Across the automotive industrial supply chain, manufacturers spend more on energy than they ought to. These avoidable expenses are the result of perpetually deferring upgrades to inefficient buildings and equipment. Not only does this neglect keep operating expenses artificially high, but it also puts automotive companies’ sustainability goals increasingly out of reach.
None of this will be surprising to automotive supply plant managers. While the value of energy efficiency projects on the bottom line has long been abundantly clear—and the imperative for doing so has only grown more important in these challenging economic times—translating energy efficiency from concept to money-saving projects has proven elusive.
However, energy efficiency is a relatively straightforward, cost-reducing lever across the automotive supply chain. To be most successful, three primary hurdles must be addressed: filling knowledge gaps, informing funding decisions, and overcoming execution challenges.
One of the first stumbling blocks plant or energy managers face is deciding what goals to set, including appropriate energy reduction targets. But once targets have been set, it’s not always clear what specific projects should be pursued to achieve the desired outcomes. With many available technologies and complex applications to navigate, it’s not readily apparent which projects—or combination of projects—will deliver the anticipated results.
To address these questions, manufacturers can look to industry best practices and bring in outside experts to help fill in knowledge gaps. Trained energy experts understand how to leverage existing technologies to ensure that energy reduction and efficiency improvements can be maximized without requiring significant resource or capital commitments. Moreover, they can help navigate a wider array of energy-related opportunities, including renewables generation, supply purchasing strategies, and demand-side opportunities, that can help clients reduce overall energy consumption and spending.
One auto parts manufacturer identified $19 million (15%) in energy savings across 750 projects.
Auto parts manufacturers often de-prioritize energy-related spending because it can be difficult to justify spending on energy efficiency measures in the face of competing demands.
But pitting energy efficiency interventions against core business investments misses an important point: energy efficiency investments fund themselves. In fact, the excess capital automotive companies currently spend can be redirected to pay for energy-saving upgrades. Indeed, the future energy and utility bill savings associated with energy efficiency measures can be forecasted and quantified to inform investment decisions. And yet, even when an investment decision makes sense on paper, an automotive company may still find it challenging to allocate the necessary capital, a situation further aggravated by the current economic uncertainty triggered by the COVID-19 pandemic.
Lack of familiarity with other models for financing efficiency can be a consequential blind spot for many auto parts manufacturers, who won’t pursue efficiency projects without internal funding. But increasingly, energy efficiency project developers are providing the necessary up-front capital for energy efficiency through a variety of financing models: from loans and leases to shared savings agreements and other service contracts. These models allow automotive companies to shift the investment burden (and, sometimes, the performance risk) to another party, while tapping realized utility bill savings to make financing payments for the efficiency projects that allowed them to save in the first place. In this way, the automotive company can pay for efficiency while it enjoys the benefits.
Even when viable projects have been identified and the business case has been made, it can nevertheless prove challenging for auto parts manufacturers to complete energy efficiency projects. It can be especially easy to defer small projects that, individually, do not make significant contributions to achieving energy reduction or sustainability goals.
The key to overcoming this challenge is adopting a programmatic approach that aggregates multiple efficiency projects—with different sizes, technologies, and payback periods—across a number of sites. Achieving this critical mass will make a significant dent in energy spending and bolster the value of the effort.
A prime example of this approach is the energy efficiency strategy of an automotive parts manufacturer with around 100 manufacturing sites in a dozen countries, and $115 million in annual energy spend. Rather than segregating the efficiency opportunities by individual plants, each with its own financing plan and timeline, the company developed a coordinated initiative to inventory the most promising efficiency projects across its portfolio of sites. As a result, the manufacturer identified almost $19 million (or 15%) in energy savings across more than 750 projects (see summary table below).
|Key Project Areas||Number of Projects||Completed Project Savings||Future Project Savings||Total Annualized Savings|
Establishing a programmatic approach requires key internal actors to take the following actions:
While this approach requires more upfront coordination than pursuing one-off efficiency projects, it will ultimately lead to more significant results.
When it comes to automotive sustainability, the why of energy efficiency has long been clear but it has been consistently overshadowed by the how. Auto plant manufacturers can take concrete steps to reverse this dynamic. Harness resources to set reduction targets and identify worthwhile projects; engage with the financing team and project developers to identify viable financing strategies; and aggregate projects into portfolios to facilitate execution and maximize impact.
Learn more about overcoming hurdles to launch successful energy efficiency projects that will get your sustainability program on track.
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