Decarbonizing industrial heat processes, which make up 25% of global final energy demand, is critical for a sustainable energy future [1]. Yet executing first-of-a-kind (FOAK) US industrial heat decarbonization projects is challenging. These challenges stem from the core function of heating in industrial facilities compounded by the inherent uncertainties of FOAK projects.[2] The complex integration required demands extra collaboration across the project value chain, making execution more challenging.

Drawing upon interviews and closed-door discussions with industry leaders including tech providers; engineering, procurement, and construction firms (EPCs); industrials; and contractors, this insight brief provides recommendations to help avoid the most important cost-inflating pitfalls in the critical early phase of industrial heat project execution, including poor customer connections, inaccurate site evaluations, unclear project scopes, weak project oversight, and ambiguous contracts.

Importantly, pitfalls exhibit a snowball effect — one pitfall can lead to another, ultimately resulting in project cancellation. These pitfalls are grounded in FOAK project similarities: marginal grant-funded projects with tight budgets, tech providers without specific industry experience, and developers struggling to identify the right person for the right job at the right time. This insight brief provides tech providers and their partners with a guide to avoiding pitfalls through quality early-stage scoping, engineering, and contractor vetting to increase final investment decision (FID) likelihood.

If FOAK projects can reach FID, industrial heat decarbonization with available technologies can unlock a 2%–5% overall emissions reduction in the United States, with additional benefits like reduced local air pollution and improved worker safety. [3] FOAK projects provide replicability lessons that are critical to moving heat decarbonization from project to product. Here are five recommended practices for how to get them right.

Because of their stringent and often bespoke integration requirements, FOAK industrial heat decarbonization projects require close collaboration between project partners and the customer.

Clarify customer goals

Designing a project to reach FID requires developers to build an understanding of the customer’s goals and priorities through multiple conversations. Customers need to align internally on what result they want from the heat decarbonization project: improved operations, or business-as-usual while meeting sustainability goals? Through goal clarification, providers can design projects according to priorities, for example by minimizing downtime over providing a marginal extra CO₂ reduction.

Customers also have an incentive to be up-front about their business case for the project. Providing internal rate of return bands, go/no go price points, overall budgets, technoeconomic assumptions, and risk appetites helps ensure proper time and engineering investment in project design (see recommendation #2). Creating financial guidelines enables tech providers and EPC firms to create clear-eyed project scopes.

Find a champion and identify decision makers

A project champion on the customer side will keep the project moving and advocate for it at critical decision points. The champion should be someone with decision-making control who is invested in the project’s success, such as a sustainability manager tasked with meeting Scope 1 targets, a plant manager tasked with reducing energy costs, or even a CEO of a smaller company.[4]

In addition to the champion, tech providers and EPCs also recalled setbacks from not engaging with all decision makers on the customer side. Partners should quickly find a balanced team of decision makers who will support the project, incorporating employees from the capital projects, legal, and plant management teams. Plant manager buy-in is critical, as they will be the ones adjusting operations and managing shutdown and maintenance. Balance is key — working with the facility team is useful if also adequately engaging the corporate teams.

Create a culture of two-way communication: educate and elevate

Developers can increase their chances of project success by creating standard technology education materials and creating opportunities for project-specific knowledge sharing. Interviewees identified maintenance needs as a big concern for customers, requiring demystification. Tech providers should brief customers with a clear picture of the tasks, skillsets, costs, and frequencies of maintenance. Customers may also need more basic energy efficiency education; for example, the coefficient of performance (COP) of heat pump technologies should not be treated as horsepower as integration limitations may determine the best-fit technology.

Communication should go both ways. Projects where tech providers and EPCs address challenges as they arise have the best chance of success. Customers should also provide candid thoughts on integration. Practicing candid communication while addressing FOAK integration problems will increase the chances of project success.

Following these steps can help streamline collaboration between project partners and customers.

Interviews revealed that site-specific integration costs for industrial heat decarbonization projects can account for up to 25% of total project costs. Accurately identifying and valuing integration and balance-of-plant equipment requirements is critical to avoiding project cost overruns.

Correctly account for integration costs

Accounting for industrial heat integration costs correctly is challenging because the final estimate must incorporate the interplay of variables like physical space requirements for current and future equipment needs, distance between heat sources and sinks, permitting and zoning requirements, and downtime limitations at the plant. Downtime limitations provide strict constraints on integration because shutdowns are very costly for most industrial facilities. In some cases, they can even alter heat technology choices by favoring less complex, modular units that resemble existing boilers over higher efficiency options.

Accounting for integration costs also means planning correctly for related contracts. For example, tech provider A provides a heat pump, tech provider B provides ancillary compressors, but neither is willing to buy the other party’s technology and take on the risk of integrating the technologies. Integration cost estimates must account for the time needed to hire a skilled third party to serve as the integrator. Integration complexity creates stakeholder complexity; both costs must be estimated well.

