Industrial facilities could save billions by implementing energy management

Recent global upheavals and uncertainties are putting increasing strain on businesses around the world prompting governments to look closely at energy efficiency as a means to promote industrial competitiveness and the resilience of businesses. 

At the COP28 climate change conference in 2023, nearly 200 countries reached a landmark agreement to work together to collectively double the global average annual rate of energy efficiency improvements by 2030. Global energy efficiency progress – measured by the rate of change in primary energy intensity – saw only a weak improvement of about 1% in 2024, about half the rate achieved last decade.

The main reason behind this slowdown in recent years has been a lack of energy efficiency progress in industry, which has driven 80% of the growth in final energy demand since 2019. However, over this time the sector’s energy intensity has not improved and demand is increasing on average by almost 2% per year. Today, the share of industry in total final energy consumption accounts for around 170 EJ, or approximately 39% of the total.

In 2022, industry in IEA countries alone spent over USD 1.2 trillion on energy, an increase of nearly 80% from 2020 costs.

While industry is one of the most difficult sectors in which to reduce emissions, it is also the one where funding yields the best results. Only 6% of the total increased investment could deliver 20% of the total energy intensity improvements by 2030.

Although energy efficiency measures have frequently been demonstrated to provide competitiveness and productivity benefits, energy efficiency improvements are still not typically or widely prioritised as a strategic investment in future profitability, and substantial opportunities to improve energy efficiency remain underexploited. Government-led energy management programmes and associated measures have been shown to effectively address many of the barriers to the uptake of energy efficiency and stimulate higher and sustained levels of saving for industry.

Energy management is the proactive and systematic monitoring, control, and optimisation of an organisation’s energy. An analysis of more than 300 energy management case studies in 40 countries has shown an average 11% energy savings within the first years of implementation, well exceeding average improvements in energy intensity across industry. A growing number of companies are demonstrating even larger savings of 30% and even higher, with many of them low- or no-cost measures. Comparisons between implementation of energy efficiency measures identified by audits at sites with and without energy management and monitoring systems indicate that sites with systems have higher levels of implementation.

Even companies that have previously invested in energy efficiency find that, once they put energy management in place, significant and continuous energy efficiency opportunities are uncovered. Analysis shows that companies with energy management systems achieve continuous improvements even after 12 years of having the system in place, regardless of the sector. There are case studies around the world:

• Energy management in a Korean plastics manufacturer saved the company USD 31 million, or 4.9% of total energy costs, in just one year.
• By implementing energy management, a flour mill in Indonesia reduced energy costs in the first year by more than USD 1 million, or 5% of total energy costs, and continued to reduce energy use and costs year on year – reducing cost of production by almost USD 6/tonne of product after 3 years of implementation. 
• A vegetable oil producer in Oman reduced natural gas use by 23% and electricity use by 11% in its first year of implementing energy management, cutting energy cost by USD 779 000/year. 
• A textile company in India reduced its energy demand by more than 30% in its first year of implementing energy management with a payback period of less than a year.
• A dairy enterprise in Ireland reduced energy bills by USD 560 000, or 2.9% of the total energy costs, equivalent to the cost of 1.6 million litres of milk.

Energy costs can be a significant proportion of total production costs, up to 50%, therefore even small efficiency improvements can have a significant effect on profit margins. For industries where net profit margins are low, reducing energy costs can be particularly impactful. For example, a company with a 5% profit margin and an annual energy saving of USD 500 per year saving from energy efficiency makes the equivalent profit as USD 10 000 of extra sales.

Energy management also provides a framework for digitalisation of production, enabling improved understanding of processes and hence identification of improvement opportunities. Digitalisation of demand and process optimisation in industry powered by AI could by 2035 save the equivalent of the total energy demand of Mexico today. 

Beyond energy efficiency, energy management can deliver a wide range of benefits leading to enhanced productivity, reduced environmental impact and compliance costs and improved safety and working environment for employees. Efforts to quantify and monetise non-energy benefits have been shown to increase the value of energy efficiency measures by 40% to 250%. Globally, if the value of simple avoided energy costs is in the hundreds of billions, the real value including these multiple benefits could be far higher, even in the trillions.

The ability of industry to reduce energy demand and contribute to demand response services will become increasingly important as countries electrify and decarbonise. Some countries are already experiencing power grid congestion where new energy users cannot be connected and companies cannot increase capacity, endangering economic growth. Energy management can alleviate strain on grids, as shown by a pharmaceutical company in Ireland that protected its operations from potential outages, reduced pressures on the grid, and gained EUR 200 000 through delivering demand response.

Companies are beginning to pursue energy management as an effective way to manage their decarbonisation. This need has led the International Standards Organization to develop a standard linking energy management and GHG reductions (ISO 50100), to be completed in 2026.

While effective energy management can be carried out without certification to standards, monitoring ISO 50001 certifications serves as an indicator to tracking the uptake of energy management practices in industry. Looking at the number of new certifications each year, it is clear that policy has a role in increased uptake. The number of new certifications has increased from 450 in 30 countries in 2011 to nearly 25,000 in more than 100 countries in 2023. Increases can be seen to follow the adoption and subsequent updating of the Energy Efficiency Directive (EED) in the EU, which mandated energy management for large companies, and the implementation of China’s 13th 5-year plan, which came into force in 2016.

Alternative policy approaches include the US Department of Energy’s (US DoE) 50001 Ready programme, also used in other countries such as Canada and Saudi Arabia, which has reported high levels of engagement and energy savings achieved while only providing for self-certification.

Governments could consider the following actions to stimulate energy management in industry:

• Set-up effective partnerships, as has been done by the US, where programmes are implemented together with national laboratories that develop free tools and deliver training and industrial assessment centres that carry out free audits.
•  Establish long term networks and agreements to support implementation, as has been done in Ireland and Finland.
• Combine incentives to implement energy management with benchmarking systems to provide guidance and further drive implementation, such as the approach used in Japan.
• Provide tailored information, incentives and support to small and medium sized companies like in France and Japan.
• Provide easy to access, tailored information and capacity building as has been done by Saudia Arabia that has developed a comprehensive online platform with information and trainings for different levels of expertise.
  

To meet the need for urgent action on energy efficiency implementation, the IEA launched the Energy Efficiency Implementation Drive to support energy efficiency policy makers with insights, learnings and analytics to develop increasingly effective policy packages. To explore energy efficiency progress across regions and countries, the IEA launched the Energy Efficiency Progress Tracker, which has a specific focus on the industry sector. This dynamic dashboard enables users to explore historical data, latest market estimates, and scenarios for energy demand, energy efficiency, and electrification progress.