Siemens Financial Services has published a new report highlighting the heavy price paid by global industry for inefficient energy consumption and the enormous cost saving potential through the use of energy efficient technologies
Within production environments, the use of variable speed drives (VSDs) on motors has the potential to save billions of pounds on the electricity bills of industrial enterprises. The new report from Siemens Financial Services (SFS) has calculated that up to £2.5bn of energy cost savings could be gained in UK industry with the full implementation of VSDs over the next five years. The study follows closely on a 2012 report from SFS which quantified the level of capital trapped or ‘frozen’ in outright equipment purchase that could be freed for other purposes by greater use of asset finance. SFS estimates that frozen capital amounted to some £2.17bn in UK industry in 2011.
Taken together, these reports illustrate the level to which UK industry could be using asset finance to obtain substantial financial efficiencies. Asset finance enables investment in energy efficiency solutions in times of restricted access to capital, by matching monthly lease payments to actual savings in energy bills, effectively making the investment zero net cost or even cash positive. Techniques such as leasing also help free-up capital from being ‘frozen’ in outright purchases, so that it can be applied to sales and marketing initiatives, new product development, acquisition opportunities, and other competitive activities.
The need for efficiency
Darren Riva, head of Energy Efficiency Financing for Siemens Financial Services in the UK, commented, “In light of the steady upward trajectory of electricity prices, greater energy efficiency is becoming an urgent concern for industrial organisations as escalating energy costs will erode profit margins and damage competitiveness. The magnitude of the estimated potential savings enabled by VSDs presents an extremely compelling business case for industrial companies to invest in this power saving technology. More importantly, keeping in mind that VSDs are just one of the many possible energy efficiency initiatives that industrial companies can adopt, the true potential for energy and costs savings in industry is very large indeed.
“High productivity and engineering efficiency are determinants for the success of the manufacturing sector, but the accomplishment of these goals requires modern technology and equipment. Access to available capital is therefore crucial and industrial organisations cannot afford to have a significant proportion of their annual capital budgets tied up in plant, equipment and technology. Given the slow economic recovery in Europe and persistent tight credit conditions, it is all the more important that manufacturers release much needed liquidity to implement operational efficiencies or fund new product development in order to maintain their competitiveness.
“By making greater use of asset financing techniques to acquire the most up to date technology and equipment, industrial management can benefit from higher financial efficiency and lower energy consumption, which is critical to making technological and process developments affordable, and economically sustainable.”
Methodology
A wide variety of official and public sources were drawn on to create a conservative estimate model of the potential savings enabled by variable speed drives. In each of the ten countries that were studied in the report, total annual energy expenditure in industry was first calculated by multiplying yearly industrial electricity consumption with industrial electricity pricing. The sum was then scaled down by the proportion of industrial electricity used to drive electric motors (this figure has been reduced by penetration of motors controlled by a VSD since this consumption is already energy efficient).
Factoring in the proportion of motors that can benefit from VSDs as well as the percentage of energy efficiency gains delivered by VSDs, the final value indicates the amount of industrial electricity overspend directly attributable to non-implementation of VSDs in applications that can credibly benefit.
Siemens Financial Services
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