Key points
Turning regulatory costs and decarbonisation into a competitive advantage
Across the world, companies are looking afresh at ways of streamlining their businesses and reducing operating costs. For manufacturing sectors that are high energy users (such as food processing, chemical manufacturing, paper products, and others), cost reduction through optimisation of energy generation and consumption is an obvious target. Energy costs in manufacturing typically make up between 2% and 10% of output value.
At the same time, the manufacturing industry is under regulatory pressure to minimise carbon emissions by reducing energy use or changing the energy mix[i].
These regulatory and financial pressures are all the more urgent as shareholders are increasingly aware of how fuel costs, network charges and poor energy purchasing decisions are harming their investments.
Shareholder groups, increasingly recognising the importance of sustainability, are also showing signs that they will withdraw investment from companies which do not meet environmental, social and governance (ESG) standards[ii].
Global policy and regulatory consistency may be one driving factor, but it is enormously assisted by a compelling business case to inspire energy efficiency, reduce energy consumption (and wastage) and thereby contribute to emissions reduction.
The potential for energy cost savings simply makes good business sense. To ensure businesses maximise these potential competitive benefits as well as meeting their regulatory obligations, it is vital that they fully understand the available tools that can help achieve these goals in a financially sustainable way.
Investing in outcomes
Operationally, any manufacturer’s energy optimisation strategy should be based on addressing both energy supply and energy demand simultaneously using a holistic, integrated, site-specific approach. A variety of studies have confirmed that the average manufacturing facility can reduce its energy consumption by around 20%[iii].
Manufacturers need to tackle their energy costs, ensure security of energy supply, and meet sustainability expectations at the same time. Value stacking is the key to success. It helps future-proof their energy supply, drive down consumption costs, reduce exposure to unpredictable cost hikes, drive carbon reduction achievement, create new revenue streams and deliver financial benefits in the short-term.
Of course, not all manufacturers will approach the issue as a single major initiative but will prefer to take the process in a series of incremental investment stages. Typical steps on the road to overall energy optimisation include: combined heat and power; lower energy consumption variable speed drives; production line energy recovery; membrane filtration, anaerobic waste treatment; transmission-efficient switchgear; digital twin virtualisation; and energy-efficient building technologies.
To achieve either smaller-scale, staged energy optimisation, right through to large-scale holistic outcomes, many companies are turning to strategically knowledgeable suppliers who:
- Are prepared to take a long-term view about what energy solution best meets each industrial manufacturer’s unique needs and most effectively aligns with their strategic plan.
- Have the expertise to deliver, integrate and optimise a full suite of technological solutions.
- Are approaching each company as partners to develop a site-specific solutions-led approach, selling and guaranteeing an outcome – not trying to sell a single product or technology.
Smart finance: enabling energy-efficiency and energy-optimisation investment
A recent insight study from Siemens Financial Services (SFS) estimates the cost savings that implementing energy optimisation could bring to manufacturers over a five-year period to be in the billions ($).[1]
While the current economic climate has caused greater caution over capital spending, the research explores how investment in outcomes via smart finance solutions can render the investment sustainable and affordable.
New business models, from specialist financiers who understand the technology and its application in practice, are enabling all levels of upgrades. At the smaller-scale, smart financing arrangements (usually based on a leasing structure) help organisations acquire energy-efficient solutions without having to deploy retained capital or over-burden their banking facilities.
Specialist finance providers will be able to flex financing periods to match the organisation’s cash-flow needs and make the initiative affordable. In fact, the availability of financing options often makes it possible to acquire higher specification solutions that deliver greater energy optimisation benefits more quickly – a greater contribution to overall competitive advantage.
On the larger-scale, arrangements known as Energy-Optimisation-as-a-Service, can deliver budget neutral financing. Here the supplier is delivering a service – meeting energy optimisation targets – and is being authorised by the manufacturer to use the cost savings to fund the infrastructure required.
This Energy-Optimisation-as-a-Service approach allows a manufacturer to rely on an expert energy solutions provider to deliver a specific outcome and removes any need for the manufacturer to deploy any of its own (scarce) capital.
Instead, the manufacturer is charged a monthly fee against the delivered cost savings, producing a net operational benefit. Moreover, an Energy-Optimisation-as-a-Service provider covers all aspect of transformation, including installation, operation, performance management and maintenance.
Conclusion
Energy optimisation offers a compelling business case globally. In fact, every day that passes where these energy solutions have been delayed is a day where shareholder value and decarbonisation potential has been wasted.
By deploying new financing and business models in the form of Energy-Optimisation-as-a-Service,, the manufacturer secures these savings while putting no capital at risk. In this way, retained profits are preserved for strategically important development activities – whether commercial growth, tactical sales initiatives, talent recruitment, product development or new market penetration.
[1] Siemens Financial Services, Harnessing the Future: Smart Financing for Decarbonisation through Industrial Energy Optimisation (2021)
[i] MDPI, G.Nota, Energy Efficiency in Industry 4.0, 2020; International Energy Authority, Driving Energy Efficiency in Heavy Industries, 17 Mar 2021; SP Global, How Russian Companies are Responding to Growing ESG Pressures, 8 Feb 2021; International Energy Authority, Greater energy efficiency could double China’s economy, 15 Feb 2021
[ii] For instance: Allianz, ESG move into the mainstream (and the boardroom), 24 Mar 2021; Money Marketing, Aviva to shun companies that ignore net zero, 21 Mat 2021; Ernst Young, More investors turn to sustainable investment funds, 9 Jul 2021; Reuters, Unilever says majority of shareholders voted in favour of climate action plan, 5 May 2021
[iii] For instance: Automation, Impacting energy through smart manufacturing, Dec 2020; Environmental and Energy Study Institute. Industrial Energy Efficiency: Using new technologies to reduce energy use in industry and manufacturing, 1 May 2006; US Dept of Energy, Efficiency and Innovation in U.S. Manufacturing Energy Use, 2014; UK Government, The future role of energy in manufacturing, Oct 2013;
