We are all fully aware of the vital need to transition to low-carbon energy sources in the electricity sector. For the past thirty years, the trio of solar, wind and storage has dominated the public discourse on the energy transition and filled endless column inches, but, most importantly, we have seen great progress across many markets.
For all the progress we have made to introduce renewable power sources at scale, we have overlooked another sector that is crucial to us achieving a low-carbon energy transition by mid-century: industrial heat.
Global industrial heat accounts for 29% of final energy consumption, and it is essential to most industrial processes. It is the energy input that triggers the chemical reactions to make medicine and cleaning products. It is needed to transform metal ore into steel and, eventually, consumer goods like cars. It is used to pasteurise milk, brew beer and dry paper.
Not only does heat make up a significant proportion of global energy demand, but its fuel supply has been dominated by coal, oil, and natural gas. While policy makers and corporates rightly focused on greening the energy supply to global electricity networks, greening the energy supply to industrial heat was left neglected.
Now, there is real impetus to implement renewable heat solutions on an industrial scale. The latest UNFCCC Nationally Determined Contributions (NDC) Synthesis Report implies a sizable 16% increase in global greenhouse emissions in 2030 compared to 2010 levels. We can make a real dent in 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 decarbonisation often relies on hydrogen and carbon capture – solutions that are expensive for industry to implement.
Understanding the market dynamics for industrial heat
Despite this impetus, there are significant barriers in place preventing a transition to low-carbon energy sources. These are largely economic, with fossil fuels being highly competitive in most markets, especially in the absence of a meaningful price on carbon.
Significant investment is required to support the deployment of low-carbon fuel sources across all industrial processes. The International Renewable Energy Agency (IRENA) estimates it would take approximately USD $3.7 trillion (€3.2 trillion) worth of investment to achieve this by 2050 to fulfil a 1.5 degrees Celsius scenario. Renewable heat options often come with higher upfront costs and long payback periods – a fly in the ointment for industrial end-users looking to switch to renewable sources.
Furthermore, the market remains opaque. G-20 countries are responsible for almost 80% of fuel use in industry, but there is not enough clarity on specific market conditions to determine where renewable heat options are genuinely viable for industrial end-users. WBCSD and Bloomberg NEF have attempted to bring clarity to this issue by producing a report which outlines the most attractive markets in the G-20 to decarbonise industrial heat, specifically, low- to medium-temperature industrial heat.
China, France, Germany, Italy, South Korea, and the UK lead the way. These markets offer the best conditions, policies, and resource availability to support decarbonisation. Unfortunately, the US and India, which represent the second- and third-largest portion of demand for low- to medium-temperature heat respectively, were deemed less favourable markets, partially because neither market has much national-scale policy driving renewable heat uptake. Meanwhile, decarbonising heat in countries such as Russia, Saudi Arabia and South Africa proves particularly challenging.
The technological solutions to decarbonise heat
With a greater understanding of the market dynamics, industrial end users can make better-informed decisions about the solutions they can implement to decarbonise low- to medium-temperature heat.
While there is no silver bullet, there are 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 potential to scale and is a big part of the solution, and the corresponding emissions will improve as the grid continues to decarbonize. Industrial-scale heat pumps are one of the most effective solutions due to their much higher operational efficiencies. Deployment relies upon access to waste heat stream and/or innovations with regards to the temperatures that heat pumps can provide.
Bioenergy is one of the largest renewable heat sources consumed in industry today, accounting for 13% of low- to medium-temperature heat in the G-20 in 2018. Its use is currently concentrated in the pulp and paper sector, but the food, beverage, and tobacco sectors present opportunities for greater use of waste agricultural products.
Geothermal refers to systems that extract heat from under the earth’s surface. These systems are typically concentrated in countries with significant amounts of natural geothermal resources and have been primarily used in energy-intensive industry.
Finally, solar thermal refers to systems that make use of energy captured from the sun. This is currently a niche market with limited deployment, which so far has been concentrated in the food and beverage, textile, and mining sectors.
Commercial viability of renewable heat can be achieved in the near term
All four technological solutions have one thing in common – widespread adoption requires a more competitive business case. As such, more supportive policy signals are crucial.
G-20 countries seeking to increase the deployment of renewable heat solutions within their borders should first focus on setting supportive policies. 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.
Accelerated deployment of renewable power generation is equally key. To electrify industrial heat, in addition to the electrification of transport and the built environment, electricity grids need to get much bigger and fully digitized, to match distributed and intermittent generation capacity with the new demand patterns.
Global medicines company, Novartis has already reached 100% renewable electricity in the US 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 the adoption of renewable electricity for Novartis and for supply chain partners. While rapid progress can be achieved for electricity, commercially viable options for decarbonisation of thermal energy are not available. Quite simply, the technology has not scaled in either volume or price point and is not likely to do so for a number of years.
Novartis has already been investigating Heat as a Service (HaaS), which most resembles power purchase agreements for renewable electricity. Time and effort will be needed to develop solutions in major markets where much of the company’s consumption exists today. Those solutions will require unique financing options that reduce the capital expense burden and could include more emphasis on district heating approaches for some applications. The work that WBCSD and Novartis are doing together is providing a demand signal into the market that should help drive innovation and technical solutions.
Within the next few decades, there is real potential to decarbonise industrial heat, especially at low temperatures and within markets with favourable conditions and policies. To scale renewable heat, businesses need to collaborate with their value chains and drive demand and collective action to improve market and policy conditions. Leadership from some of the world’s most sustainable companies like Novartis demonstrates that it can be done. We have to act now to decarbonize industrial heat if we are to limit the rise in global greenhouse emissions and fulfil the Paris Agreement.
By Rutger van der Zanden, Manager of Energy Transformation at World Business Council for Sustainable Development and James Goudreau, Head of Environmental Sustainability External Engagement, Novartis