Sustainability

Waste not: Unlocking the potential

of waste heat recovery
Waste heat recovery can help industrial companies curb emissions, but this potential is
largely untapped. Now is the time to turn waste heat into profit.

This article is a collaborative effort by Marcin Hajlasz, Stefan Helmcke, Friederike Liebach, Thorsten Schleyer, and Ken Somers,
representing views from McKinsey’s Sustainability Practice.

© Getty Images

December 2023
 With most of the world committed to limiting global warming to 1.5°C, many companies have set
individual decarbonization targets for 2030 and even 2025. As we approach the end of 2023, we have
only six years left to implement many decarbonization levers. But industrial companies are often uncertain
about the right technical path to immediately reduce emissions. Technologies that are net present value
(NPV) positive and quick to implement, such as various types of energy efficiency measures, can help
companies achieve their decarbonization goals.

Recovering waste heat is a potential avenue to effectively reducing emissions. Every year, the world
consumes over 418 exajoules (EJ)—or 116,000 terawatt-hours (TWh)—of final energy, mainly by burning
fossil fuels and generating heat.¹ Part of this generated heat is harnessed for useful purposes, such as
producing electricity or driving chemical reactions, but most is unused. This unused “waste heat” is given
off to the surrounding environment in the form of exhausts or effluents at different temperature levels.
Recovering this waste heat can greatly reduce the use of primary fuels and, therefore, emissions.

Recovered waste heat could also make the energy transition easier and more economical. Recovered
heat can be used for industrial process heating purposes, city grid heating, or converted to electricity
(determined by local energy demand patterns as well as prices of fuels and electricity). Depending on
whether waste heat is used for heat or electricity, the annual global saving could reach up to €140 billion—
comparable to the worth of all natural gas imported by the European Union (Exhibit 1).²

Exhibit 1
Waste heat recovery can bring global energy savings of up to €140 billion
Waste
per year.heat recovery can bring global energy savings of up to €140 billion
per year.

Potential savings from waste heat recovery,1 €

Heat-to-heat at
€10 to €45, per MWhth² 31 109 31–140

or

Heat-to-power at
10% to 15% efficiency and 9 56 9–65
€30 to €140, per MWhe³

1
Analysis for the cement, steel, oil and gas downstream, oil and gas upstream, power generation, marine, chemicals, non-ferrous metals, and pulp and paper
sectors. Waste heat can either be used for heat or power, leading to savings of €31 billion to €140 billion or €9 billion to €65 billion, respectively. Through a
combination of heat-to-heat and heat-to-power, the maximum potential savings for the analyzed sectors is €140 billion.
2
Thermal megawatt-hours.
3
Electrical megawatt-hours.

McKinsey & Company

1
Figures presented are for 2019; Key World Energy Statistics 2021, International Energy Agency, September 2021.
2
The total value of EU natural gas imports amounted to €121 billion in 2021, €316 billion in 2022, and €37 billion in the first quarter of 2023;
Quarterly report on European gas markets, European Commission, October 2023; Quarterly report on European gas markets, European
Commission, May 2023; Quarterly report on European gas markets, European Commission, March 2022.

2 Waste not: Unlocking the potential of waste heat recovery

While waste heat has been used in industrial companies for decades (to generate electricity through steam
turbines or to provide process heating, for example), this potential remains largely untapped. Despite the
benefits and possibilities of waste heat recovery, at least 3,100 thermal terawatt-hours (TWhth) of feasible
waste heat is currently not being captured (Exhibit 2).

Exhibit 2
Global
Global recoverable waste
waste heat
heatpotential
potentialis
is at
atleast
least3,100
3,100TWhth.
TWhth.

Current global recoverable waste heat potential by sectors and regions, TWhth¹

Total Africa Americas Asia Europe Middle East

3,125

700
125
450 2,300
150
425
600
875

925
250
300 425
200
Cement Steel Oil and gas Oil and gas Power Subtotal Marine Other Total
downstream upstream generation (extrapolated)²

1
All numbers rounded to the nearest 25 TWhth.
2
Extrapolated global potential for chemicals, non-ferrous metals, and pulp and paper.
Source: Estimating the waste heat recovery in the European Union Industry, Energy, Ecology and Environment, September 2019; McKinsey analysis

McKinsey & Company

In this article, we explore how the stage has been set to access waste heat recovery across sectors, and
what industrial companies can do to grasp this opportunity.

