GUIDELINES FOR AN INTEGRATED ENERGY STRATEGY

Helping companies achieve their sustainable energy objectives

Upgrading and replacing equipment and assets to improve energy efficiency

Making investments in more energy-efficient equipment and facilities to target significant energy loads across the value chain has the potential to deliver the most material reductions in energy use, albeit with longer payback periods than workforce engagement and smart control initiatives. Because the upgrading and replacement of energy-consuming equipment and assets requires greater expense and often carries greater operational risk, it is necessary to rigorously evaluate and test them before making large investments. Working with value chain partners that have technical experience and expertise or can access it is a highly effective strategy to mitigate these risks and fully realize commercial and environmental benefits.

Examples of value chain collaboration to upgrade and replace equipment and assets

Working with energy-consuming equipment suppliers to improve energy efficiency and the ability of equipment to be running on low-carbon or renewable energy sources;
Working with customers that buy energy-consuming equipment or services so that those are designed with energy efficiency in mind and can run efficiently on low-carbon and renewable energy sources;
Working with neighboring companies that have similar energy requirements or business operations to share or cluster equipment to optimize energy efficiency;
Working with value chain partners to co-invest in new energy efficiency equipment trials or invest in proven technologies that need to scale up production to become cost-effective.

Building blocks for success

When working across functions internally and across the value chain to upgrade and replace equipment and assets to improve energy efficiency, you should ensure that the following buildings blocks for success are in place.

UNDERSTANDING THE VALUE CHAIN BENEFITS

A detailed understanding of the benefits that energy efficiency technologies generate for your company and other companies in your value chain will ensure that your company adequately factors the benefits into pricing and investment decisions. For example, investing to create a more energy-efficient product has value for your customers and they may be willing to pay a premium for such a product.

MAKING THE BUSINESS CASE

Companies often cite a lack of funding as a reason for not moving forward; but often this is the result of a failure to provide a compelling business case. Your company should work with value chain partners to bring together the necessary information to assess the feasibility of solutions and to articulate the value and risk of different financing and implementation options.

SHARING RISKS AND REWARDS

The ability to share the risks and rewards of investments in energy-efficient equipment and assets with partners will help to accelerate progress. For example, investing in new technology trials in partnership with other companies can help reduce risk exposure.

ACCESSING TECHNICAL EXPERTISE

Collaboration with value chain partners will improve access to technical expertise and experience, enabling the faster identification of solutions.

GAINING BUY-IN FROM EQUIPMENT AND ASSET USERS

As explored in the sub-section on engaging with your workforce and value chain partners to improve energy efficiency, the engagement and buy-in of decision-makers and users of energy-consuming equipment and assets being replaced or upgraded will be critical to the success of the project. Work with them to understand their priorities and objectives, and communicate how the project could help them. Buy-in from the outset will help to overcome any resistance to change and will make obtaining honest feedback more likely.

Barriers to success

The most common barriers to implementing energy efficiency projects by upgrading and replacing equipment and assets in collaboration with the value chain partners are below.

MISALIGNED BENEFITS

If the environmental and commercial benefits of value chain collaboration only impact one partner, then the initiative is likely to fail. For effective collaboration, all partners need to realize tangible benefits.

IGNORANCE OF THE LIFE CYCLE COST

A poor understanding of the life cycle cost of energy-consuming assets can lead to bad decision-making and the missing of energy-efficiency opportunities. Working with value chain partners to quantify energy consumption and costs over the whole life of an asset will identify the biggest efficiency improvements and the cost-effectiveness of investments.

SHORT-TERM FOCUS

Companies often do not see the benefits of collaborative efforts between value chain partners in the short-term, which can prevent initiatives from advancing. Evaluating benefits over the life span of the equipment or asset can help to demonstrate the business case and encourage longer-term thinking.

INSUFFICIENT ACCESS TO CAPITAL

A major barrier to investments in energy efficiency is a lack of or the high cost of capital, particularly in value chains where energy efficiency is not core to business operations. Companies can overcome this by taking a longer-term view in investment decisions or looking at off-balance-sheet financing mechanisms such as energy performance contracts. Effective value chain collaboration can often help to unlock new and less expensive sources of capital, such as the setting up of joint ventures or the use of special-purpose vehicles.

INADEQUATE INFORMATION SHARING AND LACK OF KNOWLEDGE

Working cross-functionally internally and with value chain partners can make the sharing of information and data more difficult. Information and data sharing are integral parts of an engagement with upstream and downstream stakeholders and will increase the speed with which companies identify and make progress on energy efficiency solutions. A lack of knowledge about existing or new technologies can be a barrier to advancing energy efficiency projects, but companies can often overcome this with effective information sharing.

The benefits of working collaboratively with upstream and downstream stakeholders

Buying at scale reduces cost and can improve resilience of supply chains by sending clearer demand-side signals which in turn will result in a larger and more mature supply chain;

Using similar technologies and adopting similar energy-efficiency solutions improves knowledge and makes it possible to share learnings quickly;

Using similar technologies as value chain partners makes operational integration easier;

It has the potential to increase the availability of finance and reduce the cost of capital;

There is potential to develop equipment-as-a-service solutions. This is typically through an energy service company (ESCO) and will either form a supply arrangement, to provide a consumer with power, heat or steam under a contract, or a performance arrangement, to provide a consumer with energy savings. In both instances, the energy service company will fund the installation of equipment and the consumer will pay overtime for the service;

It is possible to develop and operate shared or leased assets to reduce costs. This is particularly relevant when projects are technically complex with high capital costs, or where neighboring energy users have similar needs and are investing in similar assets.