14 July 2022
Decarbonising industrial process heat is a major challenge for Australia. It accounts for more than 40% of fossil fuel use in industry.
While a number of renewable energy options have been identified as suitable for decarbonising industrial process heat, historically they have been unable to compete on financial terms. This continued perception has contributed to the low take-up of such options, particularly industrial heat pumps which are being used increasingly outside of Australia but local awareness and capacity remain low.
As part of its Advancing Renewables Program, the Australian Renewable Energy Agency (ARENA) engaged the Australian Alliance for Energy Productivity (A2EP) to conduct the Renewable energy for process heat – opportunity study to accelerate the adoption of renewable energy in industrial and commercial process heating. Twenty pre-feasibility studies and seven feasibility studies were completed over two phases of the program across a wide range of food, beverage and industrial processes to consider the suitability of renewable energy options for these applications, with particular consideration of industrial heat pumps.
The pre-feasibility and feasibility studies demonstrated that industrial heat pumps are economically and technically feasible for low temperature (<90 ˚C) heating applications. They can be superior to other renewable heating solutions (such as solar thermal or biogas from anaerobic digestion) where conditions are favourable, that is, suitable temperatures, high-capacity factors and good opportunity to integrate heating and cooling.
In Europe, Japan and New Zealand, heat pumps are used in many processes, with well-established supply chains for equipment supply, installation and service. The Australian market is not yet so mature. A higher capital cost per thermal kilowatt (compared to traditional boilers) to install a heat pump has been a key impediment.
However, the pre-feasibility and feasibility studies showed that a higher than necessary capacity heat pump was often being considered, with the assumed need to have a one-for-one swap with a boiler in terms of capacity to accommodate peak loads. The studies have shown that with better information (from energy data and heat mapping), the utilisation of waste heat and process integration, along with the inclusion of a thermal battery, a heat pump with a comparatively lower capacity can be used, delivering lower capital costs, lower operating costs, lower emissions and a number of non-energy benefits, including the potential to generate revenue from demand response opportunities.
Introduction:
Decarbonising process heat is not only essential for businesses, industries and governments to achieve net-zero targets, but it will also be key to maintaining competitiveness in a low-carbon world. Industry is responsible for around 44% of Australia’s final energy consumption, with 52% of that being used for process heat (ITP Thermal 2019). Given 70% of that is sourced from fossil fuels, the decarbonisation of industrial process heat presents both a major challenge and opportunity.
Renewable energy options for process heat are both commercial and available. They include:
- Renewable fuels for boilers and generators, such as using waste biomass or biogas from anaerobic digestion;
- Solar thermal heat for industrial applications and electricity generation;
- Industrial heat pumps powered by renewable electricity;
While a number of renewable energy options have been identified as suitable for decarbonising industrial process heat, historically they have been unable to compete on financial terms. This continued perception has contributed to the low take-up of such options, particularly industrial heat pumps which are being used increasingly outside of Australia but local awareness and capacity remain low.
Outcomes:
Heat pumps are technically and commercially viable for many applications requiring heat <90 ˚C
A range of renewable process heating alternatives was considered such as biogas from on-site anaerobic digestion (AD), solar thermal, syngas from pyrolysis, and heat pumps. All sites had existing manufacturing operations and each study investigated the replacement or augmentation of the existing, fossil fuel-based heating technology. Each process heating alternative was assessed on financial performance based on the simple payback and internal rate of return of installing and operating the renewable fuel alternative.
The studies did not investigate optimising process efficiency optimisation (e.g. malt-drying efficiency) but did investigate heat recovery opportunities which were deemed necessary to complete at two sites. For heat demands below 90 ˚C, heat pumps were determined to be technically feasible, provided that the right site-specific factors were in place, such as sufficient space for the heat pump and thermal battery and sufficient electrical capacity at the site. A wide range of economic performance was observed across the various renewable fuel technologies with heat pumps being the recommended technology in 90% of the studies.
Misperception of heat pumps’ cost competitiveness
Poor cost comparison between heat pumps and conventional boilers is often due to the boilers historically being sized for peak demand with much higher rates of heat loss and then the assumption that a heat pump will need to have the same capacity as the boiler/s it is replacing. Combine these assumptions with the higher cost per kilowatt of capacity of heat pumps and they are quickly a distant second (or third) choice for replacing existing equipment. As seen in the benchmarking graphs in Appendix F, many of the studies returned simple paybacks in excess of three years.
However, it was observed across multiple studies that proper consideration of each of the following four factors reveals this does not need to be the case. Apply them together with lessons learned on optimising the sizing of the heat pump configuration (listed in the following section) and it becomes clear that a heat pump with as little as 50% capacity of the conventional boiler it is replacing can often perform the same services while offering additional benefits and delivering simple paybacks less than three years.
Over-sizing to accommodate peak demand – typically conventional boilers are oversized to accommodate the highest possible peak demand that may be experienced, even if this is only a fraction of the time. Thermal storage (such as hot water tanks) can allow heat pumps to be sized to meet average load, rather than peak load conditions.
A lack of energy and heat data – in many cases there is not a good understanding of heat and energy needed or the energy and heat that is required. Natural gas consumption was often only available from monthly bills rather than the optimal intervals (approximately every five minutes). Steam consumption was often only available for the entire boiler not for the individual processes that used the steam. Similarly, data for hot water consumption was often not available at a granular enough level. Good energy data that shows the daily heating demand peaks across all heat demands, allows for accurate mapping of heating needs which gives optimal sizing of the heat pump and thermal battery.
