Paper 7: Decarbonising process heating - Developing a compelling business case

This paper provides a structured checklist to develop a compelling business case to invest capital to decarbonise process heating.

These investments should be addressed as opportunities to achieve a step change improvement in energy productivity, working conditions, plant reliability and reduced maintenance, and flexibility and responsiveness. And in preparing the business case for change, it is critical to capture and quantify all these benefits aside from the change in energy costs.

The process for building a decarbonisation project business case should start with developing a long term decarbonisation roadmap to provide context for the project. This helps ensure that planning for major factory upgrades necessarily incorporates carbon savings projects to ensure you don’t miss change-out opportunities for boiler plant approaching its economic replacement life. Some 40% of the industrial boilers in Australia are more than 25 years old and due to be replaced within the next 5 years. It is also worth challenging boiler life expectations in your plant, as it that when you address all the reliability issues, maintenance costs and the impacts of disruption to total plant productivity associated with the whole boiler and steam system, the boiler may already be past its economic life.

A typical process for developing you decarbonisation business case will be to do some high level options testing, examine sources of external funding support and iterate this with increasing detail and accuracy before embarking on a detailed engineering design study and budget costing exercise.

This paper focuses on the elements of a decarbonisation business case. Looking at these individually:

1. The best place to start is to understand the compelling drivers for change that will support the case for investment in change:

• Are there any government or other mandates to cut carbon emissions? E.g. for large users if you fall under the Safeguard Mechanism (about 35 major industrial sites). Most of the following discussion will be targeted at the non-safeguard sites with significant sized boilers (perhaps 5000 in Australia).
• Do you need to decarbonise to continue operating because of license to operate requirements? There can be other government mandates e.g. EPA requiring sites to cut CO2 emissions as a pollutant, or community pressure to reduce local environmental impacts. There may be other OHS requirements that will push the project forward including improved safety, better working conditions, and reduced pollutant emissions by eliminating fossil fuel boiler systems and combustion, and for solid fuels less dust and transport movements.
• Corporate commitments to cut greenhouse gas emissions are becoming common, and often associated with this is a relaxation of the hurdle rate for decarbonisation investments.
• Supply Chain Drivers: Many corporations are starting to focus on their scope 3 emissions with mandatory reporting coming in, and thus require their suppliers to cut their emissions. This may necessitate your plant reducing its emissions for products in these supply chains over a specific time-line, which may become an effective driver for decarbonising process heating.

2.????? Determine the optimal technical and technical economic solution.

Defining the best solution for electrifying your process heating is not a trivial task. You won’t get to an economical solution by just replacing like with like – i.e. fossil boiler with heat pump doing same duty. Heat pump COP is dependent on lift temperature, so economics depends on matching heating with the real end use temperature needed. So, an electric solution for a facility will typically be distributed heat pumps, not a central single heat pump. I presented a more detailed paper on some issues involved in defining the most economically attractive solutions in Paper 2:?Decarbonising Manufacturing. Options for displacing natural gas.?19 Jul 2024

https://www.dhirubhai.net/pulse/decarbonising-manufacturing-paper-2-options-natural-gas-jutsen-9odsc

The dot points on the summary diagram note some of the key issues and tools. Each of these is a major topic in its own right:

• Address metering and end use energy efficiency first. One of the key obstacles to optimal design is the shortage of metering data required for meaningful analysis that will stand up to scrutiny. While intelligent estimation is possible for some variables, it is likely that you will need to upgrade metering to be confident in your analysis of options. in NSW at least (and I think in Vic) there are metering incentives available. It is also important to thoroughly investigate the efficiency of core processes as you do not want to invest in new expensive heat pumps to supply energy which will be wasted in process.

• Matching the temperature of heat delivery from the heat pump with the application is important to achieve a good COP, and reduce distribution energy losses, and this leads to distributing heat pumps to locally supply processes with significantly different process temperature requirements.

• Conducting a pinch (or process integration) analysis is a valuable tool for identifying the optimal location and size of heat pumps in heating networks in more complex facilities with continuously operating plant (as against batching).

• Electricity supply and load flexibility: As discussed more in paper 3 of my series, many sites will be challenged with the ability to upgrade their electricity supply from the distribution company, and internally within the site. This means that limiting peak total demands for power to and within the site will be essential in most cases. Furthermore, the cost of supplying electricity varies greatly over time so economic solutions must be able to preferentially use or store electricity in low price periods, less in higher prices period, and ideally none in very high price periods. Both these requirements necessitate integrating load flexibility into electric heating systems. This can be done through thermal (e.g. hot/cold water or ice/phase change storage) or electrical storage. This adds another layer of complexity to the design of electrification options.
• Digital twins can be used to optimise these complex design models by simulating how the plant would operate with different plant configurations and operating conditions. Tools are being developed to utilize these tools for optimal electrified process heating design.

A quick deviation about how to choose the right advisers to help you with this design work: There is a very limited field of specialist advisors with the capability to do this design work competently. It is a new challenge and requires higher levels of a combination of process and electrical skills than generally exists in energy audit companies who will typically want to exchange like with like as it is easier. Government energy agencies (and I) can refer you to some of these practitioners. There is an urgent need for an academy to upskill energy and process engineers to do this work.

