ETS2 Impacts: The Cost Of Industrial Heat In Spain
ETS2 Impacts: The Cost Of Industrial Heat In Spain And which Sectors Are Most Exposed
Europe's carbon pricing system is changing. Not just for power generators and heavy industry, but for the thousands of manufacturers, food processors, paper mills, and chemical plants that have relied on fossil fuel heat for decades.
ETS2, the second phase of the EU Emissions Trading System, will embed a carbon pricing directly into the price of natural gas and heating oil for, transport and smaller industrial users. The exposure for industrial businesses will be financial, operational, and structural.
For Spanish industry, this matters more than most. The country has significant concentrations of energy-intensive manufacturing in sectors that still depend heavily on gas-based process heat. And solar heat for industrial and commercial applications, at the scale Spain's irradiance allows, presents a genuinely viable path to reducing that exposure.
This blog examines the sectors most at risk, what they have in common, and why the window for action is now.
ETS2 Turns Industrial Heat Into A Strategic Issue
Rather than applying carbon costs directly to end users, ETS2 operates upstream: fuel suppliers will be required to hold allowances for every tonne of CO₂ embedded in the gas and oil they supply. Those costs will pass through to energy bills. See our article on ‘ETS2 Explained’ for more detailed on how ETS2 will impact businesses.
The impact is immediate: fossil-based heat will become more expensive, more volatile, and less predictable. For industrial businesses managing tight margins, this is not a distant regulatory concern. It is an incoming additional cost with a fixed timetable: compliance obligations are expected from 2028, with prices that could reach €100 or higher per tonne of CO₂ according to Reuters.
ETS2 is a climate policy tool that creates three distinct effects for industrial operators:
1. Cost escalation. The carbon cost embedded component of gas prices will rise as allowance prices increase.
2. Volatility in EU ETS2 allowance prices will add a new layer of uncertainty to fossil-fuel heat budgets.
3. Competitive pressure. Industries in markets where competitors decarbonise earlier will face a relative cost disadvantage if they delay.
There is no opting out of ETS2, if their boiler runs on gas, their exposure starts at the meter.
Which Sectors in Spain Are Most Exposed
Four sectors stand out when mapping ETS2 exposure against industrial heat demand:
Food andBeverage. Spain is one of Europe's largest food producers. The sector uses significant volumes of thermal energy for pasteurisation, sterilisation, cleaning in place (CIP), and hot water throughout production. Many operations run continuously, with constant low-to-medium temperature demand.
Chemicals. Chemical manufacturing relies on heat at multiple process stages. Temperature control is critical, as large amounts of energy are needed to manufacture products. The sector's gas dependency makes it directly sensitive to carbon-linked price increases.
Paper andPulp. Paper production requires large amounts of thermal energy for drying, pressing, and processing. It is among the most energy-intensive industries in Spain, with limited scope for rapid fuel switching through electrification alone.
Textiles. Spain retains a significant textile base, particularly in Valencia and Catalonia. Dyeing, washing, and drying operations consume substantial heat at temperatures well within the range of solar thermal technology.
These industries share significant heat consumption for applications including:
· Industrial hot water supply
· Pre-heating for boilers and process equipment
· Washing, rinsing, and cleaning operations
· Drying and evaporation
· Pasteurisation and sterilisation
· Continuous temperature-controlled processes
Exposure will depend not only on total energy consumption, but on each site's thermal mix. A facility that has already diversified some heat loads is better positioned than one still running 100% on gas. But for most of the sectors above, the thermal load is large, continuous, and overwhelmingly gas dependent. However, they operate at temperatures renewable heat solution already support.
The Challenge: Decarbonising Without Disrupting Operations
The four sectors also all face a shared operational constraint. Heat is not background infrastructure but embedded in the production process itself. Decarbonising heat means redesigning systems that are running continuously, often around-the-clock, and where any interruption carries real commercial consequences.
This is why heat decarbonisation in industry has been slower than in other areas. The barriers are not financial alone. They include process continuity, reliability, thermal control, product quality standards, and the complexity of integrating new systems into existing operations. Any credible system design response to ETS2 in these sectors must account for all of these.
Which Parts of Industrial Heat Can Already Be Decarbonised
Not all industrial heat is the same, and not all of it can be addressed in the same way or at the same time.
Process heat broadly divides by temperature:
· Low temperature (below 90°C): Hot water, washing, some pre-heating. Already within the output range of solar thermal collectors (like Virtu) and heat pumps.
· Medium temperature (90°C to 200°C): Pre-heating, pasteurisation, CIP circuits, drying support. Accessible with high-performance solar thermal systems depending on collector design and system configuration, such as VirtuHOT.
· High temperature (above 200°C): Higher-temperature steam and core process heat applications are more complex and usually require hybridisation, solar pre-heating or alternative high-temperature technologies.
The strategic opportunity for the four sectors is to begin with what is already feasible. A significant share of their total thermal load sits in the low-to-medium band. Displacing that load with solar heat for industrial and commercial applications is technically proven, commercially deliverable, and available now.
Why Solar Thermal Makes Sense for These Industries
Solar thermal works by converting sunlight into usable heat, delivered directly into a thermal circuit with high thermal efficiency.
For industries with continuous, repetitive thermal demand, the match is strong:
· It reduces gas consumption at the point of use
· It performs well where heat need is consistent and predictable
· It integrates into existing hot water and process circuits without wholesale system replacement
· Industrial rooftops often provide the surface area needed for meaningful system scale
· It replaces a variable-cost fossil fuel with a predictable, stable renewable source
· It can be paired with other heating technologies such as heat pumps or traditional gas boilers. See our SolarThermal pair with heat pumps article for more information on combined systems
Spain's solar resource strengthens this case further. Average annual irradiance across much of the country significantly exceeds other European benchmarks, meaning that solar thermal collectors produce more output per square metre, for more months of the year.
