Today, 30% of global energy consumption comes from industry, which continues to rely heavily on fossil fuels. These fuels, highly polluting and responsible for significant CO₂ emissions, have long been a key focus of decarbonization strategies. Yet recent regulations have mostly focused on energy-intensive sectors such as steel and cement, overlooking the significant decarbonization potential of lower-temperature industries including food and beverage, textiles, chemicals, paper, wood, and other manufacturing activities. Collectively, these sectors consume around 70% of industrial energy worldwide and generate roughly 3 Gt of CO₂ in 2023—over half of all industrial emissions— an 8% decrease compared to 2013.
A range of electrified heating solutions—heat pumps, Mechanical Vapour Recompression (MVR) system, electric boilers, and resistance heaters—can meet the thermal needs of these subsectors, reducing fuel use and lowering investment requirements. However, several structural barriers still slow their adoption: unfavourable electricity-to-gas price dynamics, long grid-connection timelines, and the absence of supportive policy frameworks.
This article offers a clear overview of the opportunities, challenges, and policy priorities needed to scale electrified heating across industry.
The industrial heat challenge: why fossil fuels still dominate
Between 2013 and 2023, the share of electricity in total industrial heat demand remained essentially unchanged at around 5%, despite regulatory pressure to decarbonise, evolving consumer and investor preferences for cleaner technologies, and the rapid growth of renewables. Over the same decade, direct and indirect CO₂ emissions from EU industry fell by 13% (by more than 0.04 Gt and 0.03 Gt respectively), alongside a 10% reduction in the carbon intensity of industrial energy use. These improvements did not stem from the electrification of industrial heat but were driven by a cleaner energy mix, characterised by a growing share of renewables in electricity consumption and a gradual shift away from more carbon-intensive fossil fuels.
This progress, however, was uneven: periods of high energy prices and heightened energy-security concerns slowed fuel switching and temporarily increased reliance on carbon-intensive fuels. These dynamics are among the key reasons behind the stagnation in industrial heat electrification, which reflects persistent economic and market barriers rather than technological limitations. The slow uptake of electrified industrial heat is therefore rooted in structural and economic constraints, not in the readiness of the technologies themselves.
In this context, the electricity-to-gas price ratio emerges as the central economic variable determining the commercial viability of electrification. A more favourable ratio is essential to make the replacement of fossil fuels in industrial thermal processes more competitive, emphasising the need for stronger policy signals and improved market conditions.
The electricity-to-gas price ratio: the key variable
The ratio between electricity and natural gas prices — based on average industrial retail rates — is a key metric for assessing the cost-effectiveness of electrifying process heat. A lower ratio strengthens the economic case for electrification, so regional price differences matter for industrial competitiveness and decarbonisation pathways.
The European Union has the highest industrial energy prices, and following Russia’s invasion of Ukraine, EU electricity prices rose far more sharply than in China or the United States, reaching levels more than 1.5 times higher than China and nearly double those in the United States. Japan follows, with prices below the EU but still well above China and the US.
Natural gas shows a similar pattern. Between 2017 and 2023, the EU experienced the steepest increase in industrial gas prices, surpassing Japan after 2020. By 2024, gas prices in China and the United States had nearly returned to 2017 levels, while the EU and Japan remained high. In some cases, US industrial gas was eight times cheaper than in the EU, seven times cheaper than in Japan, and three times cheaper than in China.
Within this context, the electricity-to-gas price ratio has shifted notably across regions:
- In the EU, despite increases in both electricity and gas prices, gas rose much more sharply, causing the ratio to fall from the exceptionally high range of 4–5 (recorded between 2017 and 2021) to around 2 in 2024. This indicates a more favourable environment for electric heat technologies.
- In the USA, the ratio remains near 6, reflecting persistently low industrial gas prices and offering limited economic incentive to replace gas-based heat with electric alternatives.
- In China, the ratio remains close to 2, suggesting supportive conditions for industrial electrification.
- In Japan: similarly to the EU, the ratio has declined—from about 4 to 3—creating a more favourable context and signalling growing potential for electrification in this market as well.
