Kristjan Tiik, CEO and co-founder, Efenco
Industrial heat is central to modern economies, from electricity generation, to steel and cement production, to food and textiles manufacture. According to the International Energy Authority (IEA) industrial heat takes up two-thirds of all industrial energy use, demands almost 20% of global energy consumption, and accounts for most of the direct industrial CO2 emitted.
Under regulatory and societal pressures, industrial users are starting to move towards decarbonization. Yet challenges, which I cover in this article, mean that this is still a relatively under-exploited market opportunity. It is often overlooked in the quest for net zero, the internationally agreed goal of balancing emissions and removal of greenhouse gases (GHGs) by mid-century.
The gap between the urgent need to decarbonize and current slow progress makes the enormous GHG reduction opportunity in industrial heat very attractive. Right now, nearly all industrial heat is generated using fossil fuels - gas, coal and biomass. Decarbonizing can be achieved via a switch to cleaner energy sources, notably electricity. However, this is a slow and expensive option. And paradoxically, the enormous impacts of making these changes across the global economy may undermine the decarbonization objective we want to achieve.
Alternatives include a mix of efficiency improvements to existing boilers, using existing and emerging technologies. Applied across all sectors, including electricity generation and steel and cement production, McKinsey puts the cost of decarbonizing heavy industry by 2050 at $21 trillion.
One of the most exciting aspects of this picture is new advances in boiler efficiency technology that are now opening up a massive retrofitting opportunity with the promise of rapid decarbonization in one of the world’s largest sources of GHGs.
What are the challenges?
Achieving net zero industrial heat is not going to be easy. It is going to involve a radical shift in the way heat is generated, delivered and used. It will also mean overcoming the technical and economic barriers and organizational inertia that are currently holding back low-carbon alternatives to fossil fuels.
One challenge is the diversity of heat demand. Industrial heat encompasses a wide spectrum of temperature levels, from below 100°C for washing and drying to above 1,000°C for melting metals and making cement. Different temperature levels require different technologies and fuels. For example, heat pumps deliver low-temperature heat efficiently but are not suitable for high-temperature processes where gas boilers currently dominate.
Another challenge is the cost and availability of low-carbon heat sources. Renewable electricity, hydrogen, biomass and waste heat can all reduce or eliminate emissions from industrial heat. However, they tend to be more expensive or less reliable than fossil fuels. Moreover, low-carbon heat sources can come with trade-offs in terms of environmental and social impacts. For instance, biomass competes with food production or biodiversity, while hydrogen requires large amounts of water and energy for its production.
A third challenge is the inertia and complexity of the industrial sector. Industrial heat systems are often designed for long lifetimes and tailored to specific processes and products. Changing them is likely to involve significant capital investments, operational disruptions and technical risks. Furthermore, industrial heat users face competitive pressures and regulatory uncertainties that may discourage them from switching to low-carbon alternatives.
And what is the net carbon impact of making all these changes? Yes, once installed new electrical furnaces emit less carbon. But what about the additional energy consumption of the materials needed to manufacture the new technologies and the infrastructure needed to exploit them (e.g. electrical grid conversion, etc.), as well as the entire supply chain impacts with their own emissions footprints? Despite a credible framework for calculating total operational and embodied carbon via Scope 1-3 emissions, I do not believe we have yet fully factored these impacts into our calculations about the green transition.
What are the solutions available today?
Even with policy interventions on the scale of the U.S. Inflation Reduction Act or the EU’s Green Deal, these challenges combine to mean there is going to be a substantial time lag before industrial heat fully decarbonizes.
In the short term, there are several measures industrial users can adopt to improve the efficiency of their existing fossil fuel heat generation and reduce GHG emissions.
- Upgrading or replacing old or inefficient equipment, such as boilers, burners or heat exchangers.
- Optimizing the operation and maintenance of heat systems, such as reducing heat losses, recovering waste heat or using smart controls.
- Implementing best practices and standards for industrial heat management, such as energy audits, benchmarking or certification. These can help identify and implement the potential for improvement.
- And looking at matters more holistically, circular economic thinking encourages closed-loop production, renewable energies, waste elimination, product life extension, and resource optimization to decarbonize industry.
What about emerging technologies?
There are also emerging technologies that can improve the efficiency of fossil fuel boilers for industrial heat.
- Waste heat recovery technologies, such as organic Rankine cycle, thermoelectric generators or heat pipes. These technologies can capture and convert the waste heat from fossil fuel boilers into useful energy, such as electricity or mechanical power.
- Digitalization and automation technologies, such as sensors and artificial intelligence. These technologies can monitor, control and optimize the operation and performance of fossil fuel boilers using data and algorithms.
- Advanced combustion technologies, such as oxy-fuel combustion, fluidized bed combustion or gasification. These technologies can enhance the combustion process of fossil fuels by using pure oxygen, mixing fuel and air in a fluidized state or converting solid fuel into gas. This can result in higher efficiency, lower emissions and better integration with carbon capture and storage.
- A new breakthrough in advanced combustion is the high-energy ray ceramic (HERC) chip, which uses waste heat generated by combustion to generate low-temperature plasma and enhance reaction efficiency. The technology can enhance the efficiency of legacy fossil fuel boilers and reduce the emissions of methane, hydrogen and their mixtures. It can already achieve 18% higher thermal efficiency and potentially up to 75% in energy-intensive industries such as electricity generation, steel manufacturing, pulp and paper manufacturing, ceramics and cement production, and district heating. And it can be integrated with existing boilers and furnaces without major modifications. The technology could be rapidly installed in the 30% of gas boilers being used in the EU for high temperature industrial process heat applications. Even at the 18% efficiency gain currently being obtained, this represents a potential 5% total reduction in the EU’s energy consumption and carbon emissions from natural gas combustion; a greater potential saving than from solar and wind combined, or nuclear. The process also holds immense potential for the generation of green hydrogen.
With its colossal role in global energy consumption and greenhouse gas emissions, the shift towards low-carbon alternatives in industrial heat generation presents an extraordinary, trillion-dollar opportunity.
Current thinking seems to be locking in on a complete change to electrical generation to deliver that. But if we zoom out and take into consideration the combined carbon impacts of all the changes needed for electrification, might it actually be smarter to extract the full energy potential of existing technologies? That way we can achieve net-zero goals significantly faster. More importantly, perhaps it would also be more sustainable for the health of our planet, as we gain time to develop the technologies and infrastructure to electrify with lower total carbon impact.
Focusing on the market I know best, boiler retrofitting with HERC technology, we see a TAM (Total Addressable Market) in global industrial energy consumption of approximately 7,000 TWh, with the potential for annual HERC savings of €60B.
It’s clear that new technologies have the potential to improve the efficiency of fossil fuel boilers for industrial heat and contribute to net zero goals. As these technologies evolve and policies shape a greener landscape, a trillion-dollar market for retrofitting and revamping industrial heat systems is on the horizon.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.