Today, 37 percent of total global energy consumption comes from industry,1 including sectors such as chemicals, manufacturing, and pulp and paper, and an astounding two-thirds of industrial energy consumption is used for heat generation. This means industrial heat demand amounts to more than 20 percent of global energy consumption,2 the vast majority of which—approximately 80 percent—is generated by fossil fuels.
Faced with increasingly stringent climate targets, many industry players see decarbonizing heat as a challenge that needs urgent attention. However, insufficient availability of technologies at reasonable cost and maturity levels, limited capital, and an unwillingness to risk that capital could limit the number of players ready to invest in heat electrification at scale.
According to a recent report from the McKinsey Global Institute, nearly half of energy-related CO2 emission reductions depend on addressing physical challenges, including using alternative heat sources for the production of industrial materials.3 This article illustrates the potential of heat electrification to decarbonize industry, exploring use cases across several industries as well as the underlying technologies available today and in the years to come. It also provides five strategic questions to help OEMs determine which play is right for their businesses.
An overview of decarbonization and heat electrification
The net-zero transition is one of the largest challenges of our time. More than 5,000 businesses across regions and industries have set emission-reduction targets,4 and regulators are taking decisive action. For example, the European Union aims to reduce emissions by 55 percent by 2030 and achieve net zero by 2050.5 To achieve this goal, the timeline for building out green power supply needs to be accelerated, yet grid infrastructure is struggling to keep up with increasing intermittencies from the renewables supply as well as distribution on low- or medium-voltage grids, which most industries are connected to.
Fortunately, European countries and grid operators have already announced investment increases in power infrastructure to support net-zero ambitions for both green-power generators and small- and large-scale consumers. In fact, the necessary technologies to enable electrification in the industrial segment, and therefore reduce emissions, are already available and can be integrated into existing infrastructure.
In addition, there are a number of other decarbonization pathways to choose from, including hydrogen and carbon capture and storage (CCS), although these require infrastructure build-out and significant investment. At the same time, electrification can have a positive net present value (NPV).6
Different industry verticals also have varying levels of potential for decarbonization based on their temperature requirements (Exhibit 1). For instance, high-temperature processes require reliable energy sources as well as proven technologies to maintain continuous operations. By contrast, technical alternatives to natural gas firing are relatively scarce today. Thus, the most suitable use cases are within the low- to medium-temperature range, such as process steam and hot air.
Overall, manufacturing, food and beverage, and agriculture and forestry are the industries most reliant on processes with low-temperature heat (less than 200ºC). In particular, manufacturing and food and beverage could see significant potential from electrification in the short to medium term, with electrification rates of 62 and 44 percent of total energy demand, respectively, by 2030.7 By contrast, temperature requirements are highest for use cases in chemicals, iron and steel, and nonmetallic minerals, all of which require a large share of medium- and high-temperature heat (more than 200ºC).
Overall, the total opportunity for electrification of industries is significant. Our projections show approximately $4 billion could be invested from 2024 to 2030 in the EU-27 plus the United Kingdom alone. This assumes continued activity in both emissions-light and hard-to-abate industries, both of which face increased competitive pressure as well as financing challenges when investing in electrification.
Heat electrification technologies: The industrial decarbonization option for the here and now
Heat technologies employed today fall into two categories: boilers and process heaters or furnaces (see sidebar, “Heat temperature and equipment types”). Boilers are predominantly run with gas and dominate low- to mid-temperature levels up to 500ºC to generate steam or heat up thermal oil. By contrast, higher temperatures are generated either directly or indirectly via process heaters or furnaces.
A wide range of mature electrification technologies available today can cover certain heat applications across temperature ranges and use cases. For instance, heat pumps can cover low temperatures (up to 150ºC), while mechanical vapor recompression (MVR) technology can cover temperatures beyond that.8 Electric boilers can provide the same temperature ranges as gas boilers, covering the full range up to 500ºC. Turbo and induction heaters can cover temperatures even higher than 1,000°C, depending on the technical setup.
