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Energy-as-a-Service: Turning cost into competitive advantage

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Mark Kelly, project development director, distributed energy systems (DES) at Siemens, and Mark McLoughlin, key account manager at Siemens Industries and Markets, Siemens Financial Services (UK), examine how smart financing is enabling manufacturers to harness energy savings to help them stay ahead of the curve.

The manufacturing industry is under pressure to lower carbon emissions by reducing its energy use. Since business and industry is responsible for around 25% of the UK’s carbon emissions, this has led to the introduction of a swathe of legislation, designed to make organisations manage their energy consumption more sustainably. 

At the same time, rising energy prices are increasing production costs. These regulatory and financial pressures are even more urgent as shareholders are increasingly aware of how fuel costs, network costs and poor energy purchasing decisions are harming their investments. 

In addition, UK businesses without an energy resilience strategy are said to be risking up to 17% of their revenue. Yet, one third of energy decision-makers say their organisation is ‘not prepared’ for a disruption to their energy supply from a temporary grid failure.

To ensure businesses maximise the potential competitiveness benefits from meeting their regulatory obligations and financial demands, it is vital that they fully understand their responsibilities and how to manage them most effectively. 

Although many manufacturers have already built up their own in-house energy management expertise, partnering with dedicated energy solution providers can secure better financial and strategic outcomes, and allow them to focus on their core competencies. 

Strategically-sound suppliers are prepared to take a long-term and evolving view of what energy solution best meets each industrial manufacturer’s unique needs, using a holistic, integrated, site-specific approach. 

Partnered with an outside expert, businesses are shifting towards generating their own heat and power to bring energy production closer to its use. This enables manufacturers to cut energy wasted from transporting electricity from one side of the country to the other. Excess energy is captured and re-used, while production line processes are adjusted to optimise energy-efficiency.

An integrated on-site energy supply solution can immediately reduce operating costs, reduce utility negotiating power and provide a more secure, resilient energy supply. Overall, through a mix of flexible, decentralised and renewable energy generation strategies, a trusted partner can help businesses reduce energy costs by 25-40%.

Energy service partners can also enable industrial manufacturers to access new digital tools such as data analytics to drive down their energy use. For instance, building a ‘digital twin’ – an exact virtual replica – of a manufacturing facility, allows solutions to be tailored to each specific site and organisational energy objectives, covering factors such as the demand for electricity, steam, and hot water.

Despite the immediate benefits of an integrated energy solution, a substantial number of industrial energy users may be hesitant to risk capital on a non-core part of their business. Expert providers, however, have the knowledge, experience and expertise to offer ‘outcome-based’ financing arrangements which are effectively self-funding and require no upfront capital expenditure. 

Siemens Financial Services conservatively estimates that UK manufacturers could save £5.6 billion over five years, including £954 million in savings for the chemical manufacturing sector, by implementing Energy-as-a-Service solutions.

Through Energy-as-a-Service arrangements, manufacturers can secure these operational cost reductions without putting pressure on capital resources. Instead, the manufacturer is charged a monthly fee that is structured to effectively deliver a net operational benefit, based on projected energy savings from solutions which optimise their energy use. In this way, manufacturing CFOs make payments based on outcomes – including energy savings, carbon reductions and resilience against disruptive power outages. 

Prioritising capital investment in energy optimisation is challenging for most manufacturers, competing with many other demands on scarce funds. By being able to access Energy-as-a-Service solutions, a growing wave of manufacturing CFOs can access new investments right away to reduce their operational costs and improve their competitiveness.  On the other hand, if companies simply sit back and wait for the dust to clear, they will miss out on the savings available and lose out to competitors.

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