Waste not: Unlocking the potential of waste heat recovery 3

 Technological advancements and price developments unlock the potential of
waste heat
Over the past decade, gas, electricity, and CO2 prices have been low, and there has been limited incentive
to push waste heat recovery to the limits. For one, the payback time of waste heat recovery was long, and
industry would typically only consider projects with a payback within one to two years. And, importantly,
there wasn’t immediate pressure to act on decarbonization targets to drive action in waste heat recovery,
so companies deprioritized energy efficiency in favor of projects with much higher returns. For example, it
was financially more attractive to build another production line and burn more gas to run it, than to save
energy on an existing line—especially if companies were constrained in terms of capital expenditure
(capex).

Historically, industry was focused on heat cascading (reusing heat) as the cheapest and simplest option
of heat delivery (Exhibit 3). Heat pumps were expensive and not capable of delivering temperatures above
100°C, and conversion of low-grade heat into electricity did not make economic sense when energy prices
were low. But times have changed: both in terms of technological developments and incentives.

New developments in recent years can now use high-temperature heat pumps or chemical technologies
to increase the temperature of waste heat and generate low- and medium-pressure steam. Heat-to-power
technologies have advanced too, such as an organic Rankine cycle (ORC) that can recover waste heat from
lower temperature sources and convert it into electricity more affordably. Much of the reduction in the cost
of waste heat recovery is due to the modularization of equipment and standardization of design, with further
reductions when technologies scale up.³

In the buildings sector, better insulation and the combination of floor heating or heat pumps, or both, have
led to lower temperature city grid heating. New, fifth-generation, district heating systems work well with
low temperatures of about 40°C (compared to older systems that required higher temperatures closer to
100°C).⁴ Since industry has a lot of heat available at 40°C and above, industrial waste heat is well suited to
be a heat source for district heating.⁵

At the same time, energy prices have soared. For example, in Europe, electricity prices ranged between
€25 and €80 per megawatt-hour (MWh) in 2018 and 2019, but prices are often now above €100 to €150.
Similarly, gas prices have doubled since 2018 to between €20 and €40 per thermal megawatt-hour
(MWhth), and CO2 has seen a five to ten times increase to reach around €100 per tonne (or €20 per MWhth
of natural gas consumed). The economics are now generally more favorable for heat pumps, as heat pumps
(which are electrically driven) thrive when heat is expensive.⁶

3
Markus Preißinger and Dieter Brüggemann, “Thermoeconomic evaluation of modular organic Rankine cycles for waste heat recovery over a
broad range of heat source temperatures and capacities,” Energies, February 2017, Volume 10, Number 3; “Flexible and adaptive integration of
heat recovery and thermal storage,” Smartrec; Paul Christodoulides et al., “Waste heat recovery technologies revisited with emphasis on new
solutions, including heat pipes, and case studies,” Energies, January 2022, Volume 15, Number 1; “Modular thermoelectric system for industrial
waste heat recovery (HEAT-R),” CORDIS, August 11, 2022.
4
Lukas Kivilip, Dirk Muller, Peter Remmen, and Marco Wirtz, “Quantifying demand balancing in 5th generation district heating and cooling
networks,” Energy and Buildings, June 2020.
5
Michael Papapetrou et al., “Industrial waste heat: Estimation of the technically available resource in the EU per industrial sector, temperature
level and country,” Applied Thermal Engineering, June 2018, Volume 138; Hao Fang et al., “Industrial waste heat utilization for low temperature
district heating,” Energy Policy, November 2013, Volume 62.
6
There is a good business case for heat pumps when heat is expensive as a heat pump typically needs only one unit of electricity for two to
four units of heat. Taking an illustrative example, if electricity costs $100 per MWh and heat costs $40 per MWh, it is possible to make a good
business case as you pay $100 to generate heat worth $80 to $160, while if electricity costs $40 per MWh and heat is $10 per MWh, you pay
$40 to save $20 to $40.