Taxes and levies: a structural distortion
Three nationally regulated components—each varying significantly across EU Member States—strongly influence the final price of electricity and natural gas. These are the energy cost, which reflects wholesale market prices; the network charges, which for electricity include transmission and distribution costs, ancillary services, system balancing and metering, and for gas cover storage costs, system balancing, flexibility services and connection tariffs. In 2024, network charges accounted for around 13% of the electricity price. Finally, taxes and levies – such as renewable energy surcharges, excise duties, smart-metering fees, and local or municipal taxes – represented roughly 26% of the electricity price and 29% of the natural gas price for industrial consumers.
Despite the EU Energy Taxation Directive’s establishing a minimum excise duty of 0.5 EUR/MWh for industrial electricity, several Member States apply far higher surcharges. Industrial electricity in Czechia faces a tax of around 50 EUR/MWh, in Germany about 65 EUR/MWh, compared with the 0.5 EUR/MWh aligned with EU Directives already adopted by countries such as Ireland and Finland.
A reduction in these charges would make the levelized cost of heat (LCOH) —typically dominated by operating costs— for sustainable electric technologies such as heat pumps much more competitive in both the German and Czech markets, which face higher taxation levels, without requiring any technological change. In Finland, grid-connected heat pumps are already more cost-effective than existing gas boilers, with an LCOH of 41 EUR/MWh, and they are economically attractive in several other Member States as well. For this reason, adjusting taxation would provide an additional incentive for heat-pump deployment in countries such as Czechia, Germany and Spain, where current LCOH values range between 56 and 74 EUR/MWh.
Annual average electricity prices, however, capture only a partial picture of market dynamics. As the share of variable renewables increases, hourly price volatility also rises, creating a growing number of periods in which electricity is cheaper than gas. Electric heating systems can take advantage of these fluctuations when paired with thermal storage solutions.
Technologies for low-temperature heat electrification
The response to industrial decarbonisation and to the reduction of the EU’s fossil fuel use—by almost 3,000 PJ—may therefore lie in electrification through the deployment of three commercially available technologies: heat pumps, MVR and electric boilers, which can decarbonize most industrial heat demand. Selecting the most appropriate and efficient technology for each application—based on the required temperature profile, the availability of waste heat, and site-specific economic conditions—can substantially reduce operating costs, eliminate exposure to gas price volatility, and lessen sensitivity to electricity price fluctuations.
Heat pumps and electric boilers fulfil different thermal requirements: heat pumps operate at low and medium temperatures, whereas electric boilers can supply high-temperature ranges, which can also be achieved with MVR systems. The following section focuses specifically on heat pumps and MVR.
Industrial heat pumps
Heat pumps are currently the most accessible commercial solution for electrifying industrial heat up to 150°C. For heating needs beyond 150°C, Mechanical Vapour Recompression (MVR) systems—either alone or in hybrid configuration with heat pumps—are a proven solution for high-temperature steam supply in process heating.
Heat pumps perform best in low- and medium-temperature processes and are widely used in food and beverage operations, textiles and chemicals, as well as in applications requiring precise thermal control or combined heating and cooling, such as those in the dairy industry. Their versatility also extends to wood processing, paper production and printing, while electrification remains more challenging for high-temperature sectors such as steel, iron and cement.
Building on this versatility, replacing a gas boiler with a heat pump is often relatively straightforward, as most core industrial processes usually require only limited adaptation. Integration becomes more complex only when waste-heat recovery systems need to be redesigned or when electrical infrastructure must be upgraded to support higher loads.
Another major strength of this technology is their high efficiency. With COP values — a measure of performance that largely depends on the temperature lift, the gap between inlet and outlet temperatures — typically above 2, heat pumps tend to deliver more thermal energy than the electricity they consume. This efficiency advantage often translates into lower LCOH compared with electric boilers under typical electricity-price conditions.
Their strong performance in district-heating networks further illustrates their value. When paired with hot-water storage, heat pumps can operate during low-cost hours and release heat later, a strategy that can also be applied in industrial settings, provided storage systems can accommodate higher temperatures.
