The Exchanges

Q do something with waste heat. And you, along with, with Greg Thiel on our team, have been on a, I think, a long-term tirade to say it is a mirage, basically. It's not that it doesn't exist. It's that accessing and utilizing waste heat industrial facilities is way harder than you think it's going to be. So can you, Describe in a little bit more detail why that's your view?

A It's in the words, right? I mean, waste heat is waste, and at the end of the day, we've got to get it out of the facility, and that's just a obeying the second law of thermodynamics. Now, I'm not going to go down a deep thermodynamic tangent here, but there are a couple of scaling things to think about. So there's two things that people try to do often, well, three things probably with waste heat. Number one, capture it and upgrade it. In a heat pump to be able to deliver heat. Number two is capture it and try and convert it into electricity. Or number three, capture it and utilize it to drive processes, uh, for chemical processes or separations or something else. For all of those things, you essentially need to find a way to capture that waste heat, and that's where the first most expensive step comes in. The lower the temperature it is, you need to have Larger heat exchangers to be able to capture that and put it into the other working fluid. That increases capex. The other thing is, this waste heat is not always located in the exact same place at the exact same temperature in every given facility. So you're building bespoke, one-off heat exchangers with very expensive engineering hours to go and build and capture that in that facility. And so if you're a Say you're a global cosmetics manufacturer, and you have 20 manufacturing facilities around the world, your facility in Eu…

AI assessment note: “you're building bespoke, one-off heat exchangers with very expensive engineering hours”

Q Let's talk a little bit about the economics of steam delivery. You mentioned that what we're doing is burning fossil fuels. I mean, the first question is, which fossil fuels are we burning where for industrial steam?

A Yeah, I, steam, that was a bit of an oversimplification on my part. Uh, steam is generated not just with fossil fuels, um, but some places you're using electricity, some places you're using biofuels, um, but, yeah, today in North America, predominantly, we're burning natural gas. In Europe, that's driven by LNG, but in China, in other developing markets, you still see utilization of coal, uh, And even some places where you don't have access to import of natural gas, you're often using even oil or, uh, bunker fuel. Um, some places where you see some effort towards decarbonization has been done. People will be using biomass boilers, or if you just have enough forestry resources, this is very common in pulp and paper, just to use that directly. Um, or you see the utilization of RNG oil. Uh, in Eastern Europe, in North America, where that kind of a market has been matured.

AI assessment note: “today in North America, predominantly, we're burning natural gas. In Europe... China... coal”

Q first one, I think, that maybe is, you tell me if you feel differently, but maybe is, I guess, the most mature, or at least most widely adopted today, is just, like, electrify the boiler. Make a resistance boiler, right? And instead of burning a fossil fuel, you use electricity to heat the water. How much of that is out there today? And like, what are the limitations of it?

A You're right that probably the most off-the-shelf solution for electrification of the boiler room is resistive or electrode boilers. Sometimes they're known as a trade. It really depends on how high a voltage and how high of a throughput you're putting through. And while the total penetration in the market is relatively small, maybe about one to two percent of the boiler market today, it's the fastest growing subsector in the boiler market. So if you look at the growth of the boiler market It's about a seventeen billion dollar a year market with six percent growth per year, but electric resistive boilers are growing at about 26% per year. When people are looking to electrify, when people are looking to move away from combustion, what's available off the shelf today is a resistive electric boiler. Of course, you're signing up for higher cost, right? Um, we were just talking about how, uh, expensive natural gas Is, uh, generally if you're moving from a natural gas steam to electric steam, you're looking to a two to three x increase. Really, you're just, uh, increasing relative to what your facility's spark spread is. Now, the other off-the-shelf solution that, uh, manufacturers have is really geographically dependent. Do you have access to either biomass or, uh, RNG. These are similarly large increases in OPEX as well, just because the fuel cost is much more expensive than natura…

AI assessment note: “total penetration in the market is relatively small, maybe about one to two percent”

Q your unit economics challenge if you want to decarbonize or if you want to electrify. Um, Of course, with heat pumps, you make some of that up with your COP. So the fact that you have this efficiency can help a little bit. What do you think it takes to get truly economic industrial heat pumps in North America versus in Europe, where I know the equation is very different?

A You're getting to a very important point in, let's call it industrial heat decarbonization, no matter what working fluid. The challenge, and particularly it's the U.S., not just all of North America, but in the U.S. is the fact that we have, uh, natural gas resources that are incredibly plentiful and incredibly cheap and well integrated in infrastructure. We have massive natural gas pipelines that go to every industrial facility and And we have, therefore, very low, very low cost access to steam, process heat, anywhere. That is a challenge for any sort of an approach here. We know that it has limited the deployment of resistive boilers here because you're just signing up for a direct one-to-one, uh, switch to electricity prices instead of gas prices. But then the two approaches that allow cost-effective ways, as we've been talking about and what we do, is heat pumps through, uh, Increasing the efficiency through a high enough COP, you can bridge that spark spread gap. And the other approach is thermal storage, right? And so I know, and we're excited about thermal storage as kind of that complementary approach where when you have access to time of day pricing with renewables, you can hopefully drive down that cost low enough through charging those and deploying those. That's the two approaches. Now, it's different Suited for the different kinds of facilities that use steam. Very…

AI assessment note: “Increasing the efficiency through a high enough COP, you can bridge that spark spread gap.”

