Navigating Thermal Transition

to Achieve Deep Decarbonization

While sourcing renewable electricity has increasingly become the standard among multinational corporates, the transition to renewable heating solutions still presents a key obstacle on a corporate’s journey to net-zero. New national subsidy schemes, along with carbon taxation schemes, are emerging with the dual purpose of reducing the financial burden on corporates, and strengthening the incentives for them to transition towards renewable heating technologies.

This article provides first-hand insights on the challenges of the corporate thermal transition and highlights ways in which corporates can navigate it.

Heat remains the nut-to-crack for most corporates

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.

What makes the thermal transition so complex?

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.

How can corporates navigate the challenges of the thermal transition?

Corporates need to be aware that thermal transition is a medium- and long-term undertaking. A step-by-step approach and integration with the overall corporate energy transition strategy are key components of the journey. Despite there being significant costs involved in the short term, a great deal can be gained over the long term. Ordinarily, corporates will tackle the “low-hanging fruit” first when it comes to emissions reduction. Energy efficiency is a no-brainer and generally the first “easy” win a corporate can aim for followed by addressing the electricity-related emissions. Then, h

A good exercise to undertake to get started on the heat transition is identifying overlaps between heat requirements, available technologies, local conditions, and business priorities (Figure 1)

Identifying overlaps between heat requirements, available technologies, local conditions, and business priorities

On a practical level, this exercise needs to be further broken down by assessing site-specific criteria such as equipment age, needed redundancies, exposure to suppliers or fuel volatility, and expected development of the heating profile and demand over time. To ensure a smooth and efficient transition, it is also important to implement scalable solutions that can be applied across multiple sites with similar characteristics. Room heating applications are usually addressed before process heating, since there is a higher availability of renewable solutions for this. For instance, in 2018, 31% of global heat demand was below 150 °C. Industrial heat pumps can provide room heating and low-temperature process heat with very high efficiencies. Some examples are the projects developed by BASF together with MAN, or Mars products.

To decarbonize very high-temperature applications Green Hydrogen could also play a crucial role. However, it is still not available at scale and the outlook for the short- and medium-term indicates that it will be limited to specific industries with high demand and no alternative low-carbon solutions (e.g., steel, aluminum, chemicals). Although there is still limited scalability and several uncertainties around future security of supply, wherever possible, local solutions such as district heating from biomass, use of waste heat (energy efficiency) or biogas should be explored. For instance, in a recent webinar on Coal Phase Out for Corporates in Asia, we offered a glimpse into some of our past experiences in the region.

While the responsibility for investment in renewable heating technologies primarily falls on corporates, in certain countries like Germany, contracting or ESCO (Energy Service Companies) models are gaining traction as operational expenditure (OPEX) solutions. However, it is crucial to recognize that the thermal transition cannot be separated from the electrical transition, as it will lead to higher electricity consumption and exposure to price volatility. Therefore, securing long-term procurement of renewable electricity at stable, low prices through on- and off-site power purchase agreements (PPA) serves as the foundation for successful electrification and a cost-efficient thermal transition.

What does the future hold for the thermal transition?

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.

Conclusions and outlook

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.


“The foremost to kickstart the thermal transition is to identify the “lowest-hanging fruits” in terms of emission reduction by analysing the specific consumption profiles and conditions across sites, and then matching them with the business’ strategic priorities.”

-Felix Fink

Renewable Energy Strategy Consultant

Following that rationale, we can provide corporates with clear direction to embark on the deep decarbonization journey and gain a head start towards net-zero. With deep experience across the renewable energy transition, our technical experts offer valuable insights on your thermal transition readiness, they help set the right expectations, and map-out your thermal transition strategy to embark on net-zero. Taking a long-term view, our approach ensures alignment with the overall business objectives, while taking into consideration site-specific requirements, and reducing the risk of crossing common pitfalls within the transition.

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