Energy optimization through smart finance could save manufacturing sector billions

29/11/2021  Siemens Financial Services GmbH

• Manufacturers are facing regulatory and shareholder pressures to reduce carbon emissions and optimize their energy usage.
• New research from Siemens Financial Services (SFS) models the financial impact that energy optimization strategies could bring to the manufacturing community in the global manufacturing community.
• Smart finance solutions can enable investment that delivers predefined energy optimization outcomes and secure operational cost reductions without having to invest capital up front.

Siemens Financial Services (SFS) has released a new insight study which estimates the cost savings that implementing energy optimization could bring to manufacturers in China ($115.2bn), Europe ($40.3bn), United States ($26.2bn) and India ($22.6bn) over a five-year period.

Part of an insight series, “Financing Decarbonization: Manufacturing” looks at the many pressures – shareholder, environmental, and regulatory - facing manufacturers to cut their carbon emissions, improve energy efficiency and reduce operating costs. While the current economic climate has caused greater caution over capital spending, the research explores how investment in outcomes via smart finance solutions can render the investment sustainable and affordable.

In collaboration with specialist vendors and financiers who are focused on delivering outcomes, the research finds manufacturers are approaching energy optimization via two key strategies:

• A holistic optimization strategy that helps to future-proof energy supply, drive down consumption costs, reduce exposure to unpredictable cost hikes, drive carbon reduction achievement, create new revenue streams and deliver financial benefits in the short-term.
• Incremental investment stages where typical steps include: combined heat and power; lower energy consumption variable speed drives; production line energy recovery; membrane filtration, anaerobic waste treatment; transmission-efficient switchgear; digital twin virtualisation; and energy-efficient building technologies.

For large-scale projects, arrangements known as Energy-Optimization-as-a-Service - typically supplied by specialist private financiers - can deliver budget neutral financing. At the smaller-scale, smart financing arrangements (usually based on asset financing structures) help organizations acquire energy-efficient solutions without having to deploy retained capital or over-burden their banking facilities. They can often make it possible to acquire higher specification solutions that deliver greater energy optimization benefits more quickly – a greater contribution to overall competitive advantage.

Mark McLoughlin, Siemens Industries and Markets, Siemens Financial Services, UK: “Smart financing solutions and new business models can enable manufacturers to secure cost and energy savings without putting capital at risk. Manufacturers only need to ask themselves which energy solution aligns best with their goals.”

Methodology

The Siemens Financial Services methodology takes the lowest level of energy optimization savings experienced in its research base of real-life examples, even though these can be as high as 50%+ in high energy consumption sectors. In addition, the methodology only scales the volumes of energy savings across 50% of the available manufacturing estate. This helps manufacturing CFOs be confident that the estimates in this paper are a reliable starting point for their business cases regarding the level of benefit to be gained, and that real-life savings are likely to be considerably higher. Estimates of energy optimization savings across a typical financing period of 5 years are noted in the table – covering both the manufacturing sector as a whole, along with a range of higher energy consumption subsectors. In each case, Standard Industry Classification (SIC) codes are used, so that readers can define precisely the subsectors of manufacturing industry covered. These financial volumes effectively represent the scale of self-funding finance for energy optimization conversions which smart financiers and solutions providers can help manufacturing industry deploy.

For further information, please see: https://www.siemens.com/financing-decarbonization-manufacturing

For further information on SFS, please see: www.siemens.com/finance

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