Sharing our insights into the biggest sustainability challenges facing our built environment. Our previous issues of the UNSUSTAINABLE series have explored cooling, windows, concrete & cement, steel, and water. In this post, we explore our UNSUSTAINABLE use of fossil fuels to generate process heat & steam for industry and the new technologies tackling these “hard-to-abate” emissions.
The problem
Industrial emissions — coming from a wide range of sectors, from iron & steel to food & beverage — have long been labeled “hard-to-abate.” Industry is capital intensive, with long lived infrastructure and complex processes, where changing one part of the process can mean you have to change the whole process. For example, as we noted in our steel blog post, in a blast furnace, coal provides not only a heat source but also plays a key role in the chemical reaction of making iron, so to stop using coal in the blast furnace, we need to rethink the process entirely.
But tackling these hard-to-abate industrial emissions is worth the hardship and worthy of increased focus from climate tech VCs. Industrial sectors make up 34% (or ~20 GtCO2e !) of global GHG emissions, but received just 8% of global climate tech VC/PE funding (1Q 2021–3Q 2023). Most of these industrial emissions come from the combustion of fossil fuels to generate industrial heat, i.e., the thermal energy used in today’s manufacturing processes to produce or treat materials. Industrial heat alone is responsible for 12 GtCo2e/yr of global GHG emissions and 19% of global energy use. Looking at the magnitude of this problem and with the ambition to decarbonise how we manufacture the materials and products powering and feeding cities and their citizens, we set out in search of scalable solutions.
Breaking down industrial heat
The hottest temperatures of >500°C make up 53% of industrial heat energy use, but high temperature heat takes different forms across different sectors and therefore requires sector-specific solutions: Decarbonising the 1600°C used to make iron in blast furnaces will look different from decarbonising the 1450°C used to make cement in kilns (for more on these sector-specific solutions, see our posts on cement & concrete and steel).
Next up by percent of overall industrial heat energy use, generating low to mid temperature heat of 100°C-200°C makes up 27% of industrial heat energy use, and in contrast to the heterogeneity of high temperature processes, 100°C-200°C heat takes a common form factor across sectors: steam boilers. Steam boilers are used widely across sectors, from chemicals to food & beverage. For example, steam is used in the paper industry because of its ability to provide an exact and even temperature, and used in the food & beverage industry because of its ability to provide clean heat with limited risk of contaminants. This wide usage creates a cross-cutting opportunity to decarbonise industrial heat generation across multiple sectors with a single scalable solution.
Aggregating across these sectors, the use of fossil fuel heated steam boilers is massive: within US industry, ~30% of energy use is for fossil fuel heated steam boilers. Globally, we estimate 100°C-200°C steam is responsible for ~2 GtCO2/yr, similar in scale to cement (~2.5 GtCO2/yr).
On top of their large scale, targeting steam boilers has a unique advantage: compared to cement or steel, owners of steam boilers are more willing to install new replacement solutions even if they have working boilers. Why? Firstly, total cost of ownership for a steam boiler is dominated by energy costs: over a 10 year period, 99% of cumulative costs for an industrial boiler might come from energy costs rather than initial capex. If you can lower these energy costs, you have a pathway to payback and thus a pathway to mass market customer adoption. Secondly, because of the importance of constant heat generation in many of these processes, facilities are willing to keep existing equipment as back-ups, providing redundancy for newly installed decarbonised technologies. Thus, rather than having to wait for existing assets to reach their end of life, decarbonising industrial boilers offers us a chance to bend the carbon curve now.
So how can we decarbonise the industrial steam boiler?
Option 1: Renewable natural gas (RNG), for example from landfills, wastewater treatment facilities, or livestock farms. RNG would be a drop-in solution, compatible with existing boilers. But challenges loom large. Firstly, RNG costs >3x what (fossil) natural gas costs, with RNG priced at $20-$25/MMBtu whereas the average industrial user has paid ~$6/MMBtu for natural gas since 2021 (Jan 2021 — Jul 2023), reaching down to $3.5/MMBtu in summer 2023. Secondly, even if an industrial facility is willing to pay that premium to decarbonise, securing sufficient supply is a challenge, both at a macro level and at a local level. Further, RNG locks in a reliance on combustion instead of expanding solutions that can shift away from hydrocarbons.