Finally, unlike other clean-energy technologies such as solar PV, batteries and key wind components — which are largely concentrated in China — heat-pump manufacturing is distributed across several established industrial regions, including China, Europe, Japan, Korea and the United States. This diversified supply base offers greater long-term security for buyers; a topic explored in more detail in the following section.
Heat pump supply chains: a structural resilience advantage
One of the main advantages to heat pumps is their ability to support distribution-network diversification. Their manufacturing base is spread across multiple industrial regions, in sharp contrast to other clean-energy technologies that remain heavily concentrated in a single country. Production is distributed across China, Europe, Japan, Korea and the United States, preventing any one nation from dominating global manufacturing capacity. This broad geographic footprint reduces exposure to geopolitical or trade-related disruptions, lowers the risk of supply bottlenecks and offers greater long-term reliability for purchasers. It also gives manufacturers and governments more flexibility to shift procurement across regions, strengthening the overall resilience of the heat-pump supply chain.
As demand for heat pumps continues to rise, this diversified industrial base offers additional strategic benefits. Domestic production in several regions can shorten delivery times, stabilise prices, support local employment and reinforce policy objectives aimed at accelerating electrification. Collectively, these advantages enhance supply-network robustness and energy security, making them increasingly important considerations for industrial buyers.
Electric boilers (e-boilers)
Another relevant technology for heat electrification, alongside heat pumps, is the electric boiler (e-boiler), which is gaining traction thanks to its versatility and ease of installation. E-boilers can generate steam up to 350 °C, offering a wider temperature range than heat pumps. Part of this range, however, can also be covered by MVR systems—either alone or in combination with heat pumps—which compress waste steam to reach temperatures above 250 °C.
Nevertheless, heat pumps and MVR units can often be more cost-effective due to their high COP values, allowing them to produce more heat than the electricity they consume and achieving a more favourable electricity-to-gas price ratio than e-boilers. By contrast, e-boilers operate with an efficiency close to a 1:1 electricity-to-heat conversion, which makes them less competitive than gas boilers when considering efficiency alone.
Like heat pumps, e-boilers can also reduce exposure to peak electricity prices when paired with hot-water thermal storage. This approach is applicable both in district-heating networks and in industrial settings, enabling heat production during lower-cost hours and its use when needed.
Energy efficiency and electrification: Two sides of the same coin
Electrification and efficiency should not be treated as separate or sequential steps, but as complementary actions that must progress together to achieve meaningful improvements in industrial processes. A wide range of solutions can support this integrated approach. At higher temperatures, waste heat recovery through ORC modules or CHP systems can be efficiently employed for electricity production. At lower and medium temperature levels, heat pumps provide an effective option, offering all the advantages previously discussed. Additional measures—such as improving insulation, enhancing process control and optimising thermal performance—deliver immediate, low-cost emission reductions.
When integrated, these efficiency actions can significantly enhance overall energy performance, lower CAPEX and improve payback periods. Even the adoption of a single measure can translate into tangible economic benefits and greater operational independence.
Sectors and applications: where electrification is most viable today
Choosing the right electrification pathway requires assessing its viability, which depends on several factors: the temperature profile, the availability of waste heat, energy-price conditions and the company’s capital structure. In markets where these elements align, several sectors are already at — or approaching — the economic tipping point.
Food and beverage
The food and beverage sector relies heavily on processes that require low-temperature heat (below 200 °C), making it well positioned to benefit from electrification in the short and medium term, with potential electrification rates reaching 44% of total energy demand by 2030. In these applications, heat pumps represent an ideal decarbonisation technology when they are cost-competitive and accessible from a capital-investment perspective. Breweries are a clear example: mashing, purifying and boiling typically require steam at around 120 °C, fermentation operates up to 95 °C, and cleaning, filling and bottle pasteurisation occur at roughly 70 °C — all temperatures that can be covered by existing heat-pump technology. Another high-potential case is the dairy industry, where waste heat from refrigeration can be recovered and used as a source, given the sector’s need for processes that require heating and cooling simultaneously.
Textiles and chemicals
The textiles sector is another strong candidate for near-term electrification, as most of its processes — including dyeing, finishing and drying — require heat below 150 °C, well within the operating range of industrial heat pumps. The chemical industry also shows substantial potential: around 70% of the sector’s heat demand in the EU (approximately 760 PJ) can already be electrified with existing technologies, making chemicals the segment with the largest absolute electrification opportunity in the European Union.
