Decarbonizing Process Heat: VC Opportunity Landscape

Executive Summary

Despite being responsible for roughly 25% of global CO₂ emissions, industrial process heat remains among the most difficult sectors to decarbonize due to diverse temperature needs, geographic differences and cost challenges. However, our analysis suggests that selective venture opportunities are emerging—particularly in high-temperature heat pumps and enabling components such as turbocompressors and advanced refrigerants, which meet both economic and technological readiness criteria. Other areas, including thermal energy storage and electrochemical reduction, are showing rapid progress and capital formation, making them relevant for later-stage VC investors. Emerging solutions like plasma heating, inductive systems and next-gen materials also merit attention for their long-term potential to reshape the landscape.

Understanding Process Heat: Market Landscape, Challenges, and Segmentation

Industrial process heat refers to the thermal energy required to drive manufacturing and chemical transformation across a wide range of industries, such as steelmaking, cement production, petrochemicals, food processing and pulp and paper. It accounts for roughly 25% of global CO₂ emissions and 19% of total global energy consumption,^1,2 making it one of the largest single contributors to climate change.

Unlike power or transportation, where decarbonization technologies are well-established, process heat is technically and commercially harder to address. It spans a vast range of temperatures, is often embedded in legacy systems and tends to be capital-intensive with long asset lives.

How to Segment the Market: By Temperature

How to Segment the Market: By Geography

Local energy prices, carbon policies and industrial structure significantly shape decarbonization feasibility, as well as local infrastructure and grid readiness:

• Europe: High natural gas prices, carbon pricing (EU ETS) and public funding drive strong interest in electrification.
• United States: Lower gas prices and uncertain carbon signals make economics more mixed, though IRA incentives are starting to change the landscape.
• Rest of World: Markets like China and India depend on domestic fuel mixes, industrial policy and access to capital. In many regions, coal remains dominant.
  The same technology can have vastly different ROI and adoption potential depending on where it's deployed.^1,2 For early-stage innovation, regional targeting is often as important as technical performance.

Decarbonization Pathways by Temperature Band

Before identifying investable opportunities, it is important to understand how different temperature ranges are being targeted by decarbonization strategies. Each band is characterized not only by distinct industrial applications, but also by the types of solutions currently being developed or deployed to reduce emissions.

• Low temperature (<200°C): Common decarbonization pathways include electric boilers, industrial heat pumps, resistive heating and waste heat recovery. These solutions are already being applied in food and beverage, textiles and low-intensity chemical processes, particularly in geographies with high electricity-carbon intensity differentials (e.g., Europe).
• Medium temperature (200–400°C): This range supports a mix of electric resistance, advanced high-temperature heat pumps (in development) and thermal energy storage (TES). Applications are often found in pulp and paper, pharmaceutical and mid-range chemical manufacturing. Technologies are in varying stages of maturity, with TES gaining traction for load shifting and peak shaving. TES does not directly reduce emissions but is a critical enabler for electrified systems—helping to manage the intermittency of renewable generation and take advantage of dynamic electricity pricing.
• High temperature (>400°C): Harder-to-abate sectors such as steel, cement and glass dominate this range. Decarbonization strategies include hydrogen combustion, plasma heating, electrified kilns and high-temperature TES. Electrochemical reduction processes are also being explored for steel and aluminum but remain at low TRL. These solutions typically require reengineering core process equipment.

This landscape is important not just for understanding technical fit, but also for clarifying where venture-scale opportunities may or may not exist.

Our Approach to Identifying VC Opportunities

Given the scale and diversity of the industrial heat landscape described above, we sought to understand whether there are venture capital opportunities to support its decarbonization. To answer this question, we defined three broad VC categories:

Early-Stage VC Opportunities

1. High-Temperature Heat Pumps

High-temperature heat pumps aim to electrify steam and process heat applications traditionally served by fossil-fueled boilers in the 200–400°C range. They are relevant to pulp & paper, chemicals and other mid-temp industrial sectors and represent a key decarbonization lever as electrification pushes beyond low-grade heat.

2. Components and Materials Enabling Electrification

These are the subsystems and materials that enable electrification technologies—like heat pumps and electric boilers—to operate effectively in industrial environments. They include high-performance refrigerants, turbocompressors, corrosion-resistant seals and thermal coatings.

Later-Stage VC Opportunities

1. Electrification of Low-Temperature Heat (<200°C)

Common in food & beverage, light chemicals and textile processing. Typical use cases include sterilization, cleaning, drying and pasteurization—processes that often rely on steam or hot water.

Note: Hydrogen-ready boilers and burners are sometimes proposed as a transitional decarbonization solution, particularly in high-temperature industrial settings. However, current LCOH calculations show they are not cost-competitive without significantly lower prices for green or blue hydrogen. As such, we do not include them as a viable VC opportunity at this stage. Furthermore, supportive policies aim to make green hydrogen more accessible, but higher-priority applications challenge its use for industrial heating.

2. Thermal Energy Storage (TES)

TES technologies are increasingly critical to enabling electrified heat systems by mitigating price volatility and intermittency of renewable energy sources. They offer high potential for integration with renewable power, especially where direct electrification is difficult or costly.

3. Electrochemical Reduction for Iron and Cement

Electrochemical methods for producing iron and cement are being explored as radical alternatives to fossil-fuel-based thermal processes. These include direct electrochemical reduction of iron ore and electrochemical conversion of limestone or other mineral feedstocks.

Note: Hydrogen-ready boilers and burners are sometimes proposed as a transitional decarbonization solution, particularly in high-temperature industrial settings. However, current LCOH calculations show they are not cost-competitive without significantly lower prices for green or blue hydrogen. As such, we do not include them as a viable VC opportunity at this stage.

Emerging Opportunities

Technologies that do not yet meet our investability criteria—due to unresolved science risk or lack of cost visibility—but may become relevant in the future.

Categories to Watch

• Inductive Heating: Uses electromagnetic fields to heat conductive materials directly. Potentially efficient for high-temperature applications such as glass or steel processing, but challenges remain in retrofitting and scaling for large industrial systems.
• Shock Wave Heating (SWH): High-efficiency electric heating method that achieves extreme temperatures rapidly. Still early-stage, but could become relevant in high-temp chemical and materials processing.
• Plasma and RF Heating: Non-combustion high-temp methods with potential for integration in metals and materials processing.
• Next-Gen TES Materials: Advanced chemistries (e.g., thermochemical, phase change) that could push cost or temperature boundaries.
• High-Performance Materials: Coatings, ceramics, and composites for extreme environments not yet integrated into mainstream equipment.

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References

1. Lux Research (2025). Beyond the Flames: The Economics of Heat Generation.
2. IEA (2023). Energy Technology Perspectives and World Energy Outlook.
3. IPCC (2022). Sixth Assessment Report – Mitigation of Climate Change.