Market Challenges And Opportunities

Industrial Energy Efficiency Market Drivers

Supportive Government Policies and Regulations: Various governments across the globe are introducing policies, incentives, and regulations to drive industrial energy efficiency. For instance, the European Union has set energy efficiency targets under the Energy Efficiency Directive. The directive mandates energy audits for large companies and aims to cut energy consumption by 32.5% by 2030. Similarly, under the U.S. Energy Policy Act 2005, tax incentives are offered for energy efficiency investments. Such policies encourage industries to adopt energy-efficient equipment, systems, and processes, thereby driving the industrial energy efficiency market. For instance, a 2021 report by the American Council for an Energy-Efficient Economy stated that the federal programs under the Initiative helped commercial and public buildings across U.S. save almost 11 billion kWh of electricity and reduce CO2 emissions by 9 million metric tons during 2020-2021.
Rising Energy Prices: Energy prices have been volatile and on an upward trajectory over the past decade. According to the U.S. Energy Information Administration (EIA), the industrial electricity prices rose from 7.06 cents/kWh in 2010 to 7.43 cents/kWh in 2020. Similarly, industrial natural gas prices spiked from US$ 5.1 million British thermal units in 2010 to US$ 7.3 million British thermal units in 2014. The rising energy prices strain profit margins for industries. This is compelling industries to employ energy efficiency measures to optimize energy consumption and costs. For instant, according to data published by The Climate Group, the cement industry in India recovered 5.4 million GJ of energy in 2020 by investing in waste heat recovery technologies
Need to Reduce Carbon Footprint: Industries are targeting net-zero emissions and reducing their carbon footprint through energy efficiency amid increasing environmental concerns. The International Energy Agency estimated that industry accounted for 35% of global final energy consumption and 40% of energy-related CO2 emissions in 2019. By adopting energy-efficient equipment and systems, industries can significantly reduce emissions and align themselves with their sustainability goals. For instance, as per data from the United Nations Environment Programme, global investments into industrial energy efficiency grew by around 12% annually between 2018 and 2020.
Technology Advancements: Advances in technology are enabling greater energy optimization in industrial operations. Technologies like artificial intelligence, machine learning, IoT sensors, and cloud computing are helping analyze energy usage patterns and improve efficiency. For instance, General Electric’s intelligent PLC software analyzes data to identify operational inefficiency. Siemens offers cloud-based monitoring platforms to track energy performance. Such technological innovations propel the adoption of industrial energy efficiency solutions. According to the International Energy Agency (IEA), the deployment of digital technologies like sensors and IoT across industries could deliver potential energy savings of 10% globally by 2040.

Industrial Energy Efficiency Market Opportunities

Integration with Renewable Energy Sources: There are significant opportunities for integrating energy efficiency initiatives with renewable energy adoption in industries. Renewable sources like solar, wind, and geothermal can be leveraged along with upgrades to equipment, automation and control systems to minimize carbon footprint and energy costs. For example, onsite installation of solar panels coupled with intelligent energy management systems can optimize self-consumption of renewable energy. For instance, a 2021 report from the International Renewable Energy Agency (IRENA) estimates global renewable capacity could grow by over 50% between 2020 and 2025.
Retrofitting Existing Infrastructure: A major opportunity lies in retrofitting existing industrial infrastructure with energy-efficient technologies as completely replacing equipment involves huge investments. Retrofitting with products like energy-efficient motors, variable speed drives, lighting systems, insulation, and heat recovery systems can improve efficiency at lower costs. According to the IEA, efficiency retrofits could cost-effectively reduce global industrial energy use by 10%.
Focus on SMEs: While large energy-intensive industries are early adopters, small and medium enterprises (SMEs) also offer opportunities. SMEs account for a major share of industrial energy consumption in countries like India and China. Governments are introducing financial incentives and subsidies to encourage SMEs to employ energy efficiency solutions tailored to their needs. Industry leaders are also partnering with SMEs to provide knowledge and resources to optimize their energy usage.
Emerging Economies: Industrialization and infrastructure development in emerging economies offer strong potential for energy efficiency uptake. Countries like China, India, Indonesia, Brazil, and South Africa, with rapidly growing manufacturing and heavy industries, provide lucrative opportunities. Government initiatives like India’s Perform, Achieve and Trade Scheme, which allows industries to trade energy credits, further boosts energy efficiency investments in these markets.

For instance, according to the International Energy Agency, these industries in Brazil. saw an average saving of 12% in their energy usage from 2018 to 2021. Other nations like India and South Africa have launched similar programs to spur efficient industrialization as well.

Industrial Energy Efficiency Market Restraints

High Upfront Costs: The high upfront costs for installing new energy-efficient equipment and systems deter many industries, especially SMEs, from adoption. Payback periods tend to be longer compared to other investments. However, governments are trying to address this through financial incentives. Companies also increasingly adopt lifecycle cost analysis to account for long-term cost savings from efficiency investments. For instance, as per the U.S. Department of Energy's 2021 report, many industrial facilities may take 3-5 years or more to recover costs of new high efficiency equipment through energy savings

Counter balance: Energy Savings Performance Contracts (ESPCs) allow industries to finance energy upgrades through future energy savings. The contractor covers the upfront costs and is paid back from the energy savings over time, reducing the immediate financial burden on the industry. Partner with an energy solutions provider or technology company to provide equipment on a low-cost or lease basis and spread payments over time.

Lack of Expertise: There is a shortage of skilled expertise to optimize complex integrated systems for energy efficiency in industries. It requires knowledge in disciplines like power engineering, control systems, data analytics, IoT, and information technology to be leveraged cohesively. Industries find it challenging to assemble teams with such diverse expertise. But they are trying to address this through partnerships and hiring specialists.

Counter balance: Advise upskilling current workforce through training programs focused on energy management and sustainability. Recommend the recruitment of energy managers or consultants with specific expertise in industrial energy efficiency to help plan and implement energy-saving measures

Legacy Infrastructure: Existing old and disjointed infrastructure makes it difficult to retrofit and integrate new technologies for energy optimization in industries. Replacing legacy equipment involves substantial downtime and affects production. Lack of interoperability and cybersecurity risks of Industrial Control Systems also hamper integration. However, industries are modernizing infrastructure in phases to facilitate energy efficiency. For instance, installing LED lighting or a new waste heat recovery unit within a factory setting requires shutting down assembly lines and production during the changeover period.

Counter balance: Explore any available government grants, loans, or incentive programs designed to support the modernization of industrial infrastructure.