Trend analysis: Industrial heat & high-temp electrification — where the value pools are (and who captures them)

Industrial heat accounts for roughly 23% of global CO₂ emissions, yet only 5% of process heat above 400 degrees Celsius comes from electric sources as of 2025. That gap represents both the largest decarbonization challenge in heavy industry and one of the most lucrative value pools in the energy transition. As regulatory mandates tighten and technology costs fall, the question is no longer whether industrial heat electrification will scale but which segments of the value chain will generate the highest returns, and which players will capture them.

Why It Matters

Industrial heat is the backbone of manufacturing. Steel, cement, glass, ceramics, and chemicals all require sustained temperatures ranging from 400 degrees Celsius to above 1,500 degrees Celsius. Historically, fossil fuels: natural gas, coal, and petroleum coke have been the only economically viable sources for these temperatures. That calculus is changing rapidly.

The International Energy Agency estimates that electrifying industrial heat could reduce global CO₂ emissions by 2.4 gigatons annually by 2050. The EU Carbon Border Adjustment Mechanism (CBAM), which entered its transitional phase in 2023 and begins full financial obligations in 2026, places a carbon price on imported steel, cement, aluminum, fertilizer, and electricity. This regulatory pressure is converting what was once a long-term sustainability initiative into an immediate cost-competitiveness issue. European steelmakers importing coke-produced pig iron now face carbon surcharges of EUR 50 to EUR 90 per ton, fundamentally reshaping procurement economics.

Beyond regulation, energy price volatility is pushing manufacturers toward electrification. Natural gas prices in the EU fluctuated between EUR 25 and EUR 130 per MWh over 2022 to 2025. Electric process heat, particularly when paired with renewable power purchase agreements (PPAs), offers price stability that gas-dependent operations cannot match.

Key Concepts

Industrial heat segmentation by temperature: Low-temperature heat (below 150 degrees Celsius) serves drying, pasteurization, and space heating. Medium-temperature heat (150 to 400 degrees Celsius) is used in food processing, pulp and paper, and chemical distillation. High-temperature heat (400 to 1,000 degrees Celsius) applies to ceramics, glass, and some chemical processes. Ultra-high-temperature heat (above 1,000 degrees Celsius) is required for steelmaking, cement clinker production, and glass melting.

Electrification pathways: Industrial heat pumps cover the low-to-medium range, achieving coefficients of performance (COP) of 3 to 5. Electric arc furnaces (EAFs) handle steelmaking at 1,600 degrees Celsius and above. Resistance heating and induction heating serve the mid-range. Plasma torches and concentrated solar thermal target ultra-high temperatures. Hydrogen combustion and e-fuels offer alternatives where direct electrification is impractical.

Total cost of ownership (TCO): Evaluating electrification requires comparing capital expenditure, energy costs, carbon costs (current and projected), maintenance savings, and operational flexibility. In many cases, electric systems offer lower maintenance costs and higher process control precision, generating value beyond simple fuel switching.

What's Working

Electric arc furnace steelmaking is the most mature high-temperature electrification pathway. EAFs already produce 30% of global steel, and that share is rising. Nucor Corporation, North America's largest steelmaker, operates 25 EAF mills and produced 21.6 million tons in 2024 using 95%+ recycled scrap feedstock. Nucor's EAF process generates roughly 0.4 tons of CO₂ per ton of steel, compared to 2.0 tons for traditional blast furnace/basic oxygen furnace (BF-BOF) routes: an 80% reduction.

In Europe, SSAB's HYBRIT project in Sweden demonstrated fossil-free steel production using hydrogen-based direct reduced iron (H-DRI) fed into an EAF. SSAB delivered the world's first commercial batch of fossil-free steel to Volvo in 2021 and is scaling toward full production by 2026. The HYBRIT pathway eliminates coal entirely, replacing it with green hydrogen for iron ore reduction and renewable electricity for arc furnace melting. SSAB projects production costs will converge with BF-BOF costs by 2030, assuming a carbon price above EUR 80 per ton.

Industrial heat pumps represent another proven value pool. Vattenfall and partners commissioned a 55 MW heat pump installation at the Diemen power station in the Netherlands in 2024, converting waste heat from a data center into district heating at temperatures up to 120 degrees Celsius. The project replaces 80,000 MWh of natural gas annually. At current EU gas prices, the payback period is under six years. Heat pump deployments for food processing, brewing, and pulp and paper production are scaling across Scandinavia and Central Europe, with installed capacity growing 35% year-over-year in 2024 and 2025.

