We must act now to decarbonize industrial thermal energy sources
We are all fully aware of the vital need for the transition to low carbon energy sources in the electricity sector. Over the past thirty years, the solar, wind and storage trio have dominated public discourse on the energy transition and filled endless columns, but, most importantly, we have seen great progress in many markets.
Despite all the progress we have made in introducing renewable energy sources on a large scale, we have overlooked another sector that is crucial to enable us to achieve a low carbon energy transition by mid-century: industrial heat.
Global industrial heat accounts for 29% of final energy consumption and is essential for most industrial processes. It is the energy input that triggers the chemical reactions to make medicines and cleaning products. It is needed to turn metal ore into steel and eventually into consumer goods like cars. It is used to pasteurize milk, brew beer, and dry paper.
Heat not only represents a significant proportion of global energy demand, but its fuel supply has been dominated by coal, oil and natural gas. While policymakers and businesses have rightly focused on greening the energy supply of global power grids, greening the energy supply of industrial heating has been overlooked.
Today, there is a real impetus to implement renewable heat solutions on an industrial scale. The UNFCCC’s latest synthesis report on Nationally Determined Contributions (NDCs) implies a massive 16% increase in global greenhouse gas emissions in 2030 from 2010 levels. We can make a real dent in this. this figure if we start to focus on low to medium temperature heat, where various solutions are already commercially available, as opposed to high temperature heat, where decarbonization often relies on the capture of hydrogen and carbon – solutions which are costly to implement for the industry.
Understanding the dynamics of the industrial heat market
Despite this momentum, significant obstacles are preventing a transition to low-carbon energy sources. These are largely economical, with fossil fuels being very competitive in most markets, especially in the absence of a significant price on carbon.
Significant investments are needed to support the deployment of low carbon fuel sources in all industrial processes. The International Renewable Energy Agency (IRENA) estimates that it would take around 3.7 trillion US dollars (3.2 trillion euros) of investment to achieve this by 2050 and achieve a scenario of 1, 5 degrees Celsius. Renewable heat options often come with higher upfront costs and long payback periods – a problem for industrial end users looking to switch to renewable sources.
In addition, the market remains opaque. G-20 countries are responsible for nearly 80% of industrial fuel consumption, but specific market conditions are not clear enough to determine where renewable heat options are actually viable for industrial end users . The WBCSD and Bloomberg NEF have attempted to clarify this issue by producing a report that describes the most attractive markets in the G-20 for decarbonizing process heat, particularly low- and medium-temperature process heat.
China, France, Germany, Italy, South Korea and the UK are leading the way. These markets offer the best conditions, policies and resources available to support decarbonization. Unfortunately, the United States and India, which respectively account for the second and third largest portions of low- and medium-temperature heat demand, were seen as less favorable markets, in part because neither markets have implemented a nationwide policy favoring the absorption of renewable heat. Meanwhile, decarbonizing heat in countries like Russia, Saudi Arabia and South Africa is proving particularly difficult.
Technological solutions to decarbonize heat
With a better understanding of market dynamics, industrial end users can make more informed decisions about the solutions they can implement to decarbonise low and medium temperature heat.
While there are no quick fixes, there is a range of technologies, many of which are commercially available today. These include industrial scale heat pumps, solar thermal, geothermal, various forms of bioenergy and direct electrification technologies.
Electrification has significant scale potential and is a big part of the solution, and related emissions will improve as the grid continues to decarbonize. Industrial scale heat pumps are one of the most efficient solutions due to their much higher operational efficiency. Deployment relies on access to waste heat flow and / or innovations in temperatures that heat pumps can deliver.
Bioenergy is one of the largest renewable heat sources consumed in industry today, accounting for 13% of the low to medium temperature heat of the G-20 in 2018. Its use is currently concentrated in the pasta sector and paper, but the food, beverage and tobacco sectors present opportunities for greater use of agricultural product waste.
Geothermal energy refers to systems that extract heat from beneath the earth’s surface. These systems are typically concentrated in countries with significant natural geothermal resources and have been used primarily in energy intensive industry.
Finally, solar thermal refers to systems that use energy captured by the sun. It is currently a niche market with limited deployment, which has so far been concentrated in the food and beverage, textiles and mining sectors.
Commercial viability of renewable heat can be achieved in the short term
All four technology solutions have one thing in common: Widespread adoption requires a more competitive business case. As such, more favorable political signals are crucial.
G-20 countries looking to increase the deployment of renewable heating solutions within their borders should focus on putting in place supportive policies first. Putting a price on carbon would help industrial end users identify where fossil fuel combustion is likely to become less cost competitive. Meanwhile, the introduction of incentives can help increase the deployment of innovative and early-stage technologies, such as industrial-scale heat pumps that can reach higher temperatures.
The accelerated deployment of renewable energy production is also essential. To electrify industrial heat, in addition to the electrification of transport and the built environment, power grids must become much larger and fully digital, to adapt distributed and intermittent production capacity to new demand models.
A global drug company, Novartis has already achieved 100% renewable electricity in the United States through a virtual power purchase agreement and is on track to achieve the same for European operations by 2023 through similar agreements. More and more markets present viable options for adopting renewable electricity for Novartis and for supply chain partners. While rapid progress can be made for electricity, commercially viable options for decarbonizing thermal energy are not available. Quite simply, the technology hasn’t changed in volume or price, and probably won’t for a number of years.
Novartis has previously studied heat as a service (HaaS), which most closely resembles power purchase agreements for renewable electricity. It will take time and effort to develop solutions in key markets where a large portion of business consumption exists today. These solutions will require unique financing options that will reduce the burden of capital expenditure and may place more emphasis on district heating approaches for certain applications. The work the WBCSD and Novartis are doing together is providing a demand signal in the market that should help drive innovation and technical solutions.
In the coming decades, there is real potential for decarbonizing process heat, especially at low temperatures and in markets with favorable conditions and policies. To scale renewable heat, companies must collaborate with their value chains and drive demand and collective action to improve market conditions and policies. The leadership of some of the world’s most sustainable companies like Novartis shows that it can be done. We must act now to decarbonize industrial heat if we are to limit the rise in global greenhouse gas emissions and comply with the Paris Agreement.
By Rutger van der Zanden, Head of Energy Transformation at the World Business Council for Sustainability and James Goudreau, Head of External Engagement for Environmental Sustainability, Novartis