Nov 21, 2017

Opportunities in Industrial Renewable Heating and Cooling

Industry accounts for 10 percent of total energy consumption and greenhouse gas (GHG) emissions in Connecticut.[1] Demand for heating and cooling industrial buildings and their production processes represents roughly 60 percent of that. Renewable thermal technologies (RTTs) such as heat pumps, solar thermal and biomass could be used to reduce the GHG emissions related to this industrial energy consumption by reducing, recycling and refueling energy streams.

The “Feasibility of renewable thermal technologies in Connecticut” project, which is currently underway, has identified industrial sectors that represent the most promise for RTTs in Connecticut. However, due to the complexity of this sector, this analysis was not included in a recent market potential report. These results are instead summarized below, along with challenges facing industrial customers and potential solutions.

Promising Sectors

The most promising industrial sectors for renewable heating and cooling depend on several factors: which industries dominate the economy, which thermal processes are energy intensive and whether there are physical or regulatory requirements. We have screened the most promising sectors using publically available data.[2],[3] The screening was based on the value of shipments[4] per U.S. employee for 2015, the number of employees in various sectors in Connecticut in 2016, and energy intensities per sector.[5] The annual demand for process heating, process cooling and refrigeration in the Connecticut manufacturing industry, estimated at just below 40 trillion BTU, is expected to be distributed among subsectors as illustrated in Figure 1.

Figure 1: Estimated sectorial share of industrial thermal process demand.

Table 1 gives an overview of the three most dominant industrial sectors in terms of the Connecticut economy, space heating and cooling, process heating, and process cooling, respectively.

 Table 1: The dominant manufacturing industries in thermal energy demand (NAICS codes in parentheses.)

From an economic perspective, transportation equipment is the dominant manufacturing industry in Connecticut. It also tops the list for space heating and cooling demand. Other industries dominate the thermal energy demand for industrial processes. Both chemical and food & beverages industries demand large amounts of energy for process heating, cooling and refrigeration. The forest products industry ranks third for process heating, while the transportation equipment industry appears to be the third largest user of process cooling and refrigeration. 

The chemical industry is a particularly diverse sector including both energy-intensive and non-energy-intensive manufacturing. In 2013, around 34 percent of the employees of the Connecticut chemical industry were involved in the energy-intensive manufacturing of bulk chemicals, as compared to 37 percent nationally. The national average energy intensity applied for the chemical industry covers both energy-intensive and non-energy-intensive processes. The apparent importance of process heating, cooling and refrigeration for this sector suggests that a deeper analysis of facilities could be useful for Connecticut’s climate mitigation efforts.

Challenges and Opportunities

Our field study across the Connecticut market found a few general challenges to renewable heating and cooling: high upfront costs; lack of awareness and perceived risk of RTTs in the marketplace; immature installer business models; and limited access to expertise. Along with these challenges, the industrial sector faces a few specific challenges:

  1. The sector’s heterogeneity limits the potential of standardization.
  2. The sector often competes on a global scale, which makes it dependent on the global economy.
  3. Investments in RTTs are often an integral part of the production process, requiring industrial insight in planning and designing RTT solutions to limit the risk of discontinued production of the core industrial product.

Based on these challenges, the field study offered four categories of recommendations.

Show direction

The adoption of renewable thermal technologies requires committed management that is willing to show direction and dedicate internal capacity to the project; a “champion” is essential for energy projects in commercial and industrial settings. Supporters can build their case in a variety of ways: make heat and resource maps available, instrument industry networks for benchmarking, offer free energy assessments and share case studies that raise awareness and show opportunities around RTTs. This effort can be modeled on energy efficiency programs such as the Superior Energy Performance and the Better Plants programs.

Reduce upfront costs

Commercial and industrial customers generally face stricter economic constraints than residential customers. Several interviewees mentioned the difficulty of justifying large capital outlays for benefits perceived as small and occurring over a long time-horizon, especially since investors tend to operate on a short time-horizon. Providing inexpensive capital and financing through an institution like Connecticut’s Green bank is important for reducing risk in the investment process. The industrial firms interviewed, after all, had no desire to make energy investments a significant part of their balance sheets; innovative financing and business models can accommodate this wish.

One particularly useful financial mechanism to tackle the specific challenges of the industrial sector may be convertible loans for feasibility studies. These loans can be converted partly to grants if the industrial customer decides not to go through with the project.

Cultivate an industry

Commercial and industrial customers described the immaturity of the RTT market as a barrier to large-scale, sophisticated projects. Energy Service Companies (ESCOs) have a business model wherein customers agree to share the savings of an energy technology upgrade with the financing and installing entity. However, interviewees also remarked that ESCOs limit most of their business to straightforward measures, leaving out more complicated and costly investments. Sophisticated business models based on third-party ownership and thermal services agreements keep energy investments off the industrial customers’ balance sheet and may provide solutions that are partially replicable—solar thermal installations across, for instance, breweries. Performance monitoring is a key for such models to take off.

Create value streams

Many industrial processes offer unique economic synergies that can exceed upfront outlays. Tailor-made solutions allow the customer to realize industry specific values, such as integrating excess heat from the cooling process in drying milk. Companies can integrate resources from other industrial companies, exemplified with growing tomatoes with waste heat and CO2 from an ethanol plant next door. These opportunities may not be immediately obvious, but will create value streams.

Management can be encouraged to integrate these costs and benefits into profit and loss statements through internal carbon pricing, a carbon tax, a carbon market or, indirectly, Thermal Renewable Energy Credits. Both recent technical progress and internal barriers such as lack of attention and financial commitment to greenhouse gas reduction suggest there is significant room for policy to further energy efficiency and the use of renewable thermal technologies in industry.

 


[2] Applying industrial averages and national data impose limitations due to lack of homogeneity within industrial classifications and across the country.

[3] Based on North American Industry Classification System (NAICS).

[4] The Gross Domestic Product represents the value of finished products and is not necessarily a good indicator of where the industrial processes of the product are located. We have applied the 2015 value of shipments as estimated by the Annual Energy Outlook 2017, table 34.

[5] US Census Bureau: American Factfinder. Connecticut Department of Labor: Labor Market Information. Energy intensities for the industrial sectors: Manufacturing Energy Consumption Study.

Image credit: https://toolstotal.com