Chapter 2).¹² While this signaled that HFCs were in the sights of regulators, the 2014 F-gas Regulation did not contain GWP limits for commercial chillers and heat pumps, and synthetic refrigerants continued to dominate the market.

In 2023 the European market for chillers with a cooling capacity over 50kW (14.2TR) was estimated at €1.9 billion ($2.1 billion), with the market experiencing double-digit growth from prior years.¹³ Air-cooled and water-cooled chillers were both driving the market, but just 1% of chillers used natural refrigerants, with HFCs accounting for 74% of the total, HFC/HFO (hydrofluoroolefins) blends 17% and HFOs 7%.

The 2024 revision to the EU F-gas Regulation established a ban on the use of HFCs in new HVAC&R equipment beginning in 2050.¹⁴ This includes phased-in GWP limits for commercial chillers and heat pumps. The regulation does not account for HFOs, a class of synthetic refrigerants with zero ODP and GWP values at or near zero.

However, the universal PFAS (per- and polyfluoroalkyl substances) restriction proposal currently being considered by the European Chemicals Agency (ECHA) would ban the use of HFO refrigerants considered PFAS. As of July 2026, the ECHA has yet to submit its final opinion on the restriction proposal to the European Commission, with the regulatory process potentially running through 2028 (see Chapter 2).

There were an estimated 400,000 air-to-water and 80,000 water-to-water chillers with a capacity of or less than 400kW in the European industrial process cooling sector in 2016.¹⁵ In 2024, ATMOsphere estimated there were 6,650 industrial sites – a site could use one or more chillers – in Europe with hydrocarbon-based chillers as of December 2024, an increase of 33% from the previous year.¹⁶

While hydrocarbon chillers would be just 1% of the total number of chillers in European process cooling, their year-over-year growth from 2023 to 2024 shows that adoption is increasing among end users. CO₂ has also found its footing in process cooling, including from some big name end users. U.S. food processing company Cargill said in 2022 that it was moving from HFC to CO₂ chillers for applications ranging from 100 to 500kW (28.4 to 142TR) at its European plants.¹⁷

Low-charge designs have made ammonia more of a fit for smaller-scale process cooling. Manufacturers have moved to serve this range — Enex Technologies, for example, expanded into low-charge ammonia chillers through acquisition and now offers air-cooled ammonia units alongside its hydrocarbon and CO₂ lines.

In 2016 there were an estimated 310,000 air-to-water chillers and 90,000 water-to-water chillers with a capacity of or less than 400kW used for comfort cooling in non-residential buildings. Natural refrigerant-based chillers make up less than 1% of this total, but that being said, propane and CO₂ chillers and heat pumps have been used successfully in commercial comfort cooling applications for years.

Natural refrigerant-based heat pumps have also made their way into air-handling units. Danish manufacturer Unic Air has been developing AHUs with integrated CO₂ heat pumps for commercial comfort cooling since 2018, with more than 250 of its BLUE CO₂ AHUs installed across Denmark as of 2025.²¹ Unic is currently developing an AHU with a CO₂ heat pump that can provide both cooling and heating. Swedish manufacturer Systemair also has an AHU with an integrated CO₂ heat pump (see the Systemair “Deep Dive”).

Natural refrigerant-based chillers and heat pumps are becoming more visible in commercial comfort cooling, but they still face challenges in gaining a greater market share. For hydrocarbons the chief area of concern is still flammability, while CO₂ chillers and heat pumps carry a higher initial cost due to their high operating pressures. Despite this, Danfoss forecasts that hydrocarbons specifically will become the main refrigerant in “commercial A/C [and] scrolls including reversible units” from 30–400kW of capacity in Europe by 2028.

A total of €176 billion ($201 billion) is forecasted to be invested in new European data center construction from 2026 to 2031.²² At the moment, that demand is largely being met by chillers using HFC and HFO refrigerants.

Natural refrigerants are struggling to make inroads in part because of the same concerns leveled in the commercial comfort cooling sector: flammability for hydrocarbons and higher upfront costs for CO₂ systems. However, like with comfort cooling, natural refrigerant-based chillers and heat pumps have overcome these concerns and established a small foothold in data centers.

Both Secon and Danish manufacturer Fenagy have shown that hydrocarbon-based chillers can compete on a cost basis with chillers using synthetic refrigerants – in the Nordics and in Austria, Germany and Switzerland.²³ Secon has provided hydrocarbon chillers for more than 30 data centers, while Fenagy is just entering the segment. Its first project, located in Kajaani, Finland, points to what could be the future for data centers: a chiller–heat pump that recovers the waste heat for use in the local district heating network.

Outside of hydrocarbons, ammonia chillers have also been used for data center cooling. Italian manufacturer Zudek replaced an R407C chiller at a German data center with a low-charge ammonia chiller that was 43% more efficient.²⁴ CO₂ chillers are also used, though in greater numbers in North America with Canadian manufacturer M&M Carnot leading the way.