Option 2: Electric boilers. Electric boilers work by either electrical resistance (passing electric current through heating elements — metal or ceramic — immersed in the water) or electrodes (passing electric current through the water between electrodes immersed in the water). Electric boilers are well established in industry, and commercially available models can produce steam with temperatures of up to 350°C. Moreover, electric boilers are more efficient than gas boilers (99% for an electric boiler versus 75% for a typical gas boiler) and have smaller physical footprints. But economic challenges stand in the way. In particular, while electric boilers are more efficient that gas boilers, this gain in efficiency is relatively small and fails to offset the higher cost of electricity versus gas. Moreover, installing electric boilers can significantly increase the electricity load at industrial plants, requiring grid connection upgrades.
Option 3: Industrial heat pumps. Industrial heat pumps use electricity to move heat, using 1 unit of electricity to deliver multiple units of heat (heat pump efficiency as measured by the coefficient of performance, depends on the magnitude of the temperature lift, among other factors). The key advantage is that, unlike electric boilers, the efficiency gains of industrial heat pumps over gas boilers can be sufficiently significant that they overwhelm the higher cost of electricity.
Making heat pumps the mass market steam solution
Given their significant efficiency advantages, heat pumps are unique as an industrial steam decarbonisation technology in that they have the potential to lower costs and deliver the payback periods needed to become a mass market solution, even without carbon pricing.
But for industrial heat pumps to become a mass market solution, we need product improvements. In particular, we need heat pump technologies that can deliver 100°C-200°C steam. Today, there are few technologies capable of delivering >100°C. We see innovators taking one of two pathways to deliver these temperatures:
- Pathway 1: Leverage waste heat. Using waste heat reduces the temperature lift and increases the efficiency of the heat pump. Startups to watch: ecop, Heaten, Futraheat, SPH.
- Pathway 2: Achieve bigger temperature lifts starting from ambient air. While this may sacrifice some efficiency benefits, it avoids the costly and complex integration that can be required to leverage waste heat in existing facilities. Indeed, the IEA / Heat Pump Centre (2023) notes: “The efficient utilization of ambient air as a heat source in high temperature heat pumps is one of the important development topics, since air is a low-cost heat source that is widely available.” Startups to watch: AtmosZero, Airthium.
Our 2150 take
The way we generate industrial heat today is a massive problem. Combustion of fossil fuels for industrial heat generates emissions of 12 GtCO2e/yr, ~20% of our total global footprint. Industrial steam in the 100°C-200°C alone represents ~ 2GtCO2/yr.
But changing the way we generate industrial heat is a massive opportunity, both for impact and returns. We see industrial steam as an area that is ready to bend the carbon curve now: steam from gas boilers can be readily replaced by steam from heat pumps, given the critical importance of energy costs and the ability of heat pumps to lower these costs. For the makers of a heat pump that can cost effectively drop-in to industrial facilities to deliver 100°C-200°C, we see a revenue opportunity in the billions of dollars per year, ready and waiting.
Here at 2150, we think the innovators creating technologies to decarbonise hard-to-abate sectors will be hard to follow and can build meaningful moats. We’re excited about the large markets you can unlock, the market share you can build, and the impact you can have. If you’re building in this space, please reach out!
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2150 is a venture capital firm investing in technology companies that seek to sustainably reimagine and reshape the urban environment. 2150’s investment thesis focuses on major unsolved problems across what it calls the ‘Urban Stack’, which comprises every element of the built environment, from the way our cities are designed, constructed and powered, to the way people live, work and are cared for. Find out more at www.2150.vc. 2150 is a part of Urban Partners.
