Multiple Benefits of Energy Efficiency

Industrial Productivity

Energy efficiency measures in industrial facilities can enable improved productivity, for example through improving overall process performance and quality. Productivity gains resulting in energy savings can enable further benefits such as enhanced competitiveness and profitability through cost savings, improved product quality and the working environment. For energy utilities, energy efficiency measures can reduce operating and investment costs, enabling cost savings to be passed onto customers.

Energy efficiency productivity benefits

In addition to reducing energy use, energy efficiency measures create productivity benefits such as lower maintenance costs and increased production yields, thereby increasing overall productivity.

Improved operation and process reliability leads to reduced equipment downtime, reduced number of shutdowns or system failures and can result in reduced process time (which can contribute to increased productivity), process optimisation can also reduce staff time required to enhance operations, scheduling, and reduce errors.

Investment in efficiency creates jobs in manufacturing, particularly in the short run

Energy efficiency can induce job creation by (1) redirecting energy cost savings toward expanding the labour force, and (2) by creating jobs directly or indirectly to implement efficiency measures.

In the industrial sector, counting the portion of industrial employees that are dedicated to making an efficient product, such as a hybrid car or an efficient refrigerator can be difficult. The manufacturing of inefficient cars and refrigerators may involve just as many workers as producing efficient ones. Also a person building the hybrid drivetrain has a genuine efficiency job, whereas a person installing seat belts into the hybrid car arguably has a car industry job with no direct connection to energy efficiency.

In some cases the transition to more efficient products can initiate manufacturing changes that reduce labour intensity. This is the case with light-emitting diode (LED) lighting, which require fewer employees to produce products that each last much longer than their predecessors.

Energy efficiency delivers increased profits for industry

Between 2000 and 2016, energy intensity – final energy consumption per unit of gross value added (GVA) – in the industrial sector decreased by 30%. At the same time, energy productivity – GVA per unit of final energy use – increased by 43%. Improvements in emerging economies have been most evident since 2006, largely as a result of industrial energy efficiency programmes in the People’s Republic of China (hereafter “China”).

Figure 1. Industrial energy intensity and productivity trends in IEA member countries and major emerging economies, 2000-16

Source: Adapted from IEA (2017), Energy Efficiency Indicators (database)

Note: Industry includes ISIC divisions 10-18, 20-23, and 25-32 and excludes mining and quarrying, manufacture of coke and refined petroleum products and construction. Energy use related to blast furnaces, coke ovens and petrochemicals feedstocks are included. Major emerging economies covers Brazil, China, India, Indonesia, Mexico and the Russian Federation (hereafter, “Russia”).

Energy management systems enable productivity benefits for industry

Energy management systems (EMS) create a structure to monitor energy consumption and improve efficiency in an industrial operation. The adoption of an EMS can lead to industrial productivity gains in addition to energy savings.

Implementing an energy management system improves energy performance and overall system efficiency. Additional productivity benefits for companies using energy management systems can include enhanced production and capacity utilisation, reduced resource use and pollution, and lower operation and maintenance costs – all of which result in increased value generation and thus improved competitiveness for the company.

Industrial case studies in France, Germany, the United Kingdom and other countries that have implemented ISO 50001, the global energy management standard, show average energy savings of 26% with savings extending to beyond 60% in some cases. Additionally, industry case studies have also shown financial savings from implementing energy management systems averaging around USD 1.2 million per year (Waide Strategic Efficiency, 2016).

Energy efficiency delivers better service and reduces the cost of energy supply

Improving efficiency within the energy supply sector can help energy providers deliver better service for their customers while reducing their own operating costs, improving profit margins and mitigating risk. Utilities that encourage energy efficiency amongst their customers can generate significant cost savings for themselves through avoided infrastructural investment in energy generation and transmission and distribution infrastructure through delaying or deferring costly system upgrades. Other benefits include improved system reliability and dampened price volatility in wholesale markets. Providers can also benefit indirectly through benefits that accrue for customers from improved affordability of energy services, which in turn can reduce arrears and associated administrative costs for utilities.

To maximise the benefits of energy efficiency, utilities can adopt programmes that reduce energy consumption and target load reduction and load shifting and can include the provision of advice to customers on relevant energy efficiency measures or assistance with accessing financial incentives. Other initiatives could include the bulk procurement and/or the distribution and installation of energy efficiency products. Encouraging the use of information and communication technology (ICT) tools on the end-user side can support the shift towards more efficient use of energy for both energy providers and their customers, enabling consumers to more actively control their energy use and energy providers to better monitor, aggregate and control end-use loads.

The additional multiple benefits of energy efficiency for industry

Energy efficiency provides numerous benefits to industrial companies beyond increased productivity and energy savings, including improvements in worker comfort, product quality, overall flexibility and reductions in maintenance cost, risk, production time and waste. However, translating these benefits into strategic and financial outcomes is challenging, so the full benefits of industrial energy efficiency are not fully recognised.

However, an audit of a Swiss surface treatment company that identified an opportunity to replace ageing rectifiers used for electronic galvanising with new rectifiers with improved cooling and control was able to examine the multiple benefits. Alongside energy cost savings the audit assessed the reductions in maintenance costs, cooling water use, rejection rate, legal and commercial risks, and increases in product quality, attractiveness and customer loyalty. By translating these benefits into financial outcomes, the total value of the energy efficiency opportunity could be determined.

When energy savings alone were considered, the simple payback for energy efficiency measures was calculated at 6 years (internal rate of return of 6.9%). However, when the financial outcomes derived from the multiple benefits of the opportunity were considered, the simple payback reduced significantly to 0.85 years (internal rate of return of 118%), greatly improving the case for implementing the energy efficiency project.