08.2025 - 04.2026

Strengthening the Mittelstand through the Electrification of Process Heat

Opportunities to Reduce Energy Costs and Enhance Resilience

In a joint project with Agora Industry, the FfE investigated the role that electrification can play in decarbonizing industrial process heat in Germany’s Mittelstand. Based on three industry case studies, the study examined the potential of electrification for low- and medium-temperature processes. The economic viability of the selected solutions was assessed in accordance with the VALERI standard. In addition, the study explored the structural opportunities and barriers associated with the specific characteristics of small and medium-sized industrial companies.

In general, the deployment of electrification technologies and hybridization offers potential for reducing energy costs and increasing resilience against fossil fuel price volatility. For processes operating at temperatures of up to 100 °C, payback periods of around five years can be achieved. At higher temperature levels, electrification is technically feasible in many cases, but the long payback periods associated with high upfront investment costs inhibit deployment.

Motivation and Objectives

Germany’s industrial Mittelstand forms the backbone of the German economy and is characterized by a strong drive for innovation. Most of these companies continue to rely on fossil fuels, particularly natural gas. These fuels are primarily used to provide process heat, which accounts for the largest share of industrial energy demand and, consequently, industrial CO₂ emissions.

Investment in climate-neutral heat supply remains limited. Against the backdrop of rising carbon prices and increasing geopolitical tensions, however, dependence on fossil fuels is becoming a growing economic risk.

The study therefore aimed to quantify the economic potential of electrifying industrial process heat from a company perspective, to identify the main barriers faced by businesses, and to assess the resulting policy implications and recommendations.

Results

To quantify the economic potential, the study examined three representative processes: one in the food industry, one in the metalworking industry, and one in the plastics processing industry. This selection covers a range of temperature levels and technologies, allowing their economic viability to be assessed systematically. The processes considered are also relevant across a broad range of industrial sectors.

The findings show that electrification is already technically feasible in many applications and can offer substantial savings in operating expenditure, particularly for processes at low and medium temperature levels.

One example is the drying process in the food industry. The use of a heat pump reduces ongoing energy costs by 41% while also delivering a significant reduction in emissions (Figure 1). At approximately five years, the payback period falls within the range typically applied by many small and medium-sized companies when making investment decisions.

 

Figure 1: Electrification of a drying process – costs, revenues and avoided emissions

A different picture emerges for the conversion of a calendering process in the plastics processing industry to a hybrid boiler (Figure 2). Although this solution also reduces operating expenditure, the high upfront investment results in a payback period of almost twelve years. The investment still has a positive net present value, but its payback period significantly exceeds the investment horizons typically accepted in practice.

In addition to the three industry case studies, the study examined best practice examples. In one of the hybridization cases, the investment proved economically viable. The company also highlighted an additional benefit: hybridization allowed it to gain initial practical experience with electrification technologies.

 

Figure 2: Electrification of a calendering process – costs, revenues and  avoided emissions

Beyond the industry case studies, the project identified key barriers to decarbonizing small and medium-sized industrial companies. These include foremost but not solely economic constraints such as high investment costs, a strong reliance on equity financing, and uncertainty regarding future energy and carbon price developments (Figure 3).

These challenges are frequently compounded by limited staff capacity. Applying for public funding, for example, can involve considerable administrative effort, which is particularly difficult for smaller companies to manage. Infrastructure requirements, including those related to electricity grid expansion, may create further uncertainty due to lengthy planning and approval procedures.

 

Figure 3: Barriers to the transformationof Germany’s industrial Mittelstand

Methodology

The study combined quantitative and qualitative methods in four stages:

  1. Systematic literature review
    First, the current state of process heat decarbonization in Germany’s Mittelstand and the main barriers to transformation were reviewed systematically.
  2. Integration of FfE’s extensive practical experience
    The findings from the literature review were assessed, weighted, and supplemented using expertise gained through more than 15 years of practical experience at FfE. These insights subsequently informed the development of industry case studies.
  3. Background interviews with companies and industry stakeholders
    Additional interviews were conducted with 14 technology providers, industry associations, and companies from different segments of the Mittelstand. These interviews helped to deepen the understanding of the challenges faced by small and medium-sized industrial companies and to establish realistic assumptions for industry case studies.
  4. Structured stakeholder workshop
    The project’s interim findings were validated and supplemented in a workshop involving 15 representatives from industry associations and companies.

Building on these stages, the economic viability of the industry case studies was assessed using a net present value analysis in accordance with the VALERI standard. Sensitivity analyses were subsequently conducted to contextualize and validate the findings. These analyses examined how key parameters – including fuel and electricity prices, public funding, hot-water storage and the coefficient of performance (COP) – affect economic viability.

Conclusion

Overall, the findings show that electrifying industrial process heat offers considerable potential to reduce operating costs, enhance resilience, and lower emissions. At the same time, economic viability remains a key obstacle.

Investments in low-temperature heat pumps can already be economically viable in many applications due to their comparatively short payback periods. For other technologies and at higher temperature levels, however, the economic case is less clear.

The results indicate that the transformation is constrained less by technical feasibility than by economic and structural conditions. Against this background, the study also sets out policy recommendations aimed particularly at improving investment conditions, providing greater predictability regarding energy prices and strengthening support for Germany’s industrial Mittelstand.

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