• Application of research and development/demonstration to develop and de-risk new solutions. Paper 6 in my series looks at the role of R&D. Fortunately these is funding available through RACE for 2030 at early stage and ARENA at demonstration and commercialisation stage to help de-risk some of these investments. I discussed in Paper 6 the needs for R&D and D to accelerate high temperature heat pumps to the Australian market and develop digital twin tools to help companies to design and control the best electrification projects.

3.????? Defining Capital Costs for the optimal solution from step 2.

• The key capital items are the cost of the heating equipment itself and this will generally be external heat pumps. The long run costs for industrial high temperature heat pumps over 90C delivery temperature are not yet well established in the market, and for delivery of steam temperatures there are limited suppliers from which to attain heat pump quotes - though MVR is commercialised and there are well established suppliers with product ranges. It is expected that as HT heat pumps become better established, there will be multiple competing suppliers and prices will fall.

Businesses are often reluctant to replace boilers well within their expected life - if it ain’t broke, don’t fix it mentality, but as discussed earlier, it is worth challenging the economic life of this equipment and look at the total economic case including all benefits from the change.

The expected utilisation of new capital equipment is always critical to achieve a good ROI. This is one potential downside of distributed and local heating, limiting it to high operating hours processes.

• The capital cost for electric heating systems should include allocation for hot/cold storage or electrical storage for load flexibility. This is essential to get economical electricity prices. See further discussion about this in my Paper 3.
• The capital budget should also allocate funds for smart sensors and AI controls (ideally using digital twin) to maintain the highest efficiency through a range of operating conditions and simultaneously minimise electricity charges through using load flexibility.
• Ensure you capture Government capital investment incentives for energy efficiency or decarbonisation projects. In NSW, the ESS (Energy Security Safeguard) program offers significant incentives for heat pumps, and in Victoria the VEU program also has incentive available. Some developments in NSW include:

High efficiency appliances for business method:

???????? Product performance needs to be modelled, and configurations can be registered. Configurations up to 169 kW heat pump have been registered.

???????? Incentives range between 15 and 20% of the total cost.

Measurement and verification method

???????? Bespoke or large-scale hot water upgrades can create certificates under Project Impact Assessment with Measurement and Verification (PIAM&V) method.

???????? PIAM&V is more complex, but incentives can be higher.

The NSW government is also running a heat pump feasibility pilot at present.

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4.????? Operating Cost Issues

• Electricity:Gas price ratio

Purchased electricity costs more than natural gas on a straight energy/MJ basis (3-5 times), but electricity can do work, and a heat pump typically will typically provide a COP of 3-in 5+ and if used for heating and cooling simultaneously can do significantly more than that again. See sources like A2EP for more info on heat pump COPs and price ratios, but in Australia the ratio may shrink a bit in the next 5 years due to gas supply shortages on the East Coast, though purchased electricity prices are unlikely to contract despite the lower operating costs of renewables (due to the massive investments required to firm and connect large scale wind and solar). On-site generated solar is the best supply option for your process heating, offering minimal long term marginal operating costs.

• C/energy taxes

In Australia, unlike New Zealand and 28 other countries, we have no carbon tax to advantage decarbonisation projects.

• Solar on-site generation

Of course, to decarbonise your process heating, you must not only electrify but the electricity used also needs to be zero carbon, which means generating solar PV on site or purchasing green power.

Many solar suppliers (including energy retailers) will finance solar PV on an EAAS basis. Otherwise, you will need to make a capital allocation for the solar investment which is justifiable in its own right with projects typically less than 5-6 years payback.

• Green energy purchases

Many companies take advantage of green power purchasing agreements, effectively buying renewable energy certificates. Note that the definition of zero carbon electricity is now coming under challenge as supply is not time matched to demand, and there may be higher costs in future for green power if there is a requirement for time matching of certificates.

• Overall operating cost benefits

While there is often a focus on energy savings, the key point is that you need to capture and quantify all productivity, reliability and other benefits of the electrification projects, and when you look at the total productivity story these projects can look a lot more attractive. Often you will have the opportunity not just to remove a boiler, but the entire unwieldy and inefficient steam and condensate system, with all the attendant labour, maintenance and reliability benefits. ?

5.????? ROI and Ways to Enhance It

·??????? Use the right corporate hurdle rate for the project, considering its carbon savings and other environmental and OHS benefits and make sure you are aware of mandates and corporate commitments that might benefit the project.

·??????? ?Take advantage of all suitable R&D and demonstration project funding to de-risk projects, including contributions from RACE for R&D elements, and ARENA for feasibility studies and capital funding, and any other specific incentives from state or federal governments.

·??????? Apply for R&D tax credits and recognise the opportunities for legal double dipping.

I will not cover all the current incentives here, but you need to know about them. Talk to State government e.g. Sustainability Advantage in NSW and specialist consultants (like RSM). ?Note that I discussed the need for greater Government incentive support for decarbonising process heating in Paper 4 and concluded that there is a case for some $1B/year incentives for next 10-15 years to get the job done.

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After bringing all this together, you will have the basis for a compelling business case to attract a positive business decision.

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