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February 22, 2023
How to stay warm without overheating the planet
With the increases in gas prices, government policies promoting sustainable heating, consumer demand, and declining costs, the market opportunity for sustainable space heating is growing. However, venture capital funding is lagging — less than 1% of all climate tech VC investments were made here.* I am on the lookout for climate funds that see this potential.
The space heating problem
Buildings are a significant source of greenhouse gas emissions, accounting for 6% of global GHG emissions (we place their electricity use within Electricity Production). 80% of those emissions are from burning fossil fuels to stay warm, making space heating the primary GHG contributor within Buildings.
While the carbon intensity of space heating is decreasing due to insulation, electrification and the improved efficiency of heating systems, the total GHG emissions from space heating have not decreased. Why not? The key reason is the increase in total residential floor area, driven by population growth and the evolution of living standards.
Faster deployment of low-carbon heating technologies is needed to achieve net zero emissions by 2050.
Why is adoption not going faster? There is still a green premium on most types of low-carbon heating. Installing water-to-air pumps has a 9-year pay-back period (though high gas prices brought this down to as little as 2 years), and air-to-air pumps are not powerful enough for the coldest days of the year. Other low-carbon options, like district heating, require new infrastructure, which is costly and the government is slow to install.
New tech and innovations, as well as government support, are key to breaking through these barriers.
Low-carbon heating options today
The process of decarbonizing space heating is complex as there is no one size fits all solution. Factors such as the level of insulation, ground situation, housing density, geological characteristics and local industrial activity all influence which low-carbon heating solution is optimal for a specific home. As a result, the solution is likely to involve a variety of technologies. Specifically, three types of technologies will play a leading role.
Heat pumps use electricity to transfer heat from a cold space to a hot one in a similar way as a fridge does. They are highly efficient but are only suited to buildings that are well-insulated and have the right heat distribution and control systems. In 2021, 190 million heat pumps were in operation globally, growing at 10% per year over the last five years. Heat pumps still only account for 3% of delivered heat, but have the potential to grow to 20–40 percent in 2050 as costs continue to decrease.*
District heating can be particularly effective in areas with high building density (cities), where the cost of constructing and maintaining a network of pipes can be shared among many customers. In 2021, district heating networks provided 10% of heat for buildings, though most of this heat was produced with gas. As such, decarbonizing current district heating systems is key. Solutions for this include waste heat, geothermal power and biomass.*
Renewable gas, such as biogas (made from agricultural waste) or syngas (made from hydrogen), can be inserted in the existing gas grid. However, there is only so much biomass waste in the world, and syngas is expensive to make as it requires a lot of renewable power. Using hydrogen itself can also be a solution, but there are challenges with transporting it to homes. Using electricity directly will always be the more efficient option.
What innovations are underway?
It’s important to note that we can get to net zero space heating with mature technologies — however, new technologies are likely to make that journey cheaper, easier and more comfortable. Here’s a look at some of the main innovations currently underway:
Woltair: using AI and software to find the optimal solutions
Woltair's digital platform helps homeowners find the best technologies for their homes and connects them with installation technicians. The platform provides an analysis of a consumer's home to determine the best energy solution and provides insights on costs, savings and available government subsidies. Once the right product is selected, the platform manages the order process and tracks the installation online.
Triple Solar: making electric heating easier and more efficient
Triple Solar has developed innovative hardware, called PVT heat pump panels, which obtains its energy from the outside air, sunlight and daylight to heat water directly. The PVT panel consists of solar cells on the front that convert sunlight into electricity, and a thermal exchanger on the back that provides energy for the dedicated PVT heat pump. This system is a fossil-free option for households, which doesn’t require drilling into the ground (like with water-to-air heat pumps) while providing heat at a much higher efficiency than most air-to-air heat pumps.
Geothermal heat is the heat that can be found under the earth’s surface. However, it is much easier to access in certain places than in others. GA Drilling is revolutionizing the field of geothermal power by making it possible to access geothermal energy in deeper locations, enabling carbon-free heat in many more locations. If it can effectively drill to depths of up to 10 km, which is unlocking a massive source of clean, inexpensive, and reliable baseload energy.
What is the outlook and funding landscape?
Even though high gas prices have increased heat pump sales, the adoption of low-carbon space heating is still low. Reasons include homeowners not knowing what options they have, higher (upfront) costs of installing low-carbon technologies and people waiting for municipal actions like installing new district heating networks.
That said, investment in energy efficiency for buildings did increase by more than 15% in 2021. Governments, motivated by geopolitical, energy affordability and emission reduction concerns, are also taking action to increase adoption. Some recent examples:
In the US, the Inflation Reduction Act earmarks $9 billion to help homeowners switch to electric heating. A combination of rebates and energy efficiency promotions — homeowners may save $8,000 when purchasing a heat pump.*
Many European countries, including Germany, France, Sweden, Slovenia, the United Kingdom and the Netherlands have announced bans or restrictions on certain fossil fuel technologies, notably oil- and/or gas-fired boilers.
However, VC funding is lagging behind in this sector. While VC investments in the built environment multiplied 2.4x in 2022, most of the growth came from construction and energy efficiency deals. Investments in sustainable heating still represent less than 1% of all climate tech VC funding.* With the increase in gas prices, government policies promoting sustainable heating, growth in consumer demand and declining costs, the market opportunity is growing. I am on the lookout for climate funds that see the potential soon.
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