In 2020, United States industrial activity was directly responsible for approximately one-quarter of the country’s greenhouse gas (GHG) emissions. Most of these emissions were associated with burning fossil fuels for heat, making the adoption of zero-emissions industrial heating processes critical to achieving U.S. climate goals.

Heat pumps are typically considered a climate solution for homes, but they could displace fossil fuels in roughly one-third of industrial heating needs, representing 7% of U.S. energy-related carbon dioxide (CO2) emissions. New research shows industrial heat pumps are cost-competitive today with fossil technologies and will have a consistent cost advantage in years ahead. The 2022 Inflation Reduction Act authorizes over $15 billion to help manufacturers switch to heat pumps and other clean industrial heating technology.

Industrial processes require heat of various temperatures (Fig. 1). Generally, temperatures above 932°F (500°C) are needed to make metals, chemicals and nonmetallic minerals like cement and glass. In contrast, temperatures under 392°F (200°C) satisfy most of the heat needs for producers of food, paper, textiles, wood products and manufactured items like appliances or machinery.

Direct electrification is the most energy-efficient method of supplying emissions-free process heat for two reasons. First, it avoids the energy losses associated with converting electricity to hydrogen or other electricity-derived fuels. Second, electricity can deliver heat to a material or product with lower heat losses than combustion because electrical heating does not create hot exhaust gases and does not form water vapor – two important heat-loss modes.

1122-webex-Fig1-web.png

Fig. 1. U.S. industrial heat demand by temperature range by industry in 2021. Data sources: Fraunhofer Institute, U.S. EIA


Heat pumps are more efficient than other electrical heating technologies (such as electric resistance, electric arcs and induction) because they do not produce new heat. Instead, they move heat from an area of low temperature to an area of high temperature. Typically, an industrial heat pump will take heat from a source around 77-95°F (25-35°C) and can output temperatures as high as 329°F (165°C). The efficiency of a heat pump declines with greater temperature increases.

A heat pumps’ efficiency is expressed as a coefficient of performance (COP), where a COP of 1 indicates a 100% conversion of electricity into heat. Heat pumps delivering a temperature increase of 104-140°F (40-60°C) often have a COP of 3 to 4, meaning they are three to four times more efficient than an idealized electric resistance heater. A heat pump configured to deliver an output temperature of 329°F (165°C), corresponding to a heat increase of about 266°F (130°C), has a COP of 1.5 (Fig. 2).

Roughly 35% of industrial heat needs are at temperatures up to 165°C, the maximum temperature that can be supplied by commercialized industrial heat pumps. If supplied with electricity from zero-emissions sources, such as solar, wind and nuclear power, this heat can be emissions-free. This would reduce U.S. CO2 emissions by 344 million metric tons per year, about 7% of total U.S. energy-related CO2 emissions. This is the equivalent to eliminating the annual emissions from 74 million gasoline-powered cars, 43 million homes or 864 natural-gas-fired power plants.

1122-webex-Fig2-web.png

Fig. 2. Heat pump efficiency (COP) for commercial heat pumps configured to deliver various levels of temperature increase. Data source: Arpagaus et al.


Industrial Heating Technology Capital and Operating Cost Comparison

Heat pumps are cost effective compared to alternative technologies, such as natural gas combined heat and power (CHP) systems or electric boilers. A tool for analyzing and comparing capital and operational costs of industrial heat pumps and alternative technologies developed by Agora Industry, FutureCamp Climate and Wuppertal Institute illustrates this cost competitiveness compared to fossil-fueled alternatives (Fig. 3). Calculations use an electricity price of $74.8 per megawatt-hour (MWh), or 7.5 cents per kilowatt-hour (¢/kWh), and a natural gas price of $17.3/MWh ($5.06 per million British thermal units; MMBtu), the average prices paid by U.S. industrial energy buyers in 2021.

In 2021, electricity was 4.3 times more expensive than natural gas per unit energy. However, the high efficiency of heat pumps compensates for the higher cost of electricity, so there is no significant difference in energy costs per unit heat output between natural gas technologies ($18-35/MWhth) and heat pump technologies ($20-34/MWhth). Heat pumps have higher capital costs than natural gas technologies, so their total cost per unit of heat output is slightly higher ($41-60/MWhth for heat pumps versus $36-50/MWhth for natural gas technologies).

This price gap is relatively small (around 20%) and may have already vanished because natural gas prices have increased since 2021. The Henry Hub natural gas spot price in August 2022 was $30/MWh ($8.81/MMBtu), almost double the value used in the table above.

In the decades ahead, natural gas prices are likely to remain volatile and exhibit no long-term upward or downward trend, but electricity generation costs are gradually declining due to deployment of low-cost wind and solar generation. Additionally, high-temperature heat pump technology may improve in the future, while natural gas technologies are largely mature. Therefore, the price comparison in Fig. 3 can vary significantly by year, would favor heat pumps if repeated using mid-2022 energy prices and will likely favor heat pumps consistently in the longer term.

1122-webex-Fig3.jpg

Fig. 3. Cost and performance characteristics for industrial heat pumps and three alternate technologies in 2021. Capex = capital expenditures (excluding installation/integration costs). Non-energy opex = annual operational expenditures other than energy, such as staffing and maintenance. CHP = combined heat and power. COP = coefficient of performance. MWh = megawatt hours of fuel or electricity input. MWhth = megawatt hours of thermal (heat) output. Data sources: Agora IndustryU.S. EIA


Financial Incentives for Industrial Heat Pumps

The 2022 Inflation Reduction Act (IRA) includes funding that can be help manufacturers adopt industrial heat pumps. Section 13501 provides $10 billion in funding for the 48C Manufacturing Tax Credit that could be used to accelerate industrial heat pump adoption. The IRA expands eligibility for the tax credit to include re-equipping “an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20% through the installation of… low- or zero-carbon process heat systems.” Upgrading an industrial facility to utilize heat pumps meets this definition.

Section 50161 establishes an Advanced Industrial Facilities Deployment Program, which authorizes $5.8 billion to support the purchase, installation, retrofits or upgrades to industrial facilities to use “advanced industrial technology.” This term is defined in the Energy Security and Independence Act of 2007 section 454(c)(1)(F) to include “technologies and processes that increase the energy efficiency of industrial processes,” which encompasses industrial heat pumps.

Government financial incentives for industrial heat pumps (and other clean manufacturing technology) can contribute substantially to the nation’s emissions reductions commitments, support high-quality manufacturing jobs in the U.S., secure domestic supplies of industrial technology and products, and help cement U.S. technological and manufacturing leadership.

This article is based on a longer report that includes more data on industrial heat pump costs and industrial use cases and an expanded discussion of federal policy options to accelerate heat pump adoption.


For more information: Jeffrey Rissman is Director, Industry at Energy Innovation.