A lack of waste heat mapping – Unsurprisingly, in these situations, there was also a lack of waste heat information that could be used to identify opportunities for heat recovery to reduce the size of the heat pump or the utilisation of waste heat as a heat source for the heat pump which increases the COP.
A like-for-like approach – a typical process plant will have a single, centralised boiler system supplying heat at one temperature, e.g. steam at 185 °C. However, that approach is not optimal when considering heat pumps. A process plant with heat demands ranging from 60 °C to 150 °C may best be served by a range of smaller solutions. For example, an air-sourced heat pump may be best to serve the 65 °C heating needed for hot water washing, then a water-source heat pump using waste heat from a refrigeration plant may be best to serve the 85 °C heating needed for a pasteurisation process, and then another technology may be best to serve a need for 150 °C heating in a cooking process. Using a combination of heating solutions can provide the lowest overall energy demand and the best utilisation of renewable energy sources.
Challenges and opportunities to consider when planning for a heat pump
Electrical capacity and upgrades
For sites with historically large natural gas usage relative to electrical consumption, it is likely that moving from solely natural gas for heat to a heat pump may create capacity constraints – to the site’s electrical capacity or to a nearby substation which would incur high upgrade costs. This can be mitigated with a thermal battery to reduce peak loads and use on-site solar PV production.
Space limitations
As noted above, maximising the capacity factor for the heat pump is essential to minimising the heat pump capital expenditure and achieving the best possible economic returns. As explained in Appendix D, this requires the installation of a thermal battery or hot water tank which will typically require additional floor space. Whilst this can be minimised by using a taller tank, it can still be a major barrier for space-constrained sites.
Optimising demand flexibility for increased variable renewables utilisation
With the increasing penetration of variable renewable electricity in the National Electricity Market, technologies that are capable of demand flexibility will become increasingly important. Whilst a heat pump is not capable of being turned on an off like a light switch, it can be scheduled to come on during times of low (or negative) electricity tariffs or high solar PV production to soak up renewable electricity in a thermal battery which can then be despatched as it is needed. The heat pump can also be turned off if needed be to help provide electrical grid resilience and stability as well as optimising on-site electricity costs.
Other challenges
The earlier listed aspects are considered to have the largest impact on the viability of a heat pump project, however, the following challenges and limiting factors also need to be taken into account:
- Companies lacking a decarbonisation roadmap to provide a long-term context for assigning resources and assessing proposals within that roadmap.
- Business constraints continue to be a major barrier to progressing changes to fossil fuel alternatives. The limited staff availability and the lack of capital to install metering stopped two projects from proceeding to feasibility.
- The adoption of new technologies for decarbonising process heating can be accelerated with the support of government subsidies via white certificate schemes or targeted grant funding.
- Some sites that have secured relatively low-cost gas contracts may not be able to transition to renewable heating until gas supply contracts are renewed.
- The lack of industry awareness of renewably powered alternatives to fossil-fuelled process heating technologies is limiting the adoption of heat pumps.
- Further electrification of manufacturing and transport will inevitably put higher demands on electrical distribution network systems. The planning of such upgrades and the fair distribution of costs will be essential to not discourage first-mover businesses from progressing projects that utilise more renewable energy and decarbonise their processes.
- Conversion of long pipe runs from steam to a hot water reticulation system may add significant costs to the project. These could be avoided in cases where heat pumps are deployed to meet discreet local process needs rather than as a centralised system
Conclusion:
The necessary transition to non-fossil fuel process heating technologies is still in its infancy. Whilst heat pump technology is very mature for space heating and domestic hot water heating, it has not been thoroughly developed for other sectors and applications. These studies have shown the technical and economic viability of heat pumps for renewable process heating across a range of manufacturing sectors.
The lessons learned from these process heat studies will help reduce barriers for adoption of heat pumps and help to guide the suitability of different renewable process heating technologies. The main barriers identified to adoption relate to replacing the traditional approach to sizing of heating utilities with a data-driven, integrated approach which utilises a thermal battery to minimise the heat pump CapEx and utilises waste heat to minimise the operating costs.
The studies showed several cases where heat pumps are economically viable at typical business hurdle rates (e.g. a simple payback less than three years), however, many of the studies gave paybacks greater than three years (see Appendix F). In the absence of decarbonisation commitments, the economic performance of a heat pump investment will slow the adoption of the technology, unless existing white certificate schemes or new ones are utilised.
It should be noted that the lessons learned have only identified barriers to adoption. There is a long journey ahead before heat pumps are fully accepted as a viable process heating alternative. Energy users are yet to fully understand the heat pump technology across the entire asset life cycle, from installation and commissioning to operation, optimisation and maintenance. Some companies will be able to learn from their own experience and make improvements for future projects. For many companies, the installation of a heat pump will be a one in ten-year event so they may not have past experience to guide them. They will rely heavily on publicly available information, training courses, skillful advisors and a competitive market of heat pump suppliers.
To support ongoing improvement across the entire technology life cycle it will be essential to create and support networks that foster continuous improvement for the technology. Such networks can also support the development of heat pumps that operate at higher temperatures (>100 °C) which are currently in the pilot and demonstration stages.
To support the ongoing adoption of the technology, the development of white certificate schemes to reward businesses for decarbonising will likely be needed to accelerate the adoption of the technology. Further investigation is required for the optimal intervention and incentives needed from such schemes.