To address emissions from electricity, corporates can choose from a range of mature and scalable emission reduction solutions, from implementing on-site solar and entering long-term Power Purchase Agreements (PPAs), to purchasing Energy Attribute Certificates (EACs). In fact, several corporates are already on track to meet their near-term renewable energy targets by taking advantage of the above-mentioned tools.However, the vast majority (75%) of industrial heat consumption, which represents around 35% of global final energy consumption, is still being met by carbon-intensive fossil fuels such as coal, natural gas and oil for room and process heating. This translates into a great source of GHG emissions.

Once energy efficiency and electricity-related emissions are tackled, thermal footprint is the next challenge to address to fully embark on net-zero targets, while circumventing compensation through carbon credits (which have recently experienced strong “green washing” controversy). It was Europe’s 2022 energy crisis that really put the spotlight on tackling emissions from industrial heat consumption. In many sectors, energy costs, which previously only represented a small share of total costs, suddenly became a major cost factor. Sky-rocketing energy prices, high price fluctuations, and insecure supply, in the case of gas, had an irreversible effect on European industries, forcing many industrial companies to closely analyze their heating consumption profile and identify energy savings and fuel switch potentials.

The thermal transition has proven to be much more difficult to address for corporates than the electricity challenge, and there are some key reasons for this. Generally, there is still a shortage of capacity and resources to adopt and implement new renewable heating technologies. Unlike renewable electricity technologies (e.g., solar PV), renewable heat solutions are currently less mature and lack standardized equipment as heating requirements are very process-specific and often require individual solutions. The availability of feasible solutions to cover thermal energy needs is also much more location-dependent than in the case of electricity. For example, ground-source heat pumps require suitable ground conditions and available ground water.

Furthermore, there are usually no alternatives to on- or near-site installations. Thermal energy needs to be consumed or stored on-site as there tends to be no grid connections for excess heat. System dimensioning, including considerations of redundant systems, is also key as there is an important need to cover risks related to the low flexibility provided by the grid. In addition, it is very hard to find viable renewable alternatives for high-temperature heat (HTH) applications that currently rely on natural gas. This, coupled with a lack of suitable and mature business models for corporates, means businesses have to invest on their own in new technologies, which can be particularly tricky for medium-sized companies with limited technical capacity and previous experience. Further, the variable price outlook of electricity, which is a main cost component for the business case of all electrification solutions such as heat pumps or power-to-heat applications, remains uncertain.  

Another consideration is that process heat is often re-used in different processes, which leads to strong interdependencies. Many industries (e.g., chemicals) need tailored solutions when it comes to heat requirements. These heat requirements are highly dependent on specific consuming processes and applications. For example, heat for processes must have a specific quality, which might translate into specific heat source needs. With that said, transitioning to thermal energy is absolutely possible and reaps great rewards for those who engage in a considered way.

At present, the transition to thermal energy poses a significant cost burden for corporations. We believe that electricity price discounts are essential as a catalyst to stimulate corporate interest in adopting this transition. Furthermore, a reduction in investment expenses related to crucial equipment, such as heat pumps, is key to further incentivize and promote widespread engagement in the thermal transition. With that being said, early adopters of renewable heating solutions will gain advantages over peers who delay the transition. These include strategic independence from fossil fuels and their price fluctuations, long-term cost savings including the avoidance of rising carbon costs, and a competitive edge in sustainability performance.

We expect to see increased standardization throughout the sector and the emergence of new business models such as ‘heating-as-a-service’, potentially coupled with renewable electricity PPAs. These advancements will offer new avenues for companies hesitant to engage because of high costs and technical complexity, to embark on their renewable heating transition by collaborating with a supplier or contractor.

Thermal transition remains a key challenge for corporates’ sustainability over time and new regulation is increasing the pressure on corporates to tackle it. While it remains to be seen how fast these support schemes will jump into action, with every new greenfield investment, expiring heat supply contract or replacement of heating infrastructure, corporates should turn their focus to their renewable heating transition. Each thermal transition is unique with its own specific challenges, particularly when dealing with multiple countries. However, the rewards can be significant and success in achieving deep decarbonization is possible.