Advocates seek to bring industry into energy efficiency conversation

Factories and other industrial energy users could make significant improvements in energy efficiency, saving money, cutting energy demand and reducing carbon emissions.

But the same measures that help homes and commercial businesses lower their energy use aren’t necessarily viable or attractive for industries, and energy efficiency isn’t always a priority for manufacturers dealing with myriad financial and technological challenges.

So the national non-profit Advanced Energy Economy Institute and other advocates are trying to push the issue of industrial energy efficiency to the forefront and to involve industrial users in policy and technology efforts, including through a series of roundtable discussions with industrial customers, utilities and other stakeholders in Illinois, Michigan and Pennsylvania. The next event in Illinois will be held on October 11.

The institute also held a meeting in Illinois in August in conjunction with the Clean Energy Trust and Northwestern University’s law school and Institute for Sustainability and Energy at Northwestern.

Industrial energy efficiency is especially pressing in manufacturing-heavy Illinois, where industry accounts for about 30 percent of energy use and utilities’ investments in energy efficiency have been hamstrung by a state law that bars them from raising rates more than 2 percent to fund efficiency programs.

ComEd, the utility that serves Chicago and a participant in the discussions, has advocated for raising the cap on cost recovery for efficiency investments, including through proposed legislation that it backs. The separate proposed Clean Jobs Bill, backed by many clean energy groups and companies, would get rid of the cost cap altogether, and mandate that energy demand by reduced 20 percent by 2025, in large part through efficiency measures.

“Industrial energy efficiency is important because every dollar saved through more efficient operation creates a competitive advantage for our industrial customers in a very competitive world economy,” said Val Jensen, ComEd’s senior vice-president of customer operations. “These companies are not just our customers, they are the employers of thousands of other customers who in turn support other businesses and the communities in which they live.”

Savings predictions

A 2013 study commissioned by ComEd estimated that under the existing cost cap, efficiency programs in the industrial sector could reduce energy use by a cumulative 7 percent between 2013 and 2018, and by 11 percent if the cap were lifted.

The study notes that increased savings without the cap would be slightly smaller in the industrial than the other sectors since industrial participation in ComEd’s existing efficiency programs is relatively low – leaving more room for improvement even under the cap.

Under the predictions, industrial customers would account for 9 percent of savings, versus 63 percent from commercial and 28 percent from residential.

But potential energy savings and economic benefits in the industrial sector are crucial to tap, AEE and other advocates say.

Without new investments, the ComEd study predicted industrial customers’ load growing 1.6 percent per year. But it predicted that with the cap removed and more participation, total industrial energy use could actually decrease by 2018, saving $266 million.

Though several years have passed without the cap lifted since the study was done, Jensen said its message is equally relevant today. “The specific numbers are less important than the fact that we think there is a substantial amount of untapped potential that, if we can help realize, will save our customers hundreds of millions of dollars,” he said.

Driven by motors

Common efficiency tactics in other sectors won’t yield the same results for industry, the study found.

While efficient lighting represents two-thirds of the potential savings for commercial customers, for example, its potential is smaller for industrial customers, making up 7 percent of savings in 2018 under the scenario where the cap is removed.

ComEd found that for industrial customers, upgrades and better maintenance on motors have the greatest potential for energy savings, followed by improvements in air compressors, such as including eliminating leaks and reducing operating pressure.

Jensen noted that ComEd’s industrial efficiency programs include a pilot in partnership with the gas utility Nicor called  Strategic Energy Management (SEM), which helps industries integrate efficiency into their practices with behavioral changes at low or no cost.

Other options include systems that analyze and manage energy consumption data; technologies that curtail energy use during times of peak demand; and combined heat and power (CHP) systems, which produce electricity and heat from the same fuel, either onsite or through district energy systems.

“CHP is a great resource, it’s a pretty underutilized resource, and the entities that are taking the most advantage of CHP seem to be institutional – colleges, universities, municipalities,” said J.R. Tolbert, senior director of state policy for Advanced Energy Economy, a national business group affiliated with the institute.

