Industrial heat comprises around 20% of global CO2 emissions, but around half of all the heat generated may ultimately be wasted.
Hence, this model simplifies the economics of using a heat exchanger to recover waste heat from an industrial facility, based on the engineering equations of heat exchange and recent technical papers.
Our base case IRR is 6%, in the US, due to low, $3/mcf gas prices. This is uplifted to above 20%, either if we assume European gas prices (around $6/mcf) or a $50/ton CO2 price. IRRs can reach 40% if we assume both.
High IRRs may be necessary to unlock waste heat recovery. First, each project is complex, with large amounts of engineering, and implementation disrupts operations at a plant. Second, although IRRs are high, NPVs are low, as many projects will be small-scale. For example, the NPV10 may be less than $1M on a single, small heat exchanger project, even if it achieves a 40% IRR.