Electrifying industrial process heat is already cheaper than fossil gas in parts of Europe, even under today’s unfavorable electricity pricing.
That is the central finding of a new analysis from Agora Industry and Agora Energiewende, published ahead of the EU’s forthcoming Electrification Action Plan. The study arrives at a moment when industrial energy costs, supply security and decarbonisation timelines are colliding, and it reframes electrification not as a future option but as an economically rational near-term choice for a large share of manufacturing.
Process heat accounts for roughly half of industrial final energy demand in Europe and around three quarters of industrial emissions. Crucially, around 60 percent of this heat demand could already be electrified using commercially mature technologies, rising to about 90 percent once technologies expected by 2035 are included. The bulk of that potential sits in low and medium temperature applications, segments that are often overlooked in policy debates dominated by hydrogen and high temperature steel or chemicals.
Agora’s modelling shows that for low temperature processes below 80 degrees Celsius, industrial heat pumps are already cost competitive with gas even when electricity prices are four to five times higher than gas prices. This directly challenges the assumption that electrification only works once electricity prices converge with fossil fuels. The cost advantage stems from efficiency. Heat pumps typically deliver three to four units of heat for every unit of electricity consumed, fundamentally changing the economics compared with direct combustion.
The bottleneck emerges in medium temperature applications, where electrification becomes cost competitive once the electricity to gas price ratio falls below three. Across Europe today, that ratio typically sits between three and five. According to the analysis, closing this gap is less about technology readiness and more about policy design. Accelerated renewable deployment, credible carbon pricing and lower electricity taxation are identified as the levers that would shift the balance.
The study’s scenario modelling for Germany, Italy and Poland illustrates how these dynamics play out across very different industrial and power system contexts. All three countries have strong manufacturing bases and high reliance on fossil gas, but their electricity mixes and policy environments diverge sharply.
In Germany, where climate neutrality targets extend to 2045, electrification of low and medium temperature process heat could align industry with that timeline if carbon pricing consistently keeps electricity competitive with gas. Without that price signal, investment decisions are likely to stall despite favorable underlying economics. The implication is that electrification potential exists, but policy uncertainty risks delaying deployment.
Italy’s case highlights the role of targeted investment support. Agora estimates that upfront policy measures could bring cost competitive electrification forward to the mid 2030s, enabling up to 85 percent electrification of relevant process heat. For sectors such as food, beverage and textiles, cumulative cost savings between 2025 and 2050 could reach 2.3 billion euros. These are sectors where low and medium temperature heat covers nearly all demand, making electrification more a question of timing than technical feasibility.
Poland presents a different picture. Its power system remains carbon intensive, yet the analysis shows that electrification still delivers emissions reductions. The efficiency of heat pumps combined with the replacement of ageing coal fired equipment outweighs the higher carbon intensity of the grid. This finding complicates the argument that industrial electrification should wait for full power sector decarbonisation, suggesting that sequencing may matter less than previously assumed.
Across all three case studies, direct electrification outperforms alternative low carbon pathways on both emissions and energy consumption. Deploying heat pumps where feasible can reduce the cost of industrial heat production by around 20 percent, provided electricity prices remain below three times gas prices. Hydrogen, by contrast, only delivers emissions reductions later in the transition and at significantly higher cost. Biomethane and biomass face structural constraints related to feedstock availability and competing demand, limiting their scalability.
Technology readiness underpins these conclusions. Industrial heat pumps already operate at temperatures up to 165 degrees Celsius, with development pathways pointing toward 300 degrees by 2035. Electric boilers provide flexible steam generation up to 500 degrees Celsius, covering a substantial share of industrial needs. Together, these technologies address most low and medium temperature applications across sectors such as food and beverage, pulp and paper, textiles and parts of the chemical industry.
The policy framework proposed by Agora reflects this maturity. Making electricity competitive with gas through tax reform and carbon pricing sits at the center. Today, electricity often carries higher levies and taxes than fossil gas, distorting investment decisions despite higher system efficiency. Correcting this imbalance is presented as a prerequisite for scale.
Temporary, targeted investment support is also positioned as a bridge rather than a permanent subsidy. Instruments such as carbon contracts for difference and EU level mechanisms building on the Innovation Fund and the planned Industrial Decarbonisation Bank are designed to close short term cost gaps, particularly for applications above 80 degrees Celsius. The analysis emphasizes that well designed support can accelerate deployment without locking in long term dependency.
Grid integration emerges as another constraint. Faster planning and permitting, reforms that reward flexible industrial loads and explicit integration of electrification into grid planning and adequacy assessments are all flagged as necessary to avoid bottlenecks. Industrial electrification is not treated as a passive demand increase but as a flexible asset that can support system stability if appropriately incentivized.
Finally, Agora argues that indicative electrification and fossil gas phase out targets, embedded in national clean heat strategies, would provide the long term visibility industry needs. Such signals influence not only capital investment but also skills development, supply chain planning and infrastructure alignment. In this framing, electrification is less a technological challenge than a coordination problem across markets, policy and planning.
