Clean Industry in China: A Techno-Economic Comparison of Electrified Heat Technologies, Barriers, and Policy Options

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China’s manufacturing sector generates 61% of the country’s CO2 emissions, nearly three-quarters of which is related to industrial process heating. To meet China’s climate targets and attain a zero-carbon industrial sector, decarbonizing these industrial heating processes is a necessity. If China’s electricity grid is similarly decarbonized, direct electrification is the most practical means of supplying this heat efficiently at the required scale.

In addition to reducing greenhouse gas emissions, industrial electrification would help reduce conventional pollution that was responsible for 1.85 million premature deaths in China in 2019, and it would improve China’s energy security, as the country imported 85% of its petroleum products and crude oil as well as 46% of its natural gas in 2021. Direct electrification would also help Chinese firms avoid volatile fossil fuel prices and future carbon pricing costs, and ensure competitiveness when selling
products to environmentally-conscious buyers and governments that may use carbon border adjustment mechanisms or similar efforts to encourage the procurement of cleaner materials.

Two electrified technologies stand out as means for China to decarbonize its industrial process heating: industrial heat pumps and thermal batteries. Heat pumps can be the most efficient and cost-effective method to supply clean, low-temperature heat for industrial processes. They can achieve efficiencies several times higher than other electrical technologies because they do not convert their input electricity into heat. Instead, heat pumps move heat from a low-temperature to a high-temperature area, operating much like a refrigerator or air conditioner. Industrial heat pumps can extract heat from a source (such as the air, ground, or waste heat from another industrial process) and output heat at temperatures up to 165 °C. Heat pumps that raise temperature by 40 to 60 °C typically have efficiencies of 300-400%. Notably, no other heating technology can generate heat at an efficiency beyond 100%; this exceptional efficiency makes heat pumps a particularly cost-effective electrification route.

For higher temperature processes, thermal batteries can provide up to 1,700 °C, making them a viable option for supporting over two-thirds of China’s manufacturing sector’s process heating needs. Thermal batteries contain thermal storage material with a high specific heat capacity that resists chemical breakdown at high temperatures. The storage material is enclosed in a highly insulated shell to minimize heat loss, losing as little as 1% a day in some systems. Electrical resistance heaters inside the battery convert their electricity to heat that is absorbed by the storage material and can then be extracted when the industrial facility is ready to use the heat.

The storage capability of thermal batteries means that they can provide steady-state heat in both onand off-grid configurations. Off-grid batteries would be able to procure electricity at wholesale prices from dedicated renewables projects, smoothing over the variability of day-night cycles or lulls due to weather conditions. Similarly, for grid-connected batteries, energy can be purchased during the cheapest times of day and banked for future use. While many Chinese manufacturing firms are located in the eastern provinces where there may be limited land for creating new off-grid renewables projects, grid-connected thermal batteries offer firms and utilities the benefits of price-hunting and optimization. Additionally, by reducing industrial electricity demand when electricity is in short supply, direct electrification with thermal batteries could aid in grid regulation, help the grid integrate variable renewables, and cut peak demand, lowering the required grid-related capital costs of transitioning to clean industry.

Performing a techno-economic comparison of these two electrified heating technologies and their alternatives in China, we found that for temperatures under 100 °C, industrial heat pumps were the second-cheapest heating option with a levelized cost of $38/MWhth (¥260/MWhth), remaining competitive with combined heat and power (CHP) variants and considerably cheaper than natural gas or electric boilers (Figure ES-1). While coal-fired boilers currently offer the lowest levelized cost of heat production, when incorporating a 2030 estimated carbon cost, industrial heat pumps become the lowest-cost option for low-temperature heat. For temperature ranges of 100-165 °C, industrial heat pumps cost about $58/MWhth (¥391/MWhth), but are broadly competitive with natural gas, and may improve in terms of costs and efficiency with additional research and development. Industrial thermal batteries are costed in-between the two heat pump variants at $46/MWhth (¥314/MWhth) and can support far higher temperatures.

Relative to coal-fired technologies, heat pumps were found to achieve significant reductions in five pollutants (CO2, NOx, SOx, PM10, and PM2.5) and thermal batteries in three pollutants (SOx, PM10, and PM2.5), accounting for the pollutant emissions associated with the electricity they use. As China’s grid increasingly shifts to zero-emissions electricity sources, electrified technologies’ pollutant emissions will decline, ultimately reaching zero if China’s grid becomes fully decarbonized.

Smart policy is necessary to overcome the barriers to industrial electrification in China. Fossil fuel prices are considerably lower in China than the cost of electricity for industrial energy buyers. Limited availability of electrified equipment, especially high-temperature industrial heat pumps and industrial thermal batteries, also presents a current hurdle. Additionally, upgrading and electrifying existing industrial equipment can be technically challenging, and doing so outside of the equipment’s natural replacement cycle can incur additional costs.

Policymakers can incentivize the transition using equipment rebates, retooling grants, and access to lowinterest financing mechanisms to offset the capital expenditures related to adopting these technologies. Enhancing existing energy-efficiency standards, emissions standards, and green public procurement programs can likewise encourage the transition to direct electrification. China’s research laboratories, such as those operated by the Chinese Academy of Sciences, can collaborate with private industry on research and development (R&D) programs to move these early-stage technologies forward. Grant funding is not limited to supporting laboratory-scale R&D but can also fund pilot or demonstration plants that provide proof-of concept and encourage industrial players to transition. Creating a competitive landscape between coal and electricity is also important and can be achieved by carbon pricing or by subsidizing the cost of clean electricity and the cost of upgrades to support electrification. Inter-provincial electricity trading and optimization of China’s Green Electricity Certificate system can help facilitate access to clean electricity.

Direct electrification of industrial process heating in China has the potential to reduce greenhouse gas emissions immensely and would yield massive benefits to the country and the globe. While existing technologies offer a path forward, China must incentivize their adoption by creating a supportive environment for industrial decarbonization through the right policy approaches. Given the country’s large industrial capacity, China has the potential to lead in clean industrial technology while achieving its climate targets.

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