Among the options for electrification (excluding high-temperature applications in heavy industries, such as electric arc furnaces, e-crackers, or kilns), our projections show that five major technologies—heat pumps, induction heaters, MVR, e-boilers, and turbo heaters—can cover more than 80 percent of the market across industries (Exhibit 2). Their respective technical characteristics are mainly oriented at the level of temperature, output media, and maturity at industrial scale. All technologies can be complemented with Thermal Energy Storage systems that would allow capture of intermittent electricity.
Applications for industrial heat pumps in industry have already been rolled out. One suitable sector is food and beverage, in which 40 percent of energy demand is used for steam generation,9 and more than 80 percent of steam is generated through conventional boilers or combined heat and power today.
For these cases, heat pumps are the go-to technology for decarbonization when they are cost competitive and affordable from a capital standpoint. This is particularly the case in industries where low-temperature processes dominate. Breweries are one example. At an output of around 500,000 hectoliters, approximately seven gigawatt-hours (GWh) of energy are required for steam production in the brew house (mashing, purifying, and boiling) at up to 120ºC. Another two GWh are required for steam in the fermentation process (filtration, dealcoholization, and short-term heating) up to 95ºC. Last, the bottling hall requires around five GWh yearly for bottle cleaning, filling, and pasteurization, with temperatures of up to 70ºC. Therefore, steam generation in breweries can be fully decarbonized today with existing industrial heat pump technologies and significant synergies between processes.
Along with downstream decarbonized heat technologies in industrial processes, the supply of electric heat infrastructure and renewables needs to be significantly developed. For instance, a pilot e-cracker in Europe with 25 megawatts (MW) of capacity would theoretically require approximately 16 windmills with capacity of five MW each (indicative for power output only, not considering intermittencies) and batteries to cover the intermittent renewables output. Replacing a regular industrial-size cracker at approximately 600 to 800 MW with an e-cracker that uses intermittent renewables would require two or three times the power capacity. Furthermore, anywhere from 20 to 30 percent of the project cost for infrastructure upgrades—such as new transformers or grid connections, depending on the location of the e-cracker—have to be factored in and require the support of (local) utility partners in sometimes lengthy permitting processes.
For the remaining portion of the market, technologies such as resistive heaters, clean steam boosters, or air preheaters are needed for both heat generation and recovery. All of these technologies will need to be applied within the process, and infrastructure needs to be built to support technology scale-up.
Looking ahead, innovation is ongoing for emerging technologies such as plasma torches—which are in the R&D stage for high-power applications—and induction heaters. Therefore, there is clear potential to adopt technologies to electrify high-temperature processes for cement (which relies on kilns) and chemicals (which relies on e-crackers). On this point, BASF, SABIC, and Linde recently commissioned the world’s first demonstration plant for large-scale, electrically heated steam cracker furnaces. The two furnaces can process nearly four metric tons of hydrocarbon raw material per hour and consume a combined six MW of renewable energy. Overall, the technology can potentially reduce CO2 emissions by 90 percent compared with conventional steam crackers.10
Different plays for OEMs to consider
Many heat electrification technologies are competing on certain use cases, and the “winning” technology has not yet been determined. Which technologies OEMs choose will depend on three points: 1) the maturity level reached in the market once it picks up, likely after 2030; 2) the individual heat setup and output media within a plant; and 3) specific process requirements—for example, the requirement for fast heat-up speeds in backup solutions, which would favor an e-boiler over a heat pump.
With these points in mind, OEMs for decarbonized heat technologies can answer the following questions to determine which play is right for their business.
Portfolio choice: Are you a specialized player, or do you deliver a broad portfolio?
Some players choose to focus on one technology and excel in terms of reliability, service, technical specs, and cost enablers to become best in class and win critical reference projects in the early stages. This also allows companies to build integration capabilities in different industries.
Others might aim to grow into large-scale players that can offer a wider range of technologies. This could allow OEMs to support industrial players in thinking about optimizing their broader energy systems and in creating comprehensive plans for decarbonization of their plants and processes. In some cases, this requires combined technologies, such as heat recovery, heat pumps, MVR, and e-boilers. As an example, heat pumps tend to work well in food and beverage because they enable switching from steam to hot water (many processes do not require temperatures higher than 100ºC). Also, e-boilers might be required as backup or redundancies for steam because of their fast start-up abilities. All of these technologies need to be individually integrated, and thus broad portfolio players can offer capabilities and advisory services in different industrial sectors.
