Sector deep-dive: Heating & Cooling Electrification

H&C is the largest source of energy end use (49%), ahead of electricity (20%) and transport (30%).¹ The vast majority of energy demand in H&C is driven by heating purposes across two key sectors: industry and buildings. Not surprisingly, the H&C sector is responsible for c. 40% of global energy-related CO₂ emissions.²

Most heating is still powered by fossil fuels — mainly gas — but also coal and oil. Both the U.S. and Europe are actively working on regulatory support for decarbonising the H&C sector. This involves transitioning away from fossil fuels towards renewable energy sources and improving energy efficiency across both buildings and industry. In 2023, renewables accounted for approximately 10% of global heat demand. However, we anticipate renewables to account for approximately 30% by 2030 and 80% of global final energy consumption in heating and cooling by 2050, driven by accelerating electrification and supportive policy frameworks.³

Globally, the industrial sector is the largest consumer of heat, using over 50% of all generated heat for critical manufacturing activities like refining raw materials, smelting metals, and producing chemicals. Industrial heat demand is growing rapidly, especially in emerging economies, with China and India alone accounting for more than half of this growth.⁴

Building H&C accounts for around one third of global energy demand, driven by space and water heating needs in residential and commercial buildings — especially in colder climates.⁵ Remaining demand comes from building- and industry-related cooling applications, and partially, agriculture.

That said, the demand for cooling is increasing rapidly, driven by climate change reshaping consumer behaviour, and the evolution and modernization of supply chains, such as cold storage logistics.⁶ Notably, data centres are emerging as significant contributors to this trend: global electricity consumption from data centres is projected to more than double to 945 TWh per year by 2030, with cooling systems representing a substantial share of this demand.⁷

Buildings: The buildings sector offers a particularly attractive entry point for infrastructure investors, supported by strong tailwinds: an essential service, proven and scalable technologies, regulatory momentum, expanding market demand, and the emergence of investable business models such as Energy-as-a-Service (EaaS).

Regulatory support includes a combination of mechanisms that vary by country, such as buildings regulations, net zero targets and bans on gas boilers, subsidies or tax deductions, but across several geographies, such as the Nordics, investment profitability is independent from direct regulatory support.¹¹

EaaS for buildings is a business model that enables customers to electrify H&C without having to make upfront capital investments in energy infrastructure or manage energy assets themselves. Instead, customers pay periodically via long-term contracts that may include provisions for equipment financing, energy supply and maintenance. Providers also often guarantee certain performance metrics (e.g., energy savings or uptime), aligning incentives between provider and customer.¹²

These contracts offer the opportunity to build a scalable infrastructure business model by offering long-term, asset-heavy contracts with predictable, inflation-linked service-based revenue streams, and limited market formation risk across a number of different buildings and a diversified customer base.

While regulatory support plays an important enabling role, many electrification technologies — such as heat pumps — are increasingly profitable on a standalone basis, in new construction, for retrofit and particularly in regions with clean, affordable electricity, or higher carbon pricing.¹³ This makes the buildings sector a natural starting point for value-add strategies focused on asset creation or capital expansion, in our view.

Market and Technology Landscape: Today, gas boilers remain the dominant heating technology globally, accounting for 45% of the market, followed by oil boilers and district heating (15% each), heat pumps (15%), and other technologies (c. 10%).¹⁴ However, this legacy-heavy mix is undergoing a structural shift as low-carbon alternatives gain traction. Oil and gas boilers, while still prevalent, are in structural decline and increasingly misaligned with regulatory trends. Electric boilers offer fast deployment and compliance benefits, though their higher operating costs and limited strategic differentiation reduce their appeal.

Heat Pump Technology: Heat pumps — especially air-source and ground-source systems — are expanding rapidly, driven by advances in efficiency, falling costs, and grid decarbonisation. Their ability to provide both H&CD, combined with scalable deployment and growing installer networks, makes them increasingly attractive over gas and electric boilers.

Notes: Other includes technologies such as electric resistance heating and biomass. Source: Fortune Business Insights, Heating Equipment Market Size, Share & Industry Analysis, July 2025. For illustrative purposes only.

Source: IEA, Lazard, June 2024. For illustrative purposes only. LCoH varies significantly across regions due to differences in electricity prices, fuel mix, and system efficiency – while targeted subsidies, tax incentives, and regulatory frameworks play a critical role in improving the cost-competitiveness of low-carbon heating technologies like heat pumps and district heating.

Compared to district heating, heat pumps offer faster, decentralised deployment and greater flexibility, particularly in retrofits, rural areas, and low-density developments. They also support scalable business models like EaaS and are approaching cost parity with traditional systems across Europe.

Supply chains remain globally interconnected, with 40% of heat pumps manufactured in China in 2023—more than Europe and U.S. combined—highlighting the strategic importance of regional manufacturing resilience.¹⁵

From an investment perspective, air-source heat pumps face growing competition and commoditisation, which reduces differentiation and pricing power. While some investors have pursued consolidation strategies, low barriers to entry in installation and maintenance limit defensibility and infrastructure-like characteristics.

In contrast, ground-source heat pumps present a more compelling opportunity for infrastructure investors. Their high efficiency, long asset life, and significant barriers to entry—such as drilling requirements and specialised installation—create a more defensible market position. These systems can also serve as alternatives to district heating, which is more exposed to commodity price volatility. As such, ground-source heat pumps align well with value-add strategies focused on platform building, operational integration, and long-duration, inflation-linked cash flows.

Author:

Gianluca Minella,

Head of Research

Sources:

1.IRENA, July 2025

2.IRENA, July 2025

3.IEA, IRENA, July 2025

4.IEA, 2023

5.IEA, July 2025

6.Energy Transitions, ETC Buildings Decarbonisation Report Summary Cooling, January 2025

7.IEA, April 2025

8.World Economic Forum, 16 March 2023

9.InfraRed estimate based on a number of sources, including IEA, IRENA, BNEF

10.World Bank, 2025

11.Source: EHPA, BNEF, government resources

12.Deloitte, Energy as a Service, November 2019

13.RMI, The Economics of Electrifying Buildings: Residential New Construction

14.Source: Fortune Business Insights, Heating Equipment Market Size, Share & Industry Analysis, July 2025

15.IEA, 7 February 2025

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