He noted that since CHP is expensive to install and involves a relatively long payback time, public and academic institutions are often better able to afford and justify it than an industrial company with tighter margins or more immediate responsibilities to shareholders.

Advocates had hoped CHP could be financed in part through the federal Investment Tax Credit (ITC), which provides tax credits for solar installations and other clean energy measures. But CHP was not included in the extension of the ITC.

Proponents lament that state policies generally deal with CHP in an inconsistent and confusing way, with some classifying it as energy efficiency, some as renewable energy and others dealing with it differently or not at all.

The cost cap

Tolbert noted that state or utility programs or incentives could help industrial customers make efficiency investments. If utilities help finance efficiency upgrades for their customers, everyone could benefit in the long run. But that ability is hampered by cost caps like the one that exists in Illinois, advocates say.

“You’re facing an artificial barrier with these cost caps that are keeping us from being able to fully capitalize on efficiency,” said Tolbert. “If you had a 15-year energy efficiency program, then you could make a much larger investment, you might have something that would take more upfront capital and have a longer payback.”

Tolbert explained that under a cost cap, utilities are forced to search for shorter-term, lower-budget projects that meet the cap’s requirements rather than looking for all the energy efficiency investments that would be cost-effective.

“The cost caps sort of invert the process and say ‘here’s how much you’re allowed to do’ versus ‘here’s how much you can do,’” Tolbert said. “What utilities are telling us is that the cost cap actually prevents them from achieving the goals that are put out by the [state’s] energy efficiency resource standard, and preventing them from doing all the energy efficiency that their industrial and residential ratepayers would like to take advantage of.”

“We have seen the same thing happen in other states, such as Pennsylvania, and the opposite principle at work in states that don’t have caps, or have much higher caps, like Massachusetts and California,” added Brian Bowen, regulatory affairs director of FirstFuel, an energy efficiency software company involved in the roundtables.

“To spur further investment in efficiency, Illinois policymakers could do more than just lift the spending cap. They could also give utilities a financial incentive to excel at generating energy efficiency.”

Three-legged stool

In August, the Advanced Energy Economy Institute and the Center for a New Energy Economy released a report outlining financing, technology and policy mechanisms that can be used to drive energy efficiency investments independent of a state Energy Efficiency Resource Standard. The report argues that such other options are particularly important right now since many states’ EERS’s are up for renewal or are expiring.

Energy efficiency advocates often refer to a “three-legged stool” ideal for promoting efficiency: Decoupling utility profits from energy demand, allowing utilities to fully and quickly recoup costs of efficiency programs, and offering further incentives for utilities to invest in energy efficiency.

Illinois, Iowa, Michigan and Wisconsin are among the states that do not have decoupling policies, according to the analysis.

The report advises policies and incentives that create shared benefits for utilities and customers who undertake energy efficiency improvements. It notes that energy savings through efficiency are generally significantly less costly and involve less risk than investing in an equivalent amount of renewable energy generation.

Across the country, advances in smart meters and data access are helping customers make and benefit from efficiency investments. But Bowen noted that smart meters may be of little benefit to industrial customers.

“Each site is highly customized, and the needs are specific,” he said. “The largest industrial customers may have constant operations that don’t change much over time; therefore, just looking at a meter data feed with little variability is not going to be enough to diagnose the efficiency opportunities. More one-on-one customer engagement is needed.”

A spokesperson for the institute said industrial customers involved in the round tables – which are not open to the public – did not want to speak with media.

“Industrial customers are particularly competitive, and that means they play their cards close when it comes to energy management,” said Bowen. “You could see that as a potential negative, since you’re less likely to hear an industrial customer bragging about their energy efficiency results in a case study or panel discussion. But you could also look at the flip side, which is that industrial customers see efficiency as a competitive advantage.

“It’s just a matter of making the right business case that’s personalized to their operations.”

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