With Sustainability Commitments on the Rise, Industrial Companies Must Think Outside the Box for Cost-Effective Solutions - Sma

Energy Efficiency, Industrial  -  May 19, 2021 - By Arthur D. Little

With Sustainability Commitments on the Rise, Industrial Companies Must Think Outside the Box for Cost-Effective Solutions

The topic of sustainability has been anything but static, and over the past few years, an increasing number of industry leaders have committed to take steps toward net-zero carbon emissions by 2050. A recent survey among energy executives at industrials and large commercial companies showed 87% of respondents cited corporate social responsibility and sustainability as the driving force behind energy-saving measures. This far outweighs other concerns such as security of supply, and rising prices and taxes.

It’s clear that an increasing number of industry leaders have taken the first steps toward carbon neutrality, while simultaneously optimizing their energy bill costs. Few, however, are well-advanced in their promises and actions.  

Despite companies’ efforts in exploring solutions and educating themselves on all possible options, when it comes to actual investments in energy measures, there are two major hurdles

  1. The need for expertise to explore and implement more complex investments (especially when they interfere with advanced industrial core processes).
  2. Alignment of energy-related investments with company financial expectations for such investments (notably, payback periods, financing requirements, etc.).

These challenges indicate that executives need guidance to gain a full understanding of energy management options to consider as well as how to make things happen within the regular business and investment constraints.

Initiatives, such as The Climate Group (the RE100, EV100, and EP100), have been driving climate action in renewable energy, electric vehicles, and energy productivity efforts among global corporations. Within these programs, many industry leaders have committed to running fully electric fleets, or having zero carbon assets in operation by 2050, 2030, or as early as 2025. Although numerous organizations have pledged their commitment, many procurement and operations executives have admitted to being ill-prepared to address the practical challenges ahead and are still struggling to scope the full breadth of available methods for their energy management ambitions or lack company backing to realize the required investments.

Companies must translate sustainable and efficiency ambitions into tangible targets and commitments for the company to achieve using quantifiable and measurable KPIs related to that business. A solid energy management portfolio is created when a company thinks broadly to decrease its emissions by considering multiple levers for energy supply, energy assets, and energy efficiency.

The survey brings insights that might be helpful to those that are more advanced in the “sustainability journey”. Most mature commercial and industrial companies have already invested in one or more distributed energy resources deployed at their sites. More than 80% say they are using or have used solar, and more than 70% Combined heat and power. In comparison, although showing lower levels of investment among these companies today, energy storage and Electric Vehicle charging infrastructure are the next asset classes that these companies are exploring to invest in the near future.

Another solution is to seek out new ways of financing sustainable projects by considering EaaS, a service-based business model whereby the industrial or commercial customer enjoys the benefits of an energy service by paying service fees directly related to the energy provided and saved. There are several benefits to the EaaS model, including simplification of the service offering, increasing cost planning reliability, lowering or eliminating up-front capital expenditures (CAPEX) and shifting focus to operating expenses (OPEX), and including a greater range of energy service options.

Of the commercial and industrial companies polled in the survey in the retail, pharma, manufacturing, transportation, and telecommunication sectors, 73% indicated they were familiar with the concept of energy as a service. About 80% also mentioned they preferred a balanced approach to energy management, with examples ranging from Energy Efficiency measures managed internally to price hedging strategies and capital investment opportunities in green power being outsourced to third parties.

An important factor to consider when assessing the most efficient solutions is for global companies to analyze facility specifics, local market design, local regulation, and pay close attention to energy prices. Although some basic measures can be applied across facilities, each market or site will require measures with varying degrees of complexity and investment and may or may not benefit from a favorable market design and regulation.

As industrials and large commercial companies continue to make commitments for the long term in energy sustainability, executives should remember to be aware of the full range of options to achieve the company’s ambitions, thinking beyond and seeking new ways of financing these projects, and creating tangible targets that will justify the cost and prove the feasibility of energy-saving measures. By doing so, organizations can ensure these solutions are a win-win in the convergence between the energy and industrial/commercial sectors.

 

 

 

 

Arthur D Little is an international management consultancy that links strategy, innovation and technology to ensure success for its clients.

Kurt Baes (left) is a Partner at Arthur D. Little’s Brussels office and a member of the energy and utilities practice, and heads the global grid competence center. Florence Carlot (center) is a Principal based in the Brussels office and member of the utilities and alternative energy practice within Arthur D. Little.  Aurelien Guichard  (right) is a Manager and member of the utilities and alternative energy practice at Arthur D. Little.

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