4 Waste not: Unlocking the potential of waste heat recovery

 Exhibit 3
Three key approaches for recovering waste heat.
Three key approaches for recovering waste heat.
Temperature Low High
Re-use Upgrade Convert to electricity
Existing plants have been built with Cold-to-hot electricity-based Heat to electricity-based
hot-to-cold technologies in mind technologies have become viable technologies; applicable especially
over the last few years to sectors where extra heat is
Wasted sources (a) and unmet sinks
not needed
demand (b) Recycling opportunities and less
wasted heat
Steam
Heat pumps,
Heat Heat Heat Heat Heat Heat turbines, Heat
MVR, heat
source exchangers sink source sink source organic sink
separation
Rankine cycle

McKinsey & Company

Waste heat recapture presents attractive savings opportunities in industries

Heat has become expensive for much of the world—and it does not appear likely that it will become cheap
again, at least in the short term. The combination of technology and price developments makes waste
heat recovery an opportunity for industrial companies, like refineries and cement manufacturers, to gain a
competitive edge.

For example, a refinery can employ heat recovery from stripper overhead condensers from various units,
such as vacuum gas oil (VGO) hydrotreaters or diesel hydrotreaters. These sources would usually have
temperature ranges of 120°C to 250°C, and duty of five to 25 MWth for a typical refinery. If that heat was
used to make medium pressure steam a five barg, then an average ten MW duty equipment would get
about seven to eight tonnes tons of steam per hour—worth anywhere between €0.8 million and €3.5 million
per year (Exhibit 4).

Sectors that have a limited need for low- or medium-pressure steam may not have a good use of waste
heat energy for heat purposes and could instead feed the heat back into district heating. Alternatively,
some sectors may still have a need for electricity, such as the cement industry, and could recover the heat
for electricity savings. For instance, in cement, there is typically 120 thermal kilowatt-hours per tonne
(kWhth/t) of recoverable waste heat available from a preheater tower and 100 kWhth/t from a clinker
cooler.⁷ If that energy was recovered by an ORC system for a one million tonnes per annum (MTPA) plant at
10 percent efficiency, there would be an annual electricity savings of around 22 GWh—worth between €0.7
million to €3.1 million.

7
Waste heat recovery for the cement sector: Market and supplier analysis, a joint report from International Finance Corporation and Institute for
Industrial Productivity, June 2014; McKinsey analysis.

Waste not: Unlocking the potential of waste heat recovery 5

 Exhibit 4
Waste heat
Waste heatrecapture
recapturepresents a large
presents potential
a large savings
potential in both
savings the rening
in both the refining
and cement
and cement industries.
industries.

Annual figures Refining Cement

Example refinery with 100 kbpd¹ capacity Example cement plant with 1 Mt² capacity

Available
waste heat ~80 From stripper overhead
condenser in diesel ~220 Exhaust gas from
preheater tower (450°C)
GWhth³ hydrotreater unit (cooling GWhth and from clinker
from 180°C to 60°C) cooler (330°C)

Recoverable
energy ~8 Waste heat converted to
medium pressure steam ~22 Waste heat converted to
electricity (at 10% ORC
tons medium pressure GWhe⁴ efficiency)
steam per hour

Savings
potential 0.8–3.5
€ million
Based on €10 to €45 per
MWh natural gas prices 0.7–3.1
€ million
Based on €30 to €140 per
MWhe power prices
(alternative energy source) (alternative electricity
source)

Note: Annual figures.

1
Thousand barrels per day.
2
Million tons.
3
Thermal gigawatt-hours.
⁴Electric gigawatt-hours.

McKinsey & Company

Waste heat recovery options consistently yield a positive net present value,
regardless of the sector
Waste heat recovery is not limited to cement or refining—virtually any industry would find some heat that
can be recovered. Exhibit 5 shows a typical industrial abatement curve with options for emission reduction.

