Mind the Gap: Innovative Solutions for Industrial Energy Efficiency

When it comes to funding efficiency capex initiatives, industrial manufacturers don’t have to dig deep for energy savings to reinvest into the program. Considering the energy intensity of manufacturing facilities, companies across all industrial sectors can implement 8 to 10 percent average energy savings opportunities with a less than 5-year payback¹. But despite the promising investment opportunity, a growing body of research shows that energy efficiency projects with a payback period greater than 2 to 3 years are not being implemented. Bound by the limitations of strict corporate hurdle rate requirements, these projects do not proceed even though there are investors willing to make the longer-term commitment.

Removing roadblocks to financial institutions

As a part of the ECEEE’s Industry Efficiency 2018 Conference held in Berlin June 11 to 13, 2018, a workshop was organized to investigate the investment gap for industrial energy managers who identify efficiency improvements, but can’t secure affordable funding options to implement them. Sponsoring this 4-hour workshop with more than 50 experts participating was TrustEE project, an EU-funded project. Schneider Electric’s efficiency experts also contributed to the workshop discussion, sharing real-world experiences on efficiency best practices and innovative funding options based on projects with their global industrial clients. Several participants from financial institutions also weighed in at the workshop, showcasing a variety of funding sources available for energy management projects, including Energy as a Service.

Workshop participants discussed the need to overcome significant roadblocks to create more advantageous opportunities between energy-intensive industrials and financing institutions, including:

• Prioritization of energy efficiency within the corporate environment
• Gaps in capacity and/or skills at industrial companies and their supply chains to implement large-scale, standardized projects across their portfolios
• Complex and diverse regulations from country to country making compliance a greater risk

To accelerate funding partnerships, the group emphasized that the two sides need a common understanding and shared “language” when discussing efficiency opportunities. Financial firms also indicated that the bottom line is that we simply need better developed efficiency projects and more of them.

The failure of existing regulation 

The discussion also covered the link between efficiency investment and mandatory energy audits, which all large European companies have done in the past years as part of the EED regulation. Workshop attendees resoundingly agreed on the failure of the existing regulation, with most companies simply checking the box with lost-cost energy audits. Observations from EU member states show that from the energy audits conducted under the first phase of the regulation in 2015 and 2016, the vast majority of energy conservation measures proposed have not been implemented and the actual impact on energy efficiency and climate protection remains minimal. In the second part of the workshop, participants brainstormed and voted on strategies to create a more effective regulation. Most participants desired a stronger mandate that requires affected companies to implement cost-effective recommendations as part of the obligation.

New financial models

Funding and expertise are two fundamental resources that many companies lack in-house. To enable companies’ long-term success, the conversation turned to the need for more innovative financial models such as Lease/Purchase or Build/Own/Operate (BOO). Some successful examples highlighted how these projects combine external funding and collaterization by public entities such as the European Investment Bank and a specific service contract model tailored to the client’s needs.

Although implementing innovative funding is a key step to making progress on industrial energy efficiency investments, many other recommendations were broader — addressing the issue that energy efficiency still needs to be prioritized by decision makers. Raising awareness, training, empowerment of energy managers, “greening” the image of energy efficiency and stronger mandates from efficiency policy makers were some of the ideas discussed by the group.

Following the workshop, a set of recommendations will be prepared and distributed to a wider audience, particularly to EU institutions, as well as industry and financial institutions associations.

Learn more

Learn more about how Schneider Electric is developing global efficiency programs that go beyond the low-hanging fruit that get you from planning to savings faster across your entire portfolio.

¹ TrustEE project introduction at ECEEE 2018