Selling Energy Efficiency in the Industrial Sector

by John Nicol, Science Applications International Corp. (SAIC)

During the past few years, the number of new utility and state-run energy efficiency promotion programs has increased significantly, and existing ones have grown rapidly.

Ratepayer-funded program budgets have tripled from $900 million in 1998 to $3.1 billion in 2008, according to the American Council for an Energy-Efficient Economy (ACEEE), and the ACEEE expects the funding to double again by 2020. With this commitment from states and utilities, it is important that programs use these funds most cost-effectively to delay the need for new power plants and to enhance the health of the end-use businesses. To ensure effective use of funds, utilities must maximize the program’s ability to sell energy efficiency to the industrial sector, which, in many states, uses a large portion of the energy produced.

Targeted Efficiency

Typically efficiency promotion programs target two markets: residential and business. The residential programs usually use most of their funds on promoting mass market efficiency measures related to lighting and appliances. The business programs tend to focus the most of their funds on the commercial market, including office buildings and retail establishments. These programs use cash incentives or rebates for standard measures within the most common commercial energy end uses, such as lighting and heating, ventilation and air conditioning (HVAC). Figure 1 shows the percent energy use of major end uses in commercial buildings. Figure 2 rolls up the end uses related to HVAC and lighting to show that 71 percent of energy used in commercial building is in lighting and HVAC. For commercial buildings, it is an effective program strategy to focus incentives for lighting and HVAC projects.

But focusing on the key commercial end uses leaves much of the energy used in the industrial market greatly untouched. Lighting and HVAC account for about 10 percent of the energy used in the industrial market (see Figure 3). On average, 62 percent of the industrial facilities’ energy use is used for their core processes. Depending on how much boiler energy is used for process heating, even more energy can be attributed to the core processes. To impact this process energy use, energy efficiency program managers must build program offerings that relate to efficiencies found in the specific industrial processes.

About 65 percent of the process electric energy use is consumed by process motors, with 15 percent consumed in process heating and another 25 percent in electrochemical process or process cooling. Within these general process end uses of energy, there are thousands of specific processes, technologies and systems. This diversity of technologies has provided a great challenge in promoting energy efficiency in this sector. Another challenge is the wider diversity of business approaches within the different types of manufacturing. Because of these challenges, efficiency programs have focused on offerings for the simpler commercial markets.

Until now, these simpler, mainly commercial programs have worked well to reach utilities’ energy-savings goals. But with much of these simpler measures already harvested by past programs, it is becoming more challenging to reach these goals. When new building code changes and the required elimination of T12 lamps are added, the challenge to reach goals will become more difficult. These and other market forces will force program managers to provide greater impact within the large energy use of the industrial sector. The industrial sector uses about three times the amount of energy as the commercial building sector on average, according to the U.S. Energy Information Administration (EIA). What is the best program strategy to impact this large industrial energy use?

Energy efficiency programs are starting to address more aggressively the efficiency opportunities within the industrial processes. Many potential opportunities exist, and program managers are finding that they can impact these industrial energy-saving projects with less program costs than those for commercial projects. It starts with a greater understanding of the industrial technologies and the business case needed within each type of industrial submarket. As with any good sales approach, this in-depth understanding is critical to selling energy efficiency to industrial customers.

Getting the Industrial Customer on Board

The first step in tackling the industrial market opportunity is to segment the market within the territory the program covers and understand what similarities exist within clusters of similar types of manufacturing businesses. This understanding eventually should include a strong expertise with the technologies and equipment used and an awareness of the overall business decisions that the plant manager must consider daily.

The second step in addressing industrial energy efficiency opportunities is to hire or contract with people who have this in-depth understanding of a major cluster industry. Many times these people will have worked many years in the cluster industry and, ideally, in decision-making management positions.

These cluster experts can provide technical and business depth and usually a network connection within the cluster. They also can help cement the next step, which is to reach out and partner with the cluster associations that serve the members of the cluster. Take a paper industry example. It is important to link with the local Technical Association of the Pulp and Paper Industry (TAPPI) chapter. Another example is the Midwest Food Processing Association. These associations can provide invaluable market outreach to bring greater awareness of the program offerings to their members. It is especially helpful to integrate the program trainings with association events. A solid partnership with these types of associations is critical in building program credibility with manufacturing companies. It also is important to leverage the industrial programs offered by the Department of Energy (DOE), such as the Save Energy Now leader program.

Next, build a team of sales engineers who will develop strong relationships with larger industrial customers. These sales engineers can be utility account executives or they can work in parallel with the utility account executives. Whoever serves in this role must provide the credibility needed to provide value to customers. This credibility and value usually require many years of experience working with and in the industrial sector on energy projects. If the sales engineers do not bring credible value to customers, they will have little impact on moving customers forward with energy efficiency projects for their industrial process. Customers have many competing priorities, and many times the energy cost to an industrial customer is much lower than other costs. For example, in the food-processing industry, the energy cost is typically between 2 and 5 percent of overall costs. Program representative must be effective in selling the value of energy efficiency. Besides technical expertise, a representative can assist customers set up an energy team and establish a continual improvement program to add further value.

The final step in having a strong impact on the industrial sector is to find and develop program offerings that target opportunities in the processes of each cluster. Many times these opportunities are emerging technologies that customers might not understood fully. Programs must provide partial funding for an expert site study so customers can understand how the opportunity will impact their sites. DOE Energy Saving Assessments can provide this expertise for customers.

Another approach is to connect with the vendors providing these emerging technologies to develop standard incentives for cluster-specific process measures. This allows vendors to sell the process technology more easily to customers, provides more value to customers and improves a program’s ability to target cost-effective industrial opportunities. Supporting these emerging technologies provides a way for the program to increase its impact or attribution on the program energy savings.

With such a large amount of energy used by industry in industrial processes and with the opportunities for low-hanging fruit dwindling in the commercial markets, the time is right to enhance program efforts within the industrial sector. Energy efficiency program managers across the country have implemented aggressive programs in this market. And with the growing funding and expectations of energy efficiency promotion, including supporting job growth, there has not been a better time to maximize the sales of energy efficiency in the industrial sector.

John Nicol is an energy program director for SAIC Energy, Environment and Infrastructure LLC, a wholly owned subsidiary of SAIC. He has more than 25 years’ experience in energy engineering and program management and is a nationally respected program manager who works closely with the DOE, EPA, ACEEE, and CEE. Nicol also has conducted more than 300 energy analyses of industrial facilities and projects.

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