VirtuHOT and VirtuMAX: A Response Built for Process Heat Decarbonisation
VirtuHOT is Naked Energy's solar thermal collector designed for industrial and commercial heat applications, delivering high-density renewable heat. VirtuHOT achieved TÜV Rheinland certification, having passed rigorous environmental testing for fire, hail, mechanical stress, UV, wind, and rain.
Where gas-based boilers introduce carbon cost exposure, VirtuHOT introduces a fixed, predictable renewable heat source. Where available roof space is limited, its energy density allows viable system scale within tighter constraints.
VirtuMAX uses the same technology as VirtuHOT, but is optimised for industrial and utility ground mount installations, and shows its capabilities especially in modern heat networks.
Both products also share the same high-energy density attributes, by utilising 85%of existing roof or ground space in comparison to 50 % of standard solar thermal technologies, therefore leading to higher financial and carbon savings. See here for more details on our Virtu products.
A concept study for a brewery in Spain illustrates the scale of what is achievable. A system array of 10,000 VirtuHOT collectors, occupying 6,500m2 of land area, generates 2.7GWh of thermal energy per year when optimised with a heat pump. The system delivers average OPEX annual net savings of €400,000, with a payback period of 5 years and lifetime net savings of €10 million.
For sites operating in the process heat range of 60°C to 120°C, VirtuHOT addresses the portion of thermal demand most directly affected by ETS2 cost escalation.
The Financial Case: From Variable Cost to Predictable Cost
ETS2 introduces two financial problems simultaneously: higher costs and greater uncertainty. Both erode planning confidence and compress margins.
Renewable heat addresses both, in a single move. Once a solar thermal system is installed, the fuel input is free. Capital costs are fixed and known. The energy generated displaces gas at whatever price gas happens to be in any given year, including years when carbon costs are higher than expected.
For operators concerned about capital allocation, Heat-as-a-Service (HaaS) offers an important alternative. Under a HaaS arrangement, a financier funds, installs, operates, and maintains the Virtu system. The customer pays only for the heat delivered, not for the infrastructure. This converts what would otherwise be a capital expenditure into a predictable operational cost, off the balance sheet, with no upfront investment required.
Naked Energy's HaaS model provides financing at utility-scale rates. and passes that cost advantage to the customer.
There are two contract structures available: an operational lease, where the customer pays an annual fee offset by energy savings and owns the system at the end of the term; and a heat purchase agreement, where billing is purely performance-based at a fixed price per MWh of renewable heat produced. Both options include no upfront costs, risk transfer to the financier, and guaranteed performance backed by proactive monitoring.
The return on investment case improves as ETS2 carbon prices rise. Projects scoped today can be modelled against credible carbon price scenarios through 2030 and beyond, and the earlier the system is installed, the longer the period of protection from fossil fuel volatility lasts.
Conclusion: Industry Needs to Act Early
Food and Beverage, Chemicals, Paper, and Textiles share the same structural vulnerability: high thermal demand, gas dependence, and direct exposure to ETS2 cost escalation. They also share the same opportunity: a meaningful portion of their heat demand can already be met by solar heat.
Delaying action does not remove the exposure. It extends it, and compounds it as carbon prices increase. Early movers will benefit from locking in better economics, reducing energy cost volatility, and building a track record of heat decarbonisation that will matter increasingly to customers, investors, and regulators alike.
ETS2 will favour industries that reduce their dependence on fossil heat now, before that dependence becomes a structural disadvantage.
Frequently Asked Questions
What is ETS2 and when does it come into effect?
ETS2 is the second phase of the EU Emissions Trading System. It extends carbon pricing to buildings, road transport, and smaller industrial users by applying obligations to fuel suppliers rather than end users. It is scheduled to be fully operational from 2028, with full compliance requirements expected by 2030. For more detail on ETS2, read our full article: ETS2 Explained.
Does ETS2 apply directly to manufacturers?
Not in the same way ETS1 applies to large industrial emitters. Under ETS2, the carbon cost is embedded upstream by fuel suppliers and passed through in the price of gas and heating oil. Manufacturers do not submit allowances themselves, but they absorb the cost through higher energy bills.
Which temperature ranges can solar thermal realistically cover in an industrial setting?
Solar thermal collectors for commercial and industrial use typically cover the 60°C to 160°C range effectively, depending on system design and collector performance. This includes hot water, pre-heating, washing, pasteurisation, and some drying applications. Higher-temperature requirements generally need supplementary heat sources.
What is Heat-as-a-Service?
Heat-as-a-Service is a financing and delivery model where financiers funds, installs, operates, and maintains the Virtu solar thermal system. The customer pays only for the renewable heat delivered, not for the capital equipment. Payment obligations sit off the balance sheet, costs are treated as operating expenditure, and performance risk transfers to the provider. Contracts typically run for 15 to 25 years, with two available structures: an operational lease or a performance-based heat purchase agreement.
Is Spain a suitable market for solar thermal in industrial applications?
Yes. Spain has one of the strongest solar resources in Europe, with high levels of direct normal irradiance across much of the country. This increases the output and economic performance of solar thermal systems relative to northern European deployments. It also extends the effective operating season, improving annual heat yield.
How does VirtuHOT differ from conventional solar thermal collectors?
VirtuHOT is designed for high energy density output in constrained industrial and commercial environments. It is engineered to deliver more heat per square metre than conventional flat-plate or evacuated tube systems, which is particularly relevant where rooftop space is limited or shared with other plant.