Plan for balance-of-plant equipment

Cost overruns may occur if balance-of-plant equipment (including utilities [5]) is assumed available at scale for the specific plant configuration. If the project is the first attempt at a 10x scale up, heat integration equipment may not be available at a larger scale, in which case the tech provider may need to become an original equipment manufacturer (OEM) for those parts. If the plant has unique integration requirements, like piping with a certain turning degree, custom parts may be needed, requiring bespoke suppliers or again, the tech provider becoming an OEM, which takes additional time and money.

Developing a clear project scope early (see recommendation #3) can help tech providers adequately plan for integration costs and shore up supply of balance-of-plant equipment. Waiting to order equipment until plant engineers have approved integration designs can further reduce supply chain costs and avoid waste.

Unclear or unrealistic project scopes are another early-stage project pitfall that can lead to time and cost overruns. In general, engaging early and often with plant personnel and EPCs can clarify scope.

Get a boots-on-the-ground perspective

Heat systems require complex integration and modifications to typical operating procedures, making on-the-ground assessments and conversations with plant personnel critical to project scoping. Even if the technology is not FOAK, the project may involve a first of a kind heat integration, requiring extensive on-the-ground engagement. Detailed customer heat needs (temperatures, pressures, volumes, margins of error) and downtime limitations may emerge only after multiple plant walkthroughs and discussions. To manage budget, industry stakeholders suggest setting up many on-site engagements at the beginning and maintaining routine visits down the line.

Do early-stage engineering

The key to correct cost estimations is to spend time and effort up front on early-stage engineering to produce a clear scope. Detailed early-stage engineering leads to precise cost estimates, requests for proposals (RFPs) that attract the right partners (see recommendation #4), and technically sound contracts (see recommendation #5). According to industry leaders, an emerging way to get accurate scope and thus cost estimates is to have multiple engineers review the early-stage engineering design. These design reviews could involve contractors prior to the bidding process, for example. Cross-checking designs from multiple perspectives can reduce cost estimation error. Though expenses on early-stage-engineering and accurate costs this early on may be challenging to justify given marginal economics, creative contracts (see recommendation #5) and business models can help mitigate the upfront cost burden.

Incorporate flexibility and change management into timelines

Project scopes should be written with the knowledge that timeline adjustments are the norm, not the exception, to FOAK projects, as early projects will likely discover new challenges. For example, one interviewee had to extend timelines after realizing that controls needed to be integrated across a range of suboptimal operating scenarios once on site. Incorporating room for flexibility up front avoids compounding schedule delays and cost overruns.

Timelines should also adequately account for customer management of change processes, whether that’s aligning corporate and business goals with site-specific decisions or undergoing change management processes at the plant like equipment specifications, safety inspections, and training of on-site personnel, for example.

For FOAK projects that have complex integration, it’s highly likely that no individual will have all the knowledge needed to ensure success. Steering committees can bring all the needed expertise together, but care should be taken to ensure effective stakeholder management.

Engage with the right team at the right time: steering committees

Stakeholder-based project management is essential to get right for these high integration complexity projects that must be grounded in many perspectives. The team should know who to engage with internally and externally, when, and how to achieve project milestones.

Industry leaders suggested forming a steering committee to ensure all critical perspectives are consulted correctly during the project life cycle and to provide a single point of contact for investors. Steering committees should meet weekly to share up-to-date project challenges and learnings, plan tasks, vet contractors, and provide feedback across business units. For example, when the tech provider is ready to do early-stage engineering, the plant manager on the committee can bring in the best personnel to answer questions.

Steering committees can also facilitate appropriate responsibility assignment, a key factor of success in previous projects. Appropriate responsibility division means tasks are assigned to those that have the correct skillsets to accomplish them.

• Case study — Successful integration responsibility division: A tech provider decided to develop in-house expertise on just the controls part of integration, handing off other components, like electrical, to a vetted partner brought onto the project.
• Case study — Failed construction responsibility: A tech provider was trusted by an EPC and customer to handle construction, but the construction contractor they hired used an inexperienced manager that couldn’t manage the on-site construction team, leading to costly schedule delays.

Spend time vetting contractors

Vetting contractors during hiring is critical to getting the right project expertise. A suitable EPC contractor (or contractors) brings seasoned engineering and construction management (preferably for other FOAK projects), integration expertise, access to and knowledge about plant operation interfaces, understanding of plant-level schedule and operations, competency with the technology, and experience with relationship management, risk management, and cost estimation.

The first steps in hiring a contractor with the right skills are:

1. Writing a detailed RFP that requests applicants with specific skills (see recommendation #3)
2. Soliciting the right bids and dedicating time and expertise to evaluation.
3. Including both the tech provider and the customer in contractor interviews to vet experience about the technology and the specific plant processes.
4. Considering soft skills like communication and stakeholder management in addition to technical expertise.

