It is well-known that the industry faces the significant challenge of decarbonizing its main processes that currently rely on heat produced with fossil fuels. These processes include drying, melting, sterilizing, reacting, and more, all of which require heat in the range of 160 to 550 °C. Collectively, these processes account for approximately 3% of global CO2 emissions. Industries such as food, textiles, paper, and chemicals are increasingly under pressure to decarbonize. Several technologies have emerged as potential solutions, but they are often quickly dismissed due to the real challenge not just being decarbonization, but finding a way to do so at the lowest possible cost to maintain profitability and competitiveness. This is where High-Temperature Heat Pumps (HTHP) come into play.
Heat pumps (HP) are not a new technology in the 21st century; they have been established for over 150 years and are widely used in the residential sector for heating and cooling. However, the industrial sector has been slow to adopt HP, and there are three primary reasons for this. Firstly, existing devices have physical limitations, with a limited temperature range (typically up to 140-160°C) and lift (the temperature gap between the HP's input and output), making them unsuitable for processes requiring higher heat levels. Secondly, high-temperature HPs are expensive and require high maintenance. Thirdly, industrial users lack visibility regarding future energy policies that could support their investment decisions in transitioning to this type of equipment. HTHP technology can potentially replace natural gas-fired boilers and dryers while addressing these barriers. Airthium's innovative heat pump technology efficiently converts electricity into heat, even up to 550°C, with high lift, low maintenance requirements, and without dependence on uncertain policies to remain cost-effective.
It is easy to understand that using green electricity instead of gas is a promising solution to decarbonize heat. However, it may not be immediately obvious that it can be economically efficient when comparing electricity and gas prices since, historically, gas prices have been lower than electricity prices. The average energy prices ratio for the last years varies between 0.95 and 4.77 in Europe, with Sweden having the lowest and the UK having the highest ratio  , and between 2.0 and 6.6 in the US, with Washington having the lowest and Vermont having the highest ratio  
It is important to note that energy prices are variable and subject to factors like seasonal variations, pipeline operations, and geopolitical issues for gas prices. Electricity prices, on the other hand, are influenced by real-time supply and demand and are determined by a merit order system, where the lowest cost producers are assigned first. This system affects wholesale market prices.
Before delving into the economics of our technology, to understand how the HTHP technology overcomes the energy price difference, let's begin by explaining what a heat pump is.
A heat pump (HP) is a thermal energy transfer device that efficiently transfers energy in the form of heat from one side of the system to the other through the compression and expansion of selected working fluids. The profitability of these devices is guaranteed by their high efficiency, measured in terms of the Coefficient Of Performance (COP). The COP represents the ratio of energy output to energy input, indicating how efficiently a heat pump operates. For example, a COP of 2 means that the HP generates 2 MWh of heat for every MWh of electricity input. In contrast, gas-fired boilers typically have lower efficiency, with values ranging between 0.8 and 0.95, meaning that they produce less heat for the same energy input.
With this in mind, we have structured our business model around selling heat to end-users in partnership with a financial entity. The end-users aim for heat prices lower than what they would pay for natural gas, the financial partner seeks an Internal Rate of Return (IRR) in the 8-13% range, and we need to ensure that we can sell the heat for at least the cost of production. Consequently, the profitability of an HP project depends on several variables. Those adding more sensitivity to the model can be categorized into energy costs and COP, as well as the machine's capital cost (CAPEX). Energy costs encompass both gas prices currently paid by industries for gas boilers and electricity prices for heat pump operation. These prices are external and often unpredictable. To facilitate the transition from fossil fuels to electricity at minimal additional cost, we consider gas prices in our heat price calculations. The COP, on the other hand, depends on various factors such as output temperature, waste heat availability, and other conditions. Electricity consumption is inversely proportional to COP. As for CAPEX, it is a variable that will evolve over time, initially high but expected to decrease due to standardization.