Technology choice: Do you want to innovate or scale?
OEMs with deep technical expertise, innovative mindsets, and a willingness to take risks can capture opportunities as first movers by offering new technologies for previously unaddressed applications, especially in high-temperature heat processes. Such companies will likely be well positioned to benefit from high margins and potential business opportunities.
That said, positioning oneself as an innovator for high-temperature heat processes is a high-risk, high-reward play. Although innovation will likely be driven by maturing high-temperature technologies, the majority of high-temperature electrification technologies are currently premature with no proof of concept or small-scale pilots with no commercial-size applications (such as e-crackers or electric kilns). In addition, comprehensive redesign is needed in petrochemical, cement, and metals processes.
With these points in mind, technology players can pursue pilot projects in partnership with established industrial players. A good example of this is the partnership between ABB and Coolbrook, which aims to decarbonize heavy industries by combining Coolbrook’s RotoDynamic technology with ABB’s motors, power electronics, and process automation assets and capabilities, with the ultimate goal of commercializing Coolbrook’s technology and eventually scaling it.11
Alternatively, OEMs can decide to focus on proven, mature technologies, expanding them and building economies of scale. These players could potentially encounter more competition but less technology and project risk. This is mainly applicable to low- to medium-temperature technologies.
Market focus: Which geographical region is the right fit?
OEMs will likely need to determine which geographies they want to focus on as well as which industry sectors. Different geographies have varying regulatory environments, government funding and support, and financial attractiveness based on fuel and carbon prices. For some technologies, financial viability has already been reached or is close to being reached because of favorable fuel pricing (for instance, gas versus electricity) and carbon schemes in selected countries, mostly in Europe (other regions, such as North America, are still further out because of low fossil fuel prices). However, there are examples of actions to accelerate electrification in the United States—for instance, New York City’s All-Electric Buildings Law requires all new buildings to use electric heat and appliances.12
Similarly, customers are likely to differ within industries. OEMs might find large industrial players requiring hundreds of MWs of heat generation and local small players with more fragmented footprints in the same industry—for example, large dairy producers versus small local breweries in food and beverage.
Go-to-market approach: How will you approach potential customers?
Success in the industrial heat electrification market requires a deep understanding of customer requirements and key purchasing criteria. Historically, most industrial players relied on fossil-based heating solutions; therefore, many need to build trust before switching to new technologies. This will require them to learn about the performance and reliability of these technologies and gain transparency into commercial performance and risk, such as changing regulations and impact on fuel prices. Moving forward, players can more accurately determine customer requirements by conducting sensitivity analyses of the levelized cost of heat based on simulation models.
In addition, technology players can consider extending their offerings to provide both technology and related technical-advisory services. These services might include offering a structured decarbonization road map with prioritization of key processes to decarbonize along the value chain, energy efficiency or retrofit options, and, in the case of investment into new electrification assets, advisory on process integration and infrastructural requirements. Internally, this will require a proactive sales force in the field with a deep understanding of the required processes.
In summary, the key elements for a go-to-market approach are market research (the primary industry vectors and customer needs), partnerships for delivery (energy providers and engineering and construction contractors), and technical sales (dedicated sales teams with after-sales support for high reliability). Digital services for optimized operations of heat assets are also helpful in go-to-market strategies. On this point, our research shows that heat as a service within industry processes is less popular than on-site generation with combined heat and power (CHP) technologies. However, because of the additional capital needed and the technical novelties that come with electrification technologies, industrial customers with high reliability requirements might favor heat-as-a-service models.
The decarbonization challenge is significant, but industry leaders can begin electrifying industry today. The first step is accounting for existing infrastructure and investment requirements, after which leaders can determine which decarbonization pathways are feasible. From there, OEMs can begin answering strategic questions for their businesses, which will require careful analysis and the right technology. Ultimately, getting these steps right could mean the difference between staying ahead of the curve and falling behind.
