How to Decarbonize Heat: A Guide | ENGIE Impact

Decarbonizing Heat: A How-To Guide

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Green Thermal
Heat Decarbonization

In recent years, most decarbonization efforts have focused on electricity and the adoption of renewables. As more countries and corporations set decarbonization targets, they will need more solutions. The next frontier will be the decarbonization of heat, often known as ‘green thermal’. Decarbonizing heat is a huge challenge with huge rewards, but understanding the barriers to implementation and the available solutions to overcome them will help organizations better utilize this solution.

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The Current State of Green Thermal

90% of Heat Still Driven by Fossil Fuels

Thermal energy is used for heating and cooling buildings and industrial processes and accounts for 25% of total energy consumption. Only 10% comes from green sources. For many lower-temperature heat applications, green technological solutions are widely accessible and already economically viable. For industries requiring high-temperature heat, however, barriers remain high and call for significant near-term actions if future targets are to be met. Companies seeking thermal decarbonization will require careful planning and data-driven strategies to invest in the right technology at the right time.

Supply Chain Maturity and CAPEX Need Slowing Progress

Decarbonizing heat is very challenging for multiple reasons. Many of the green thermal energy technologies existing today are relatively new and several are not yet economically or technologically viable. This is particularly true for industrial operations, which use thermal energy to fuel high-temperature processes, such as the production of cement, chemicals and steel — some of the world’s most carbon-intensive industries.

In addition to technological maturity issues, barriers to decarbonizing heat exist in the form of a lack of mature supply chains for green commodities — such as biogas or hydrogen — to fuel industrial processes, high upfront investment costs and long asset life, varying temperature and quality requirements, the physical and technical fit of new assets and complex business cases for future investment.

Integrated Solutions Offer a Path Forward

Given the myriad challenges to decarbonizing heat, a strong focus on energy efficiency and heat recovery is paramount before shifting heat production to renewable sources. Given that the transition to green thermal is capital intensive (for industrial processes), a dedicated financing scheme should be developed within the corporation. Leveraging multiple green thermal options simultaneously is often the best alternative to achieve the lowest cost solution with the highest GHG reduction.

Industry Drives Global Energy Consumption

Industry Drives Global Energy Consumption

Decarbonization Solutions & Supply Chain Maturity

If one wants to be a prime mover of such a transformational challenge, they must be prepared to help finance and support the development of a supply chain. The first question is how to identify which solutions are relevant to your needs and activities with consideration to both technical and economic factors.

Multiple low-carbon thermal solutions are available for a variety of industrial applications. The intensity of heat required, as well as the maturity of the technology and supply chains impact the feasibility and price of implementation. Many mature, low-carbon solutions are available — biomass, electric boilers, solar thermal, and heat pumps — making it highly feasible to reduce carbon emissions. Low- and medium-temperature heating requirements typical of the Consumer Goods sector are responsible for approximately 50% of industry heat consumption. There are also a few proven technologies for higher temperature needs, such as biogas and biomethane, but the supply chain to accommodate those solutions is not yet mature.

Four Main Barriers to Decarbonizing Heat

The adoption of newer thermal technologies (e.g., heat pumps, biomethane, hydrogen, biomass) will be critical to decarbonization. These technologies face the following barriers:

1. Technological Maturity

A wide array of new low-emission technologies like hydrogen and biogas exist today, but few have been deployed broadly across industries. This impacts the cost of heat generated by these technologies and creates difficulties and risks associated with their deployment.

2. Supply Chain Maturity

Several green thermal solutions require new energy sources, but their supply chains are still immature. Access to these sources is highly dependent on location, the prevalence of suppliers and market availability. As supply chains and markets mature, organizations can expect a more dependable, wider range of providers and greater access to standardized contractual agreements that increase certainty and minimize financial risks.

3. Investment Requirement

In most cases, the switch to green thermal requires significant changes to energy assets or core production processes. These assets typically have long life cycles, making it challenging to both address existing assets and effectively plan for the evolving cost dynamics throughout the full lifecycle of new assets. One must determine which of the feasible solutions will have the greatest impact at the lowest total cost of ownership.

4. Regulatory Uncertainty

As the technology, regulatory landscape, and carbon markets evolve, companies will be faced with complex calculations to determine the optimal operating and investment conditions required to sustain the business cases behind heat decarbonization. Accounting for these costs will require a broader lens than the traditional total cost of ownership calculations.

Overcoming Decarbonization Barriers

Once you understand the barriers to decarbonizing heat, you can then employ the appropriate levers and enablers to help overcome them.

Energy efficiency is an easy, common, and cost-efficient way to decarbonize your business. Optimizing your energy consumption is the first step of any decarbonization strategy and fosters energy independence. Additionally, organizations can use Green thermal to meet heating and cooling needs with energy from clean energy sources to reduce fossil fuel use and carbon emissions in thermal systems for buildings and industry.

To enable the levers required for decarbonization, organizations need to address capital constraints across the company and value chain by establishing scalable financial models, considering both external and internal sources of finance. Integrated solutions create better performance or more effective results with production planning that takes a holistic view of the whole system rather than a piecemeal approach, identifying the interconnectivity of different energy solutions and complementary technologies to maximize financial value. Organizations can also focus on supply chain partnerships, involving collaboration with suppliers or businesses with similar energy needs to identify viable emission reduction opportunities and even jointly fund them. Sharing energy supplies is another way to unlock value and lower costs.

A Holistic View of Heat Decarbonization

Assessing your global footprint and prioritizing the right levers in the proper sequence are the first steps to heat decarbonization. The next step includes creating a roadmap that integrates thermal needs through a global view of the footprint and the availability of alternative fuels. Couple the global roadmap with a detailed business case and company-wide allocation planning, weighing trade-offs to be optimized to meet the desired outcome (least-cost, most resilient, quickest to implementation, etc.).

1. Governance

Heat decarbonization needs proper governance to facilitate the decision-making process in a decentralized organization. A shift is needed in the way companies think about financing their path to Net Zero — away from traditional capital allocation guidelines that prioritize quick return on investment (ROI), and toward the total cost of ownership (TCO) as part of a long-term strategy.

2. Establish Funding Mechanisms

Create a separate legal entity with its own assets and liabilities to isolate financial risks and finance projects to achieve economies of scale. Industrials should consider investing in pilot projects and assets today that have the flexibility to implement future technologies, for example, special-purpose vehicles.

3. Create Supply Chain Partnerships

When the solutions are capital intensive, companies should look for other industrial players to potentially share resources or the cost of solutions development. Collaboration may facilitate progress on supply-chain maturity issues and help deliver innovative solutions to reduce energy demand for high-temperature processes. Partnerships stretching across energy supply chains can help streamline these innovations and accelerate green thermal applications.

Finding sustainable alternatives to heat generation is a key area of focus for organizations looking to push their decarbonization efforts to the next level. As we collectively expand our focus past the adoption of renewables and electrification, a clear sustainable roadmap will enable organizations to invest in the transition to green thermal technologies whenever possible.

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