Electrifying industrial heat can cut fossil-fuel combustion emissions, while raising electricity consumption and operating expenditure. For manufacturers exporting to the European Union, the financial outcome depends on equipment efficiency, energy prices, production conditions, and whether electricity-related emissions are included in the applicable Carbon Border Adjustment Mechanism (CBAM) calculation.
Investment assessments need to separate changes in direct emissions from changes in indirect electricity emissions. Electric heating reshapes the emissions profile of production, but the CBAM treatment varies depending on the goods and the applicable rules for relevant heat inputs and precursors.
Equipment performance and utilisation also affect results. Comparisons between gas-fired and electric systems require equivalent useful heat delivery, consistent production output, and the relevant electricity emissions factor. As a result, electrification cannot be evaluated solely by looking at reduced fuel combustion.
Energy price assumptions can dominate electrification economics
An illustrative project replaces gas heating that uses 10,000 MWh of fuel energy annually at 90% efficiency, producing 9,000 MWh of useful heat. Electric resistance heating assumed at 98% efficiency would require about 9,184 MWh of electricity to deliver the same useful heat.
With scenario energy prices, annual gas expenditure is €450,000 at €45/MWh. Electricity consumption at €100/MWh would cost approximately €918,400. The switch would therefore increase annual energy expenditure by about €468,400 before considering changes in maintenance, network charges, and other costs.
The emissions calculation under the same scenario differs from the cost outcome. Using an assumed gas combustion factor of 0.202 tonnes of CO2 per MWh, replacing gas displaces 2,020 tonnes of direct CO2 annually. At an assumed carbon price of €80/tCO2, that reduction corresponds to an unadjusted financial sensitivity of €161,600.
The illustrative carbon value does not offset the higher energy expenditure in this example. The figures are scenario assumptions rather than a forecast or a calculation of final CBAM certificate obligations. Actual outcomes depend on fuel and electricity prices, technology selection, and whether the emissions reduction is eligible under applicable rules.
Heat technology choices and grid constraints affect project design
Electric resistance heating is not the only option. Heat pumps can provide useful heat with lower electricity consumption where process temperatures and operating conditions allow. For higher-temperature industrial applications, different technical solutions may be required, so feasibility needs to be assessed for each process before assigning an efficiency advantage.
Electrification can also require additional grid infrastructure. New electrical loads may require investment in transformers, cables, or connection capacity. These costs need to be included in the project budget alongside heating equipment rather than treated as later additions.
The factory’s operating profile influences electricity procurement costs. Continuous electric heating can increase exposure to market prices during hours when on-site solar generation is limited. A power purchase agreement may offer some price protection, but its generation profile and balancing costs must be evaluated against the plant’s additional demand.
Production volumes shape financing requirements as well. Manufacturers are expected to test scenarios involving high electricity prices, lower output, and delayed grid connections. Projects relying on sustained high utilisation may face greater financing challenges when export orders fluctuate.
CBAM treatment depends on goods coverage and electricity-related emissions
For goods where CBAM calculations include indirect emissions, manufacturers need to assess how added electricity consumption affects reported emissions figures. A reduction in direct combustion emissions may produce a smaller overall benefit if electricity-related emissions rise substantially.
The electricity supply arrangement matters where a qualifying lower-emissions route can be used under the applicable methodology. Any projected benefit must reflect eligibility requirements and supporting evidence rather than assume electrification automatically reduces the emissions figure used for CBAM.
For goods assessed on a direct-emissions basis, statutory CBAM calculations and broader product carbon footprint reporting may diverge. Manufacturers may still need wider footprint calculations for customer requirements even if total product emissions fall; however, that change should not be described as a reduction in the current CBAM obligation without confirming how it maps to statutory treatment.
The emissions boundary needs to be set before assigning financial value to electrification. Direct combustion reductions, electricity-related emissions, and emissions tied to relevant inputs must be evaluated according to the treatment applicable to exported goods.
Who captures value influences how banks assess electrification projects
Banks evaluating industrial electrification projects are expected to distinguish between statutory certificate obligations and commercial value available to manufacturers. The EU authorised CBAM declarant is responsible for certificate obligations tied to reporting requirements, while exporters may seek value through product pricing or customer retention.
Commercial benefits should not be recorded as assured revenue without a contractual commitment or another substantiated market basis. Investment models need to separate potential customer benefits from direct energy savings and eligible emissions-related effects.
Electrification can support industrial competitiveness when equipment performance aligns with electricity costs and when the emissions treatment of exported goods matches expected outcomes. The investment case must be demonstrated under actual factory production conditions, including operating schedule, energy requirements, and expected export volumes.