The NPV-positive options on the left-hand side of the curve, which often make up 10 to 30 percent of the
total abatement potential, are almost exclusively from energy efficiency initiatives (typically various heat
recovery options). These options require minimal effort and can be implemented quickly (although payback
is often still too long to be accepted by industry). They can be categorized in three segments:

Incremental improvements, such as adding a heat exchanger or installing and optimizing advances process
controls.

Novel technologies, including heat pumps, mechanical vapor recompression, Q-pinch, thermal energy
storage, direct electrification, and waste heat to power.

Process redesign, such as a set point change, additional reboiler, dryer redesign, new reactor design to
recover waste heat instead of cooling, and the replacement of condensing turbines by electrical drives.

6 Waste not: Unlocking the potential of waste heat recovery

 Exhibit 5
Most of the NPV-positive options on an industrial abatement curve are
Most of the
eciency NPV-positive
levers, options
such as waste on an
heat industrial abatement curve are
recovery.
efficiency levers, such as waste heat recovery.

CO₂ emissions abatement cost curve for one site, € per tCO₂e¹ (illustrative)

Incremental improvements Radical process changes Electrical boiler utilities

Novel technologies Green steam utilities CCU/CCS
Process redesign Green electricity utilities Remaining CO₂ baseline
60% CO₂ abatement with costs of less than
€40 per tCO₂ additionally abated
200
Too
160 diluted
for
120 CCU/CCS

80

40

–40

–80

–120
0 25 50 75 100
Share of company emissions, %
Energy efficiency Utility switch Call to innovate (mainly on
Classical energy efficiency Change electricity and process emissions and furnaces)
and novel technologies, steam source Innovation required to make NPV
already NPV positive today more positive

1
Tons CO₂ equivalents; WACC of 10%, project lifetime of 10 years; used utility prices: electricity price changing between 2021 and 2030 from €55 to €66 per
MWh, and steam from €22 to €30 per MWh.

McKinsey & Company

Three ways to capture the untapped potential

To fully realize the potential of waste heat recovery, industrial companies can extend the scope beyond a
single plant and encompass the entire site, crossing business units and company boundaries. This requires
going past the standard list of levers, such as adding a heat exchanger, and delving deeper into the process,
challenging all preconceived notions. There are three actions industrial companies can take to capture
waste heat recovery potential.

1. Develop and implement a comprehensive waste heat recovery program that includes regular
monitoring and evaluation of the program’s effectiveness. This program can also include ongoing
training and education for employees to ensure they are aware of the benefits of waste heat recovery
and how to implement it effectively.

2. Assess advanced heat recovery technologies and explore opportunities for heat integration at the plant
and site levels. Partnering with industry experts, utility companies, and technology providers can help
ensure companies are using the most advanced and effective waste heat recovery technologies and
strategies.

Waste not: Unlocking the potential of waste heat recovery 7

 3. Explore new business models; for example, energy-as-a-service model, where customers pay for an
energy service (such as waste heat recovery) without making an upfront capital investment. Instead, the
energy service company provides access to the equipment and service in exchange for an agreed fee or
through a savings-sharing agreement.

As the world strives toward net zero, companies are setting decarbonization goals and implementing
technologies like waste heat recovery to reduce emissions, support the energy transition, and reap
economic rewards.

As surging energy prices bolster the need for waste heat recovery, and technological developments open
the door, now is the time for industrial companies to capture the potential of waste heat recovery and stay
competitive.

Marcin Hajlasz is a knowledge expert in McKinsey’s Wroclaw office, Stefan Helmcke is a senior partner in the Vienna office,
Friederike Liebach is an associate partner in the Frankfurt office, Thorsten Schleyer is a partner in the Munich office, and
Ken Somers is a partner in the Brussels office.

The authors wish to thank Arthur Kaspar, Ruslan Khaziev, Anna Kluba, Carina Merz, Krzysztof Pajączek, Amir Shamsubarov,
Jakob Stöber, and Kai Vollhardt for their contributions to this article.

Copyright © 2023 McKinsey & Company. All rights reserved.

8 Waste not: Unlocking the potential of waste heat recovery