Northern Europe as the first-mover market
The first wave of industrial heat electrification has taken place in Northern Europe, where the rapid expansion of wind power and the gradual phase-out of fossil fuels have lowered both wholesale electricity prices and the carbon intensity of the grid. As a result, these countries — supported by favourable taxation and low electricity-to-gas price ratios — have become leading markets for e-boilers as replacements for gas boilers. Heat pumps have proven even more competitive, with Finland standing out as the benchmark: its LCOH has already reached EUR 41/MWh, the lowest in Europe, compared with a range of EUR 56–74/MWh in other countries. This makes Finland a clear example of how policy, market design and resource endowment can combine to unlock electrification at scale. It also shows that similar outcomes could be achieved in other markets where comparable structural changes in energy pricing, taxation and grid decarbonisation are pursued — signalling the direction of travel for the broader European industrial landscape.
EU technical electrification potential: quantifying the opportunity
There is significant potential for technical electrification in the EU, and the previous examples demonstrate that a shift toward industrial heat production no longer dependent on fossil fuels is possible.
Full—or near-full—electrification can be achieved through heat pumps and e-boilers across five sectors: food and tobacco, textiles and leather, paper and printing, wood and related products, and other manufacturing industries. Together, these sectors represent nearly 2,000 PJ of potential reduction in fossil-fuel-based heat demand.
The chemical sector stands out with the largest opportunity: 760 PJ, equal to about 70% of the sector’s total heat demand, is considered technically suitable for electrification using technologies already available today.
Electrification would therefore lead to a substantial reduction in industrial fossil fuel use. In particular, it would halve direct natural gas consumption for low-temperature heat and steam across manufacturing sectors.
The implications for Europe would be significant. A reduction in gas demand of 35 bcm, equivalent to 8–9% of annual EU natural gas consumption, would ease import dependency and lower exposure to price volatility and supply disruptions. Total natural gas import volumes into the EU would fall by around 12%, reducing the annual import bill by an estimated EUR 12–20 billion.
As a result, industrial heat electrification should be seen not only as a decarbonization lever, but as a strategy that strengthens Europe’s energy security, reduces import dependency, and enhances the economic resilience of its industrial system.
The economics: when does electrification make sense?
The right metric to assess when electrification becomes more convenient than traditional methods is the LCOH (Levelised Cost of Heat). This indicator captures the total cost of producing heat per unit — including both capital and operating expenses — and therefore enables a fair, technology-neutral comparison.
Because operating costs dominate in most industrial heat systems, the electricity-to-gas price ratio becomes the key variable shaping the LCOH outcome.
LCOH across EU member states
Across the European Union, the electricity-to-gas price ratio varies significantly from one Member State to another, leading to substantial differences in LCOH outcomes. Consequently, the economic viability of industrial heat electrification is far from uniform across the EU.
- Finland LCOH: EUR 41/MWh. It stands among the most competitive countries, even without additional policy support or regulatory changes. Its favourable electricity-to-gas ratio makes industrial heat electrification economically attractive
- Germany LCOH: EUR 56–74/MWh. Its current values are heavily influenced by high electricity taxation (around EUR 65/MWh). Reducing this tax to the EU minimum (EUR 0.5/MWh) would shift Germany into competitive territory, significantly improving the economics of heat pump adoption.
- Czechia LCOH: EUR 56–74/MWh. Electricity taxation at approximately EUR 50/MWh remains a major barrier. Lowering this burden would be essential to make industrial heat electrification competitive.
- Spain LCOH: EUR 56–74/MWh. Adjusting electricity taxation would provide a strong additional incentive for industrial heat pump deployment, as in Germany and Czechia.
- Ireland LCOH: EUR 56–74/MWh. It benefits from lower taxation compared to Germany and Czechia, and more favourable network costs. This results in an electricity-to-gas ratio of 3.1, making electrification more accessible relative to other countries in the same range.
