Industrial Energy: A Question of Consumption
Contents
Introduction
A demand-driven market
Market forces
Facts and Figures
Investment Opportunities and Market Segments
Market movers
Leaders & fast followers
Investors
VC / PE / Funds
Re-Charging The Economy
Improvements in the Industrial Sector Will Curb Skyrocketing Energy Demand
Global volatility as well as tight markets accompanying the COVID-19 rebound, have triggered significant peaks in energy prices as uncertainties around supply security and affordability intensify.
In many countries, the industrial sector consumes a bulk of total energy. In the US, the industrial sector accounts for 33% of the country's total energy consumption, and in China the industrial sector consumes two thirds of total energy. Picturing an industrial setting, one may see grand facilities filled with equipment used for manufacturing, agriculture, mining, and construction. What isn't pictured, however, is the substantial amount of energy produced, used, and wasted. According to the Lawrence Livermore National Laboratory, in 2021, the US industrial sector consumed 26 quads of energy (a quad is a unit of energy equal to 10¹⁵ BTU), 13.2 of which were rejected; that amount is roughly 13.5% of total energy consumption in the US. Rejection of energy is the result of various inefficiencies—and that means money down the drain.
Achieving efficiency in the industrial sector offers a solution to the unpredictability of the energy market. Energy efficiency is the process of using less energy to perform the same task and is one of the most cost-effective ways to combat climate change while reducing financial pressures on consumers. In the absence of energy security, investing in technologies that tackle inefficiencies can help prevent blowing a fuse.
Market Trends: Facts, Figures, Forces
Improvements promote productivity and increase economic output per unit of energy while replacing demand for “dirty” energy sources.
As the world works toward carbon neutrality by 2050, there is one clear message: Electrify everything.
Net zero goals can be achieved in electricity generation when efficiency, electrification, and the replacement of coal by low-emissions sources are prioritized.
Fossil-fuel-based generation is expected to stagnate in the coming years due to phase-out programs and advancements in efficiency-based technology.
market Figures
The industrial energy efficiency services market is poised to grow by $2.5 billion between 2021 to 2025 and progress at a compound annual growth rate (CAGR) of 4.7% during the forecast period.
Government policies were expected to help energy-efficiency investment increase by 10% in 2021 to almost $300 billion.
Energy intensity of the global economy is set to improve (fall) by 35% by 2030, and energy-efficiency and electrification measures are the driving forces behind the expected improvement.
market forces
The push for carbon neutrality, initiated by a growing public awareness surrounding the importance of environmental impact, sustainability, and government policies, are propelling a new wave of energy efficiency in the industrial sector. A fortuitous advantage of this green wave is positive economic returns.
There are global increases in government spending on energy efficiency, which mainly come from COVID-19 recovery plans, more ambitious climate goals, and other policy measures.
Economically, lower total operating costs incentivize corporations to shift toward energy efficiency.
Independent studies indicate that US industry could reduce energy use by 14% to 22% through cost-effective efficiency measures, specifically by using existing technologies that utilize the heat produced in power generation.
Varying Levels of Adoption
Electrification of industrial facilities is highly complex. Some sectors are easier to modify than others, like the difference on the chart between aluminum and glass.
Investment Opportunities and Market Segments
Achieving efficiency through technological advancement has proven to be a powerful economic catalyst and a way to address energy and environmental goals. Practices such as electrification, carbon capture, energy storage, and management, as well as quantum computing, offer a way into the growing industrial market.
Electrification
Electrification is the process of shifting nonelectric sources of energy to electricity as a means of securing a lower-carbon future, increasing efficiency and managing operational costs. Electric systems in an industrial setting tend to have relatively superior designs, yield, process controllability, flexibility, and performance lifetimes.
The International Energy Agency (IEA) estimates an average annual electricity demand growth of 2.7% between 2022 and 2024.
Electric heat pumps can be three to four times more efficient than burning fossil fuels for heat.
Carbon Capture, Utility & Storage (CCUS)
CCUS technologies involve the capture of carbon dioxide (CO2) from fuel combustion or industrial processes and CO2 transportation, and is used as a resource to create valuable products or services or permanent storage underground.
By 2050, ~80% of CCUS uptake is projected to be deployed in cement, iron and steel, and hydrogen (H₂) production.
Large uncertainty surrounding revenue streams exist, as projected CO2 prices are insufficient to scale up CCUS on their own.
Energy Storage
New technologies are making the industrial setting cleaner; however, without proper storage capabilities, the energy supply will be forced to work below its maximum capacity in order to avoid excess supply. This can be a significant source of overall system inefficiency and increased consumer costs.
Pumped Heat Electrical Storage (PHES)
In order to store electricity, electrical energy drives a heat pump, which pumps heat from the “cold store” to the “hot store” (similar to refrigerator operation). To recover the energy, the heat pump is reversed to become a heat engine.