For ultra-high-temperature applications, Rondo Energy's thermal energy storage system stores renewable electricity as heat in solid-state media at up to 1,500 degrees Celsius, delivering industrial-grade heat on demand. Rondo's first commercial installation at a Calera cement facility in California began operation in 2024, displacing natural gas for clinker preheating. The system achieves a round-trip efficiency of 98% and a levelized cost of heat 30% below California natural gas at current prices.

What's Not Working

Cement production remains the most resistant sector to electrification. Clinker production requires sustained temperatures above 1,450 degrees Celsius, and roughly 60% of cement's CO₂ emissions come from the chemical process of calcination (releasing CO₂ from limestone), not fuel combustion. Electrifying the kiln addresses only 40% of cement emissions, leaving the process emissions untouched without carbon capture or alternative chemistries. Heidelberg Materials' CCS-equipped plant at Brevik, Norway (operational 2024) captures 400,000 tons of CO₂ per year, but capital costs exceeded EUR 600 million for a single facility, a figure that is prohibitive for most cement producers without substantial subsidy.

Hydrogen-based high-temperature heat faces cost challenges. Green hydrogen production costs in Europe sit at EUR 4 to EUR 6 per kilogram in 2025, compared to natural gas equivalent energy costs of EUR 0.8 to EUR 1.5 per kilogram. While electrolyzer costs are declining 15 to 20% annually, the total delivered cost of hydrogen heat remains two to four times higher than gas in most regions. This gap limits adoption to regulated or premium-product markets where carbon cost pass-through is feasible.

Grid infrastructure is a persistent bottleneck. Electrifying a single large cement plant or steel mill can add 200 to 500 MW of electricity demand: equivalent to a small city. In Germany, 45% of industrial electrification projects approved in 2024 face grid connection delays of 18 months or longer. The mismatch between industrial load profiles (continuous, baseload) and renewable generation profiles (intermittent) requires either energy storage, grid reinforcement, or both, adding 15 to 25% to project costs.

Value Pool Analysis

Value Pool	Market Size (2025, USD B)	CAGR 2025-2030	Key Margin Drivers	Who Captures Value
Electric arc furnaces and equipment	28	8%	Scrap supply advantage, energy cost arbitrage	Tenova, Primetals, SMS Group
Industrial heat pumps (above 100 C)	4.2	22%	COP improvements, gas price spread	Siemens Energy, MAN Energy, Viking Heat Engines
Thermal energy storage	1.8	35%	Renewable curtailment monetization, gas displacement	Rondo Energy, Antora Energy, Kyoto Group
Green hydrogen for heat	2.5	28%	Electrolyzer cost decline, carbon price escalation	Plug Power, Nel ASA, ITM Power
Resistance and induction heating	6.3	12%	Process precision, energy efficiency gains	Inductotherm, ABB, Ajax TOCCO
Plasma and electric kiln technology	0.9	18%	Cement and glass decarbonization mandates	ScanArc, Cementa (Heidelberg), Glass Futures
Power electronics and grid integration	3.7	15%	Grid modernization spend, industrial load management	Schneider Electric, Eaton, Hitachi Energy

The highest growth rates are concentrated in thermal energy storage and industrial heat pumps, both benefiting from mature renewable energy supply and gas price uncertainty. However, the largest absolute value pools remain in EAF equipment and resistance heating, where established players hold strong market positions.

Key Players

Established Leaders

Tenova: A Techint Group company and global leader in EAF technology, Tenova supplies steelmaking equipment to over 40 countries. Its Consteel and Quantum EAF designs emphasize energy efficiency and continuous charging.

Siemens Energy: Expanding aggressively into industrial heat pumps and electrification solutions. Siemens' integrated approach combines power generation, heat pump technology, and grid management for industrial clients.

Schneider Electric: Dominant in power distribution and industrial automation, Schneider is positioning its EcoStruxure platform as the control layer for electrified industrial heat systems, capturing value at the software and integration layer.

Startups and Scale-ups

Rondo Energy: Raised $75 million in Series B funding (2024) for its Heat Battery technology. Clients include Calportland (cement), Heineken (brewing), and undisclosed petrochemical operators. Rondo's units store renewable electricity as heat at up to 1,500 degrees Celsius with 98% efficiency.

Antora Energy: Developing solid-state thermophotovoltaic (TPV) systems that store renewable electricity as heat in carbon blocks and convert it back to electricity or process heat. Raised $150 million in Series C (2025), backed by Breakthrough Energy Ventures.

