Energy Efficiency Takes Center Stage

Senior government officials and CEOs from 70 countries met in Denmark on June 7th-9th for the Annual Global Conference on Energy Efficiency. During the conference, the International Energy Agency released a report that underscores the critical role of energy efficiency in tackling climate change. According to its findings, about one-third of CO2 reductions needed to meet the Paris Agreement could come from energy efficiency. That is why leaders agreed to take action.

The big picture: Reducing energy consumption is the most effective way to reduce CO2 emissions. Doubling the rate at which energy intensity (the amount of energy used to produce a given level of output) improves is essential: By 2030, it will lead to a total energy demand that is 5% lower while serving an economy that is 40% larger.

Action—While details of the proposed actions are yet unknown, it is clear from the debates and statements made that they will focus on three areas:

• Policy – Governments will set increasingly ambitious CO2 reduction goals and support these with legislation, incentives, and likely, stricter enforcement.
• Financing – There is a need to finance large-scale energy efficiency projects, for which the benefits materialize over long horizons – and that carry front-loaded risks.
• Innovation – Implementing existing technologies have the potential to help us reach 65% of net-zero goals (Boston Consulting Group, PDF). Technology innovations need to close the gap.

What this means: It is reasonable to expect that the foreshadowed policies require businesses to aggressively invest in energy efficiency, disclose their emissions in more detail, and report on the results of their energy optimization efforts. To support these initiatives, new financial instruments will be created, and R&D projects will be incentivized.

Why these measures are necessary: Investments in decarbonization are front-loaded and carry risks, negatively affecting the appetite for high-cost, high-reward initiatives and their associated energy efficiency improvements. As an example of how this plays out today, in the most-polluting sectors, investors assign higher valuations to companies that focus only on implementing low-cost technologies.

On the other hand, forward-looking companies are transforming their business at a faster pace than what is required by legislation. They “make dust rather than eat dust” (Unilever’s CEO Paul Polman, BCG podcast). Examples include:

• Nobian (HyCC project, large-scale water electrolysis)
• ArcelorMittal (Xcarb initiatives, “towards carbon-neutral steel”)
• Schneider Electric (Zero Carbon-project, net-zero supply chain)

And while some investors punish capital-intensive energy improvement projects, BlackRock thinks differently: the world’s largest asset manager asked CEOs to explain how they plan to achieve net-zero emissions by 2050.

Upgrading rotating assets has the potential to reduce global energy consumption by 10%

AC motors and rotating assets such as pumps, fans, and compressors are critical components in almost all industrial production processes. Replacing older systems with modern energy-efficient units is an example of a technology-driven solution that is both available today and offers substantial efficiency benefits.

Why it matters: Collectively, these 300+ million assets consume over 30% of the world’s electrical energy. According to a 2021 ABB white paper, upgrading these assets can reduce global electricity consumption by up to 10%.

The technologies to capitalize on this opportunity are available today. In their paper, ABB provides an example of how a centrifugal pump goes from a 28% system efficiency to one of 82% efficiency by investing in three key areas:

• Upgrading older motors with modern IE5 systems with a +96% energy efficiency.
• Installing a Variable Speed Drive to control a motor in a way that optimizes its operation.
• Replacing older pumps with more efficient versions.

Optimizing performance to increase energy efficiency

Modernizing equipment is one aspect of improving energy efficiency. Another is optimizing the performance of the systems in place. For instance, operating a centrifugal pump closer to its best efficiency point reduces energy waste, and is often made possible by changing operating parameters.

It starts with insight: To help clients understand where and how they can save energy, we’ve launched SAM4 ENERGY, our energy efficiency system. By providing detailed performance and efficiency insights across industrial assets, Samotics’ customers can typically realize energy savings in the 10-15%-range.

How it works: SAM4 ENERGY is a continuous monitoring system that includes data acquisition options, an analytics platform, dashboards and reporting tools. By measuring and analyzing electrical data, the system characterizes the performance of industrial assets and identifies where electricity consumption, cost, and efficiency losses are largest, and why.??

What it delivers: Armed with these insights, SAM4 ENERGY provides industrial companies access to a 24/7 energy audit and reporting tool. The system:

• Generates concrete and actionable advice on how to reduce electrical inefficiencies.
• Includes calculations of the financial and energy benefits of taking action, such as adjusting process settings, and the effects of replacing older motors and pumps for higher efficiency.
• Tracks subsequent energy savings and carbon offset to demonstrate return on investment.

On McKinsey’s Podcast, Dr Ruth Heuss states that about a third of emission-reduction projects are cost-positive within a reasonably short timeframe. So it makes sense to learn which technologies benefit both the bottom line and the environment, and take action based on these insights. Upgrading older equipment and optimizing the performance of assets are examples of actions that you can take today, that have a significant impact on energy efficiency, and that often pay for themselves in a matter of months.