However, when evaluating a new technology for heat production, it is essential to consider the heat price rather than individual energy prices. For instance, when we buy 1 MWh of gas, it produces only 0.8 to 0.95 MWh of heat. Conversely, purchasing 1 MWh of electricity can generate between 1.5 and up to 3 MWh of heat with a heat pump. This key difference is central to the economics of transitioning from gas boilers and dryers to heat pumps.
To better illustrate, we present heat cost ratio charts for Europe and the US under the following assumptions: HPs with a COP of 2 replacing gas boilers with an efficiency of 90%. Some regions, under these hypotheses, already have a favorable heat price ratio for transitioning to heat pumps. There are two compelling reasons why we anticipate this trend to continue in favor of electrification: firstly, due to the climate crisis, gas prices and global fossil fuel prices are expected to rise, reflecting the true costs of the CO2 emissions they generate. In the EU, for example, the emission trading system is already imposing costs on the industry, surpassing the 100 EUR/t threshold, and adding more than 20 EUR/MWh to gas prices. Secondly, clean energy technologies are constantly improving in efficiency and cost-effectiveness, leading to the development of long-term electricity contracts such as power purchase agreements (PPA).
The missing variable for analyzing the profitability of a project is CAPEX. As mentioned before, this variable will evolve through time being high for the first units’ development and decreasing considerably when expanding the market. During the first stages of development, we target the most favorable energy price ratios like Finland for example. In this country, even at very high CAPEX the rentability of a HTHP project is guaranteed thanks to the high performance of our technology. Electricity is just 11% more expensive than gas (the ratio of electricity and gas prices is 1.11) and therefore, producing heat with efficient electrical technology like Airthium’s HTHP catches up very fast with this small price difference and becomes more competitive. Considering the current gas price we estimate a heat price of 85 EUR/MWhth. This serves as a baseline for estimating profitability while ensuring that final users do not pay more for heat from HP than from gas. This approach allows for decarbonization at minimal extra cost. Next, we vary the electricity price to create the IRR graph as a function of the electricity and gas prices ratio for a range of COP between 1.7 and 2.3. The more effectively we negotiate electricity prices, the lower our costs for heat produced with HP will be, and the further to the left we will be positioned on the graph. Even with the highest CAPEX and the relatively lowest COP we assess, the rentability of a project reaches the scoped values allowing the transition from gas to electricity.
If we consider an intermediary COP of 2 and current electricity and gas prices still in Finland, the heat costs ratio between HP and gas boiler is 0.5. We estimate industrials could save from 10% to 25% of their energy bill depending on the CAPEX we reach between 1200 and 800 EUR/kW.
When our capital costs lower, we will be able to expand our market and make our clients save money. When examining Europe, for example, using a relatively low CO2 tax of 75 EUR/tCO2 and the average European gas price of 32 EUR/MWh, the estimated heat price is 52.4 EUR/MWhth. By considering various CAPEX values ranging from 300 EUR/kW to 1000 EUR/kW and a COP between 1.7 and 2.3, we can observe that:
- In cases where the energy prices ratio is lower than 1.8, expected profitability can be achieved even with high CAPEX, particularly during the early years of commercialization.
- Lower CAPEX values could expand the market to countries with energy price ratios reaching 3.
- In all cases resulting in an IRR higher than 13%, our clients could save money by decarbonizing their processes.
As CAPEX decreases, the client will achieve significant cost savings. Turning our attention to the United States, there are four states where HP heat production would be more economical than gas boiler heat production, thanks to the outstanding performance of our technology. These states include Delaware, New York, Pennsylvania, and Washington, with Pennsylvania and New York ranking among the top states for manufacturing. For example, in New York, with a COP of 3, we can help our clients save money even with a CAPEX of 500 $/kWth. We will continue our analysis across regions worldwide to identify other industries where our HP technology can effectively facilitate cost-efficient decarbonization. Industrial heat is responsible for a substantial 22% of global CO2 emissions, making the challenge abundantly clear. However, we are committed to providing affordable and efficient solutions for decarbonization.