Policy landscape: barriers, momentum and six priority actions
Unfavourable electricity taxation, structural barriers, and the absence of clear policy frameworks collectively prevent industries from fully capturing one of the most immediate and cost-effective opportunities for diversifying energy sources. These constraints slow down deployment despite the high level of technical readiness of electrified heat solutions.
To address these challenges and accelerate the uptake of such technologies, the strategic importance of heat electrification is increasingly recognised, with growing financial and policy support across the European Union to promote the integration of renewable and waste-heat sources. This momentum is also reflected in the IEA’s six priority action areas, which outline a structured policy pathway to overcome these barriers and enable large-scale industrial heat electrification.
The three structural barriers
- Barrier 1 – Unfavourable electricity-to-gas price ratio: legacy tax structures across many EU Member States impose high levies on electricity. These high costs artificially inflate the operating expenses of electrified heat technologies and undermine their competitiveness. The challenge is regulatory rather than technological: reforming taxation and network tariff allocation will be essential to support industrial electrification, leveraging the readiness of industrial heat pumps and electric boilers, which are already proven and commercially available solutions.
- Barrier 2 – Grid connection lead times: some of the most persistent barriers affecting the pace and cost of industrial electrification relate to grid access. Depending on the geographical location and the type of industrial plant, companies face complex permitting procedures—ranging from 1–2 years for standard approvals to as much as 5–13 years for a single extra-high-voltage overhead line—alongside lengthy grid connection processes that typically extend 3–5 years in many EU member states. These delays, combined with growing connection queues, continue to limit investment and slow deployment. To address these bottlenecks, the European Union is moving toward more flexible and technology-neutral approaches to grid management, including the recommendations of the EU Agency for the Cooperation of Energy Regulators on the high-voltage direct-current network code (December 2024), which propose shorter connection procedures for demand-side projects. These measures aim to reduce incompatibility with industrial investment horizons and lower the risk of project abandonment.
- Barrier 3 – Absence of clear policy frameworks: across EU Member State, industrial heat electrification remains constrained by the lack of ambitious national targets, dedicated strategies, and coordinated roadmaps for low-temperature industrial heat. Without regulatory certainty, companies hesitate to commit capital or redesign energy systems, and investment decisions slow or stall. This uncertainty delays project development and often leads to postponement or abandonment, despite the maturity of the underlying technologies. Clear and coordinated policy frameworks are therefore essential to unlock deployment at scale and give industry confidence in the long-term direction of decarbonisation.
EU policy momentum
A growing alignment between EU-level and national policies is shaping a more coherent framework for industrial electrification. This emerging policy architecture combines regulatory, fiscal and market instruments designed to accelerate the shift toward electrified heat solutions. Key initiatives include:
- EU Renewable Energy Directive (2026): introduces mandatory annual increases of 1.1 percentage points in renewable heat and cooling for Member States, with a higher – though indicative – target of 1.6 percentage points for industry.
- EU Clean Industrial Deal (February 2025): reinforces this direction by establishing an economy-wide electrification target of 32%.
- Proposed amendment to the European Climate Law (expected 2026): sets industrial electrification benchmarks of 48% by 2040 and 62% by 2050, supporting the achievement of the EU’s 2040 carbon emissions reduction objectives.
- EU Electrification Action Plan and a new Heating and Cooling Strategy (expected 2026): intended to translate high-level targets into operational measures and implementation pathways.
- European Grids Package and Energy Highway initiative (December 2025): aim to strengthen demand-side integration by streamlining grid-connection and permitting processes, enabling grid investments for industrial electrification, and promote demand-side flexibility as a core resource in ten-year network development plans.
Six IEA priority recommendations
Although EU policy efforts to support industrial low-temperature heat and steam electrification are becoming more coordinated, they remain at a progressive yet still early stage. To accelerate deployment and enable electrification to scale effectively across industrial sectors, the IEA recommends six priority actions:
- Elevate heat electrification into the policy agenda, embedding it into national roadmaps and targets, while keeping a technology-open approach that supports multiple decarbonization pathways.