Importantly, contractors with conventional industrial operation skillsets should not be assumed to hold FOAK and technology-specific skillsets, and EPC “wraps” may not be possible on FOAK industrial heat projects. [6] While contracting with firms that have these specialized engineering and team skills may come at a higher cost, it could be a worthwhile investment for projects with high integration complexity and coordination needs.

• Case study — underestimating the difference between FOAK and mature projects: An EPC was contracted to integrate FOAK-like heat technology because they were well-known for integrating mature technologies. When faced with FOAK, the EPC team had to upskill during project implementation, leading to costly delays and cost inflation.

Sometimes, no contractor has the skillset yet to handle FOAK industrial heat decarbonization project engineering services as these projects may fall outside their primary area of specialization. Success stories with on-the-job-learning relied on heavy engineering involvement on all sides of the table during design and execution and started with smaller-scale pilots within the plant (where technologies allowed).

• Case study — engineering learning-on-the-job: Engineers from both the tech provider and industrial customer had regular touchpoints on design and integration. The tech provider’s engineers stayed on site for significant periods of time, which built rapport and trust between teams as well as provided the continuous teamwork needed for a successful FOAK project.

Overall, contractor vetting needs to be intentional, tailored, and in-depth.

Contracts formalize the distribution of risk, something that FOAK project stakeholders take seriously. Well-written contracts with appropriate risk structures ensure smooth implementation and bring stakeholders on board.

Set a clear delineation of responsibility

Though time and effort are required, contracts should be written with as detailed a scope of work as possible (see recommendation #4) to set up clear responsibilities for parties under contract. Contract drafting should begin with project conception, when the tech provider and customer discuss roles and responsibilities.

Contracts should also delineate responsibilities for failures during operation, including equipment not performing as expected, less heat demand than anticipated (which could include plant operators shutting down new equipment), electricity grids failing to provide adequate power, and more. After technical mechanisms that pinpoint responsibility are implemented,[7] good contracts clarify remaining responsibilities. Clarified responsibilities from failures create buy-in from project stakeholders and financiers because they understand what risks they are taking on.

Choose appropriate contract structures

Appropriate FOAK contract structures strike a balance between acknowledging risk and finding creative ways to allocate it, ensuring stakeholder buy-in.

Scaling industrial heat decarbonization FOAK projects will require risk mitigation measures from finance partners or developers, such as performance guarantees or technology warranties. These measures come with risks — there is no risk-free option with FOAK — but industrial heat projects are identifying contracting structures that manage risks while still providing the flexibility needed with FOAK projects.

Industry leaders favor contracts between tech providers and EPCs that are time and materials with a fixed minimum price, rather than lump-sum contracts, which are too difficult to accurately estimate, or guaranteed maximum price contracts, which tend to overspend early leading to overruns later. When the technology risk is high, tech providers have provided their own warranties or assumed all project risk until first operation. Creative contracting options exist, but stakeholders will need to compromise on risk appetite and price labeling in contracts to chart the best path forward.

FOAK industrial heat decarbonization projects are challenging but offer immense potential for emissions reductions, local air pollution reductions, and increased worker safety. By addressing early-stage potential pitfalls such as customer relationships, site evaluations, project scopes, project expertise and oversight, and contract writing, stakeholders can increase the likelihood of FOAK success and set the stage for scalable, repeatable projects. The key to avoiding pitfalls lies in strategic partnerships, investment in integration and engineering, clear project scopes, hiring the right contractors with appropriate contracts, and, most importantly, fostering collaboration and candid communication. Ultimately, early project successes will unlock the 2%–5% potential emissions reductions opportunity of low- to medium-temperature industrial heat decarbonization in the United States.

Thank you to Piller Blowers & Compressors GmbH, Skyven Technologies, Fluor, Builders Vision, Renewable Thermal Collaborative, Cascade Energy, Technip Energies, the Wonderful Company, Eastman Chemical, and others for offering insights on this work.

This work was made possible through the generous support of The Schmidt Foundation, as a part of the Feasibility Forums project.

[1] RMI analysis using data from GEI

[2] Here, FOAK projects refer to either first-of-a-kind technology projects or a known technology being used in first-of-a-kind integration projects, for example in a wholly new process or industry.

[3] RMI analysis using data from ACEEE, DOE, Global Efficiency Intelligence (1, 2), and Energy Innovation.

[4] It may be easier to find decision makers at small organizations and move through approvals with them.

[5] On the utilities side, the site must meet increased electrical demand with adequate transformer capacity, fast interconnection options, and available clean electricity for the planned size of the project.

[6] An EPC “wrap” is when one contractor is responsible for all engineering, procurement, and construction for a single project.

[7] Engineering design can reduce the grey areas around failure in contracts, including through installing temperature sensors, flow meters, and independent supply and return lines.