Electra: Focused on low-temperature iron ore refining using electrochemistry rather than hydrogen or coal. Electra's process operates below 60 degrees Celsius, potentially eliminating the need for ultra-high-temperature processing entirely for primary steelmaking.

Key Investors and Funders

Breakthrough Energy Ventures: Bill Gates' climate fund with investments in Antora Energy, Electra, and other industrial decarbonization startups.

European Innovation Fund: Allocated EUR 3.6 billion through 2026 for industrial decarbonization, including direct grants for electrification projects.

LDES Council: Industry coalition including 60+ members advocating for long-duration energy storage deployment, critical enabling infrastructure for industrial electrification.

Action Checklist

1. Map your facility's heat demand by temperature band and identify processes where electric alternatives achieve total cost parity today, particularly below 400 degrees Celsius.
2. Model carbon cost exposure under CBAM, EU ETS, and projected 2030 carbon prices (EUR 100 to EUR 150 per ton scenarios) to quantify the financial urgency of electrification.
3. Evaluate thermal energy storage as a bridge technology: storing off-peak or curtailed renewable electricity for process heat delivery reduces energy costs 20 to 40%.
4. Engage grid operators early on connection capacity and timeline: delays of 18+ months are common for large-load industrial connections.
5. Pilot industrial heat pump installations for medium-temperature processes (drying, distillation, pasteurization) where payback periods are under five years at current energy prices.
6. Assess green hydrogen readiness for processes above 1,000 degrees Celsius by securing electrolyzer supply agreements and renewable PPA capacity.
7. Track regulatory developments in CBAM scope expansion, EU ETS free allocation phase-out, and national industrial decarbonization subsidies to time capital investments.

FAQ

Which industrial sectors benefit most from heat electrification today? Steel (via EAF), food and beverage processing, and pulp and paper production see the strongest economics. These sectors have well-proven electric technologies, significant energy cost savings potential, and growing regulatory pressure. Cement and glass remain more challenging due to ultra-high temperature requirements and process emissions.

How does the carbon price affect electrification economics? At EUR 50 per ton of CO₂, gas-fired industrial heat faces a surcharge of roughly EUR 10 per MWh of thermal output. At EUR 100 per ton, that surcharge doubles and makes electric alternatives cost-competitive in most medium-temperature applications. For high-temperature processes, a carbon price above EUR 120 per ton typically triggers economic breakeven with hydrogen or electric alternatives, depending on local electricity costs.

What role does thermal energy storage play in industrial electrification? Thermal storage decouples electricity purchase timing from heat demand. Facilities can charge storage systems during low-price renewable electricity periods (often below EUR 20 per MWh) and discharge heat during production hours. This time-shifting capability can reduce effective heat costs by 20 to 40% compared to direct electric heating at average grid prices.

Is green hydrogen viable for industrial heat today? At current production costs of EUR 4 to EUR 6 per kilogram, green hydrogen is viable only where carbon costs are high, gas prices are elevated, or premium pricing for low-carbon products exists. By 2028 to 2030, electrolyzer cost reductions and scaling should bring hydrogen heat costs within 1.5 times gas-equivalent costs in Europe, making it broadly competitive with carbon prices above EUR 100 per ton.

What is the biggest barrier to scaling industrial heat electrification? Grid infrastructure. Most industrial facilities require 50 to 500 MW of additional electrical capacity for full electrification. Permitting, construction, and energization of grid connections take 18 to 36 months in Europe and longer in many other regions. Without proactive grid planning, electrification timelines slip by years.

Sources

1. International Energy Agency. "World Energy Outlook 2025: Industrial Heat Pathways." IEA, 2025.
2. European Commission. "CBAM Transitional Period Report and Implementation Guidelines." EC, 2025.
3. BloombergNEF. "Industrial Electrification Market Outlook 2025-2030." BNEF, 2025.
4. SSAB. "HYBRIT Project: Fossil-Free Steel Production Progress Report." SSAB, 2025.
5. Rondo Energy. "Commercial Deployment Results: Thermal Energy Storage for Industrial Applications." Rondo Energy, 2025.
6. Agora Energiewende. "Transforming Industry through Electricity: Techno-Economic Assessment for Europe." Agora, 2025.
7. World Steel Association. "Steel Statistical Yearbook 2025: Electric Arc Furnace Production Data." Worldsteel, 2025.