Q the magic of heat pumps, the concept of basically getting more energy out than you put into it. In some ways, heat pumps seem like sort of an obvious solution here, if you could make them big enough and powerful enough. Why, in your mind, have heat pumps not taken off more? Why is it that the most mature thing is the resistive boiler and not the heat pump today?

A Well, as the thermodynamicist at heart, I need to take issue with the magic statement. Obviously, it's only magic insofar as it still satisfies the first and second law of thermodynamics, and we are Of course, getting more, let's call it usable energy out. We're getting, you know, in a heat pump, you can get anywhere from two to three X of the heat out of the electricity put in, but where is that heat coming from? We're sourcing it from somewhere, right? Industrial heat pumps have been, you know, let's call it a nascent market for 30 years. Um, essentially heat pumps that go much higher in temperature than residential heat pumps, because ultimately you've got to get up to Above a hundred Celsius to be able to deliver steam. So how people have traditionally tried to do that is they've captured waste heat in the facility. They'll go after and find some sort of a source from a unit operation on the manufacturing floor, capture that, and then upgrade it. Now, that has kept it to the point where essentially every facility has been bespoke. So waste heat is often mismatched in time. Temperature or location relative to steam demand, and it's led to bespoke, expensive, and slow deploy projects. You know, the tangent or the, the little pity thing that I like to say is waste heat is a waste of time. It's actually limited this industry for some time, because people are chasing after a sma…

AI assessment note: “it's led to bespoke, expensive, and slow deploy projects.”

Q And what kind of costs are we talking about? And, and like, I guess the other question is, and this will vary by application, but how, How important is the cost of that steam to the ultimate cost of whatever product is being produced? Is it a major cost driver for the end product, or is it pretty de minimis? Like, do they care? How much do they care?

A So, different industries have different exposure to the cost of steam in the ultimate delivered product, right? If you look at food and beverage industry, generally the cost of steam is a small fraction of the delivered product, because at the end of the day, let's say you're brewing beer. Uh, you're dominated by the cost of hops and barley and other sorts of ingredients, and while your most important scope one emissions are from the boiler on site, it's a rather small impact on the embedded cost. So there is room for innovation there, um, but if you look at the cost of steam today in facilities, you know, it's really a function of What are you getting your natural gas at, at the facility cost itself? And that varies widely. Um, so it's really, you look at the natural gas cost that you're paying, and on a small, you know, like we were estimating before, 10% from the capital, and that really becomes kind of your levelized cost of steam that you're utilizing in the facility.

AI assessment note: “If you look at food and beverage industry, generally the cost of steam is a small fraction”

Q I suppose. Excited to have you school me publicly, which you've done privately many times, about industrial steam. Talk to me about the market for industrial steam. What, what is it? Where do we use it? How big is it?

A You know, as the true thermodynamicist, mechanical engineer that I am, I actually want to take a step back first and say, well, what is steam, right? I mean, and why Do we care about steam, and why am I excited to tell you and talk about it today? You know, steam is gaseous water, but it's been the most important working fluid that we've had in industry and the built environment since. 1867, when Babcock and Wilcox patented the combustion boiler. They moved from a brick by brick built combustion, uh, systems on site to a factory built Boiler that really was the lubricant to, or the catalyst, uh, to drive the industrial revolution. Um, it's really meant that all of industry has been built around this super valuable working fluid. The amount of heat that can be delivered through the phase change of water, the latent heat of vaporization or condensation is tremendous. It allows us to actually have very compact, uh, Chemical processes, uh, phase change separation being used in chemics, um, chemical facilities, but also it is what has driven heating in the built environment for just as long. Some of the oldest boilers that I've seen are generally things that have been delivering both heat to industry in London, but also to buildings to keep them warm. And we use the same form factor today. You know, I mean, today steam is Accounts for about half of all industrial heat that's being d…

AI assessment note: “today steam is Accounts for about half of all industrial heat that's being delivered.”

Q And How much is steam steam? I guess what I mean to ask is, like, I know that one way to divide up the market for industrial steam is by temperature requirements, so obviously there, there are different temperature gradients of steam that are required, but beyond that, are there any other ways that you distinguish between different types of steam that are required for different applications?

A Well, that's a great, great distinction, right? When I first got into industrial heat, It was back during COVID. I was doing two things. I was, uh, you know, baking sourdough and then grinding my axe against this idea that industry was hard to decarbonize, and I really got into this question of what's most important, and you start to look at industrial heat, and as exactly as you put it, people look at temperature ranges, but then working fluids, and then each working fluid, like steam in particular, can be subdivided. There's kind of two different ways we think about steam. In the chemicals processing where steam is used as a reactant, it's known as what we call superheated steam. It's essentially purely gaseous. It's like not dissimilar to nitrogen or oxygen or any sort of a pure ideal gas. However, what is used most commonly to deliver heat is known as saturated steam. Essentially steam sitting right in equilibrium with liquid. It's going back and forth between the phases of liquid and gaseous, But that's where all of that potent thermal transfer is, where you can really get a ton of heat transfer. So, you know, the majority of heat delivery that's done by steam is all through saturated, and that's what boilers deliver today. Um, generally, all of this is, you know, almost all heat, uh, delivery through steam is done around . . . . Applications as well.

AI assessment note: “There's kind of two different ways we think about steam... superheated steam... saturated steam”