Energy Management
The role software plays in aiding energy efficiency is growing rapidly. Energy management software (EMS) monitors, controls, and optimizes efficiency for end users, such as industrial plants. It provides tools to reduce energy costs and consumption by identifying energy-intensive processes, allowing end users to “load shift,” which involves moving consumption to cheaper, more-efficient times of day.
According to Deloitte’s 2020 Resources study, the payback periods on energy management investments have been falling rapidly.
Google is using its own EMS to pursue a goal of using renewable energy exclusively 24/7.
Quantum Computing
Meeting net-zero goals won’t be possible without huge advances in climate technology. That’s where quantum computing could help by, for instance, addressing thorny sustainability problems such as curbing methane produced by agriculture, making the production of cement emissions free, and improving batteries for vehicles.
According to Dario Gil, senior VP and director of IBM Research, "The energy industry is ripe with opportunities to see value from the use of quantum computing through the discovery of new materials designed to improve the generation, transfer, and storage of energy."
Quantum Computing
A not-so-distant solution to a variety of efficiency problems.
Impact
Energy efficiency delivers numerous environmental benefits, notably reducing greenhouse gas emissions.
Decreased water use and pollution are among the other environmental benefits.
Among the long-term benefits are lowering overall electricity demand, thus reducing the need to invest in new electricity generation and transmission infrastructure.
Between 1990 and 2020, roughly one-fifth of US greenhouse gas emissions from electricity have reduced due to improvements in electricity generation and an increase in efficiency. Programs such as ENERGY STAR® have helped many industry operations
Market Movers: Current and Future Heavy Hitters
Market Leaders
Blue Planet captures CO2 and produces rocks that can be used as construction material, such as concrete, resulting in a large carbon offset. Blue Planet concrete is already being used in Terminal 1 at the San Francisco International Airport.
Caterpillar Energy Solutions manufactures construction equipment as well as engines for power plants (including combined heat and power engines).
Siemens, Europe’s largest industrial manufacturer, produces multiple combined heat and power engines with very low emissions levels. The company is currently working on attaining carbon neutrality.
SunPower provides solar panels to a variety of consumers, including FedEx and Ford, and has generated over 133 terawatt-hours of electrical energy since 2005.
Future Heavy Hitters
Highview Power has created a patented cryogenic energy storage process wherein, once the stored gas is heated up to expand by up to 700-fold, it creates a sufficient amount of energy without combustion.
C3 Energy is a software company that uses machine learning to analyze energy use to help companies reduce their energy costs up to 30%.
GridPoint Inc. helps customers more efficiently save energy by analyzing both real-time and historical energy usage data. The company has saved its customers more than $440 million in energy costs and eliminated 5.3 billion pounds of CO2 equivalents to date.
Venture Capital/PE and Other Fund Investors
Technology Commercialization Fund, created by the Department of Energy, manages and allocates a $30 million fund to leverage R&D in applied energy programs to advance emerging technologies.
Industrial Energy Accelerator works with key government departments and local banks to raise awareness of and develop design solutions to enable growth in industrial energy efficiency, helping industries from all sectors use more renewables and thereby creating a larger market for near-zero carbon industrial products.
Shell GameChanger works with start-ups and businesses in categories including renewable power generation, energy storage, atmospheric CO2 capture and conversion, and hydrocarbon resources.
IN2, funded by the Wells Fargo Foundation and the National Renewable Energy Laboratory, funds technology companies in the agriculture, commercial building, and housing sectors working toward a lower carbon future.
bp ventures is actively managing 30 portfolio companies and invests in industries including power and storage, carbon management, and low carbon products.
Breakthrough Energy Ventures, an investor-led fund started by Bill Gates in 2015, invests in new energy technologies, leading the world to net-zero emissions. It has raised more than $2 billion in committed capital across the agriculture, building, electricity, manufacturing, and transportation sectors.
Emerald Technology Ventures is a global venture capital firm investing in industries including energy, industrial IT, and agriculture. Its Emerald Industrial Innovation Fund LP was announced in June 2018 and has raised $25 million.
Equinor Energy Ventures, the corporate venture capital arm of Equinor, invests in innovative energy companies primarily in Europe and North America. The firm’s most recent investment, Carbon Clean Solutions, was announced on July 2, 2020, and raised $22 million.
Final Thoughts
For all its benefits, energy efficiency has some “flashing yellow lights.” Investments in energy efficiency are usually only evaluated based on energy-saving potential and face highly stringent financial criteria. This approach to investment tends to exclude many capital-intensive energy-saving projects. Changing the way efficiency and long-term returns are evaluated will open up a realm of new opportunities to further the industrial green wave.