Blog Post

New Federal Funds Can Help Companies Invest in Industrial Heat Pumps

June 23, 2023

Industrial heat pumps can help cut planet-warming emissions from many manufacturing processes and reduce companies’ operating expenses, yet their big upfront costs have been a major hurdle to widespread use. New federal funds, now becoming available, could be a tipping point in enabling companies to invest in this critical technology.

Like heat pumps in homes, industrial heat pumps (IHP) move heat from a relatively low-temperature source to a higher-temperature destination. They are efficient and vital for electrifying industrial process heat, which is used to prepare materials and produce manufactured goods. If widely deployed by U.S. companies in several target sectors, currently existing IHPs could reduce carbon dioxide emissions by 30–43 million tons per year—the equivalent of 3–4% of total carbon emissions from manufacturing. In addition, forthcoming ACEEE analysis indicates that IHPs now in the research and development phase of technology deployment will be able to reach even higher process heat destination temperatures. These higher-temperature heat pumps are anticipated to be positioned to meet about 70% of industrial process heating needs and eliminate as much as 300 million metric tons of annual industrial greenhouse gas emissions, or approximately 20% of total carbon emissions from manufacturing. These savings will be increased even further as other industrial sectors are added to the mix and as the electric grid decarbonizes over time by adding more renewables and improving efficiency. IHPs can also replace or supplement process cooling equipment.

IHPs can help decarbonize low- and medium-temperature processes in sectors including food and beverage, pulp and paper, and chemicals, and in the production of other goods, such as electric vehicles and batteries. They’re increasingly common in other parts of the world but have yet to gain traction in the United States. Today most IHPs are manufactured and used in Europe and Japan, but recent initiatives by the Biden administration are set to boost domestic production, which should help ensure availability. IHPs can significantly reduce operating costs for industrial facilities. Based on the natural gas savings and average IHP paybacks investigated in ACEEE’s 2022 IHP report, investments of $17 billion can create $5.6 billion in annual cost savings. Analyses estimate IHP lifetimes at 15 years, meaning that they can deliver savings that are many times their added capital costs. Despite those relatively quick paybacks, the initial capital outlay can be a barrier, especially for small- and medium-sized manufacturers. Fortunately, many companies can now take advantage of tax credits and funding opportunities created by recent federal legislation.

Companies have several options for federal support

The 2021 infrastructure law and last year’s Inflation Reduction Act together will provide multiple potential supports for IHPs. These programs are just starting to be announced, so check DOE’s website for program announcements. Companies cannot combine these opportunities, so it is important that they understand their options and find the best fit (though combining any of these with state and utility incentives is encouraged). Companies can receive technical assistance from various programs, but not multiple federal equipment installation incentives. Federal programs, tax credits, and incentives for end-user implementation of IHPs already announced include:

  • 48C manufacturing tax credits. Expanding on tax credits initially offered through the American Recovery and Reinvestment Act of 2009, the Inflation Reduction Act provides $10 billion in tax credits to help manufacturers invest in specified clean energy projects, including installing IHPs. The tax credits can equal up to 30% of the qualified investment. The Internal Revenue Service issued program guidance in February. To apply, manufacturers must submit a concept paper describing their project. The application process for the initial $4 billion opened May 31 and closes July 31. The remaining $6 billion will be issued at a later date.  
  • Industrial Research and Assessment Center Implementation Grants. The 2021 infrastructure law includes $400 million for the Industrial Research and Assessment Center Implementation Grants, administered by the Department of Energy’s Office of Manufacturing and Energy Supply Chain. The program will award grants to small- and medium-sized manufacturers to equip new facilities or upgrade existing ones with measures—including IHPs—recommended by industrial assessment centers or the new onsite Technical Assistance Partnerships (detailed in the next bullet) to save energy and cut greenhouse gas emissions.
  • Technical Assistance Partnerships. DOE’s Industrial Efficiency and Decarbonization Office announced $23 million in funding to establish a regional network of Technical Assistance Partnerships (TAP). Ten Onsite Energy TAPs, each representing a large multistate region, will share expertise to help industrial facilities install and implement the latest technologies, including IHPs. Industrial end-users interested in IHPs should look to engage with the regional TAPs as they are announced.
  • Grants and loans for agricultural IHP applications. IHPs in agricultural applications may be eligible for the U.S. Department of Agriculture's (USDA) Rural Energy for America Program (REAP) grants and loans and Rural Energy Savings Program (RESP) loans. Eligible REAP borrowers include rural small businesses and agricultural producers located in areas with populations of 50,000 or less (consult this tool to determine locational eligibility). Types of funding available include loan guarantees on loans up to 75% of total eligible project costs, grants for up to 50% of total eligible project costs, and combined grant and loan guarantee funding up to 75% of total eligible project costs. REAP funds can be used to replace energy-inefficient equipment, which includes many of the propane-fueled boilers currently in use in rural agricultural applications. RESP funds may be used to implement energy-saving measures or to help reduce energy costs. Applications for both the RESP and REAP programs are accepted on a first come, first served basis until funds are depleted.

IHPs in agricultural applications have the potential to create significant cost savings for users, as they would typically be replacing the use of propane, the price of which is highly volatile. Congress will have to pass reauthorization for the Farm Bill this year, and ACEEE has been working with Senate offices to develop a proposal to provide education and technical assistance on the use of IHPs in rural applications through several USDA offices. This implementation assistance, coupled with potential REAP or RESP funds will lower major cost- and knowledge-based hurdles for agricultural end-users investigating the IHP opportunity.

These opportunities can go a long way toward helping industrial companies implement IHPs, and in many cases federal funding can be combined with co-funding opportunities from state and utility programs. Interested end-users, utilities, and other stakeholders can contact ACEEE or the federal agencies and offices issuing funding for assistance navigating funding opportunities. Additional opportunities will emerge as additional programs funded by recent federal legislation are announced and as the technology is deployed at scale and continues to develop.

ACEEE will host an industrial heat pump workshop at our 2023 Industry Summer Study. We will discuss the global IHP experience, utility program structures to support IHPs, and federal funding, among many other topics. Registration is limited. You can find additional information and registration options on the conference web page.

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