Industrial electrification is crucial for meeting net-zero climate goals, as it reduces carbon emissions and enhances energy efficiency. Whereas sectors like transportation and space heating have made significant advances to electrify, industrial electrification, particularly in process heating, has seen limited progress. In this article, we explore the status of this sector and forecast where it is heading.
Why industrial process heat matters
Nearly all industrial processes rely on heat in some form, whether in the form of high-temperature furnaces for steel production, steam for paper production, or hot water to produce food and beverages. Unfortunately, most of this heat is still generated by fossil fuels. In fact, the vast majority is created from natural gas, coal, or oil, and only 3% is generated by electricity [1]. As a result, industrial process heat is responsible for around 15% of all European GHG emissions [2]. In the global context, that share is even higher at 22% [3].
For the industrial sector to meet decarbonisation targets, it needs to rethink its heating-related processes and fuel sources. In Europe, the sector is under increasing regulatory pressure, for instance with the new ETS-2 that is planned to come into effect in 2027. This scheme will introduce a hard-cap on the total emission of all industries, no longer only energy-intensive ones currently covered by the existing ETS. Although there is some political pushback, ETS-2 is expected to be implemented and will impact 8.000 to 11.000 small industrial facilities in Europe that are still heavily reliant on gas, coal or oil [1].
For more information on ETS-2, we refer to this explainer by Rabobank.
How electrification will progress: from low to high temperatures
Whether a facility can technically electrify some of its processes depends on the properties of its processes, such as temperatures, power requirements and type of material being processed. As a general rule, low-temperature processes (100-200 °C) in the food, paper, chemical and refinery industry lend themselves well for electrification using existing tech. High temperature processes, in particular those involving non-metallic minerals or steel, require more advanced solutions.
While the name might suggest differently, these low-temperature processes account for ±40% of the total industrial heat consumption [4]. This amounts to 725 TWh, which is about 10 times the total heat demand of all Dutch households [5]. Assuming a €55 MWh price of fossil-heat, this low-temperature cohort spends around €40 billion annually on fuels, an OPEX that can be drastically reduced by electrification.
Estimated total final energy demand for process heating by temperature in EU-27 countries (2019 data, source: [4])
The toolkit: high-temperature heat pumps, e-boilers and storage
We expect that the following technologies will play a key role in the electrification of low-temperature industrial heat:
- Electric (steam) boilers – This is an established technology that is versatile, relatively easy to install and has a low CAPEX. These systems typically deliver saturated steam of around 200 °C, although special versions can also deliver superheated steam up to ±500 °C. They come in various sizes (10kW to 10MW). A challenge is their high electricity use, making e-boilers uneconomical for countries with high spark-spreads and processes that run over a high number of full-load-hours. Also, deployment of e-boilers can be heavily limited by the capacity of the grid connection.
- High temperature heat-pumps (HTHP) – This is a novel space that starts to gain traction with many different designs now tested and applied in the field. Similar to conventional heat-pumps, a high-temperature heat pump uses electricity to transport heat instead of producing it. As a result, it can reach a far better efficiency than an e-boiler. It is often connected to a waste-heat stream, although it can also extract energy from ambient air. However, compared to electric boilers, there is a higher CAPEX, increased complexity and more maintenance.
- Thermal storage – Typically applied in combination with electric heating, these systems decouple heat generation and heat consumption in time. By doing so, the industrial facility can provide demand-response grid services, leading to lower electricity price paid, utilize more on-site generation, or work around limitations in the grid connection. The ideal thermal storage solution would be compact, modular, low-cost, high-temp and with a high round-trip efficiency. This space currently has a lower TRL than e-boilers and HTHP, however, several companies are working on solutions and it is foreseable that some will have a commercial product in the next few years.
| Technology | Current estimated TRL | Max temperature [°C] | Efficiency [%] | Expected improvement towards 2035 |
|---|---|---|---|---|
| Natural gas boiler | 10 | 700 | 89-97 | none |
| E-boiler | 10 | 500 | 99 | limited |
| High temperature heat pump | 8-9 | 200-250 | Typically around 200, up to 600 for lower temperature lifts | Max temperature towards 300° C, cost reduction, reliability improvement |
| Thermal storage | 7-9 | 1,000 | 90 | higher temperatures and capacities |
Other carbon-free or low-carbon industrial heat solutions include geothermal, or small nuclear reactors that are optimized for delivering heat to industry or the residential sector (see our portfolio company Steady Energy).
From Barriers to Breakthroughs
The variety of promising technologies available, each with distinct strengths and limitations, highlights both the potential and the challenges of electrifying industrial heat. We now focus on factors that form a barrier to adoption and how we see these factors develop in the coming years.
- Economic: Given the long life-span of existing equipment, and high investment costs of new equipment, plant owners are understandably reluctant to implement changes. Investments in new equipment often does not meet the required or expected internal rate of return, which may be high given that there are other optimizations that have a far shorter payback time. Access to capital and the cost of financing is another clear economic barrier, which varies greatly between companies. We see some early signs that well-capitalized and environmentally concious companies are early adopters of electric heating technologies, driving down cost of production and increasing the acceptance, our expectation is that it will benefit industry as a whole.
- Implementation: Shifting from gas to electricity puts more strain on the grid connection, potentially requiring an upgraded connection, for which there may be long waiting times. HTHPs are signficantly more efficient than e-boilers and can offer an electric solution when grids are limited. Heat storage solutions address the same problem, albeit at the cost of increased project complexity. We believe implementation barriers remain a significant hurdle, but system standardization, modularity and succesfull pilot projects will gradually reduce this over time.
- Knowledge & trust: Executing all preparatory works including feasibility studies, system design and engineering, requires close collaboration between site managers, external advisors and OEMs. Performance characteristics and specifications of equipment need to be clearly defined, reliable and based on real-life measurements instead of calculations. For OEMs, especially those developing innovative solutions, it is essential to show that the equipment can operate reliably and efficiently under a variety of operating conditions. Luckily, with various pilots [6] now underway, both knowledge and trust is being built in this sector.
Conclusion
Industrial electrification, particularly in low-temperature process heat, is no longer a distant ideal but an emerging and actionable pathway toward decarbonisation. With proven technologies like electric boilers already available and promising solutions such as high-temperature heat pumps and thermal storage continuing to advance, the technical foundation is in place. When economic, implementation, knowledge and trust barriers gradually overcome, we expect industrial electrification to accelerate. In our view the opportunity is significant: electrifying just the low-temperature segment cuts billions in fossil fuel spending while substantially bringing us closer to a decarbonised industrial sector.
Sources
[1]: https://www.sciencedirect.com/science/article/pii/S2214629625003081
[2]: https://backend.orbit.dtu.dk/ws/portalfiles/portal/216587293/2020_07_10_whitepaper_IHP_A4.pdf
[3]: https://www.mckinsey.com/industries/industrials-and-electronics/our-insights/industrial-heat-pumps-five-considerations-for-future-growth
[4]: https://www.agora-industry.org/fileadmin/Projects/2023/2023-20_IND_Electrification_Industrial_Heat/A-IND_329_04_Electrification_Industrial_Heat_WEB.pdf
[5]: https://energy.nl/thema/technologie-en-energiesysteem/energiedragers/warmte-en-koude/
[6]: https://heatpumpingtechnologies.org/annex58/wp-content/uploads/sites/70/2023/09/norwayannex-58-norway-update-hthp-suppliers-market-and-rdsintef-schlemminger.pdf