- Anticipate heat electrification in long-term grid planning to avoid multi-year delays for new or upgraded grid connections. Prioritise projects that provide demand-side flexibility – such as load shifting or thermal storage—to ease congestion and reduce bottlenecks. The Netherlands, for example, has introduced a congestion-based prioritisation framework that ranks connection requests according to their contribution to relieving grid stress. In China, guidelines have streamlined approvals for capacities below 10 MW and strengthened coordinated planning between industrial parks and grid operators.
- Reform electricity taxes and levies to enhance competitiveness by levelling the playing field with fossil fuels and reward flexible industrial demand. Approaches may include reducing or removing electricity taxes for industrial users – as in Finland – shifting levies to state-managed funds, as in Germany, and linking tax relief to the share of renewable electricity consumed, following Ireland’s example.
- Provide targeted early support for capital and operating costs and enable new business models to accelerate the roll-out of heat electrification technologies. Expand grants, concessional finance and carbon contracts for difference to reduce upfront investment risk. Tax incentives can further lower project costs. Innovative models—such as Energy-as-a-Service, Heat-as-a-Service or heat-pump performance contracts—can de-risk investments and shorten payback periods.
- Enhance skills and workforce development by increasing training programmes and certification schemes to meet rising demand for industrial electrification expertise. This applies both to specialised service providers and to in-house industrial staff, especially in SMEs. Integrating electrified heat system into vocational and technical education, and updating certification frameworks to include industrial applications, is essential to prepare the workforce for large-scale deployment.
- Promote international collaboration on technical standard frameworks to facilitate equipment interoperability, supporting a global alignment on safety and technical standards to achieve economies of scale for industrial heat pumps, electric boilers and thermal storage, while preserving flexibility for process- and sector-specific needs. Mutual recognition of testing and certification schemes, along with joint demonstration and benchmarking initiatives, can lower compliance costs and accelerate the technology transfer.
Conclusion: technically ready, economically improving, policy-dependent
Industrial low-temperature heat and steam electrification is no longer a technological challenge: heat pumps, MVR systems and electric boilers are commercially mature, widely available and already deployed across multiple sectors. In the most favourable markets, their economics are approaching—or have reached—parity with fossil-fuel systems, supported by improving electricity-to-gas price ratios and emerging policy signals that begin to offer the long-term certainty industries need for investment. Scaling this transition now depends on a few structural levers: reforming energy taxation, integrating industrial demand into grid planning, and strengthening workforce capabilities. As companies evaluate their decarbonisation pathway, Exergy stands as a strategic partner to assess options, design electrification strategies and support implementation across industrial sites.
Frequently Asked Questions
What is the best technology for electrifying industrial low-temperature heat?
Industrial heat pumps are the most efficient option for processes up to 150 °C, delivering high performance with COP values well above 1. For higher-temperature applications, mechanical vapour recompression (MVR) becomes the preferred option. In practice, many industrial sites benefit from a combination of both technologies. The optimal choice depends on the required temperature profile, the availability of waste heat on site and the electricity-to-gas price ratio in the relevant market.
What are the main barriers to industrial heat electrification?
Three structural barriers consistently limit deployment. First, unfavourable electricity-to-gas price ratios, largely driven by legacy energy-tax structures, weaken the business case for electrified heat. Second, long grid-connection lead times — often three to five years or more — are incompatible with typical industrial investment horizons. Third, the absence of clear national targets and long-term roadmaps for industrial heat decarbonisation creates regulatory uncertainty and delays investment.
What temperature can industrial heat pumps reach?
Commercially available large-scale industrial heat pumps are well established for heat delivery up to 150 °C, offering the highest efficiency with COP values well above 1. When combined with mechanical vapour recompression (MVR), the effective operating range can be extended to above 250 °C. For applications requiring temperatures up to 350 °C and steam pressures of roughly 70 bar, electric boilers are the appropriate technology.
Which sectors benefit most from low-temperature heat electrification?
Food and beverage, textiles and leather, chemicals with processes below 150 °C, paper and printing, and wood products together account for roughly 70% of global industrial energy consumption and emitted nearly 3 Gt of direct CO₂ in 2023. Most of the heat required in these sectors falls within the temperature range that can be served by commercially available industrial heat pumps. This makes them the highest-priority near-term targets for large-scale industrial heat electrification.
