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ENERGY EFFICIENCY Using renewable energy to drive supply chain innovation

Nov 26, 2019

With renewable energy being more accessible and affordable than ever, the manufacturing industry should try to evaluate their supply chains for ways to switch to renewables, such as solar, wind, biomass, geothermal and hydro power, to start realising the benefits as soon as possible. The article explores various Industry 4.0 technologies and their potential impact for enabling digital supply networks in manufacturing.

Renewable energy resources, or ‘renewables’ are naturally replenishing energy sources that can replace coal, oil, natural gas and nuclear power across the supply chain with clean, safe and reliable power at low or zero carbon emissions. It has the potential to avoid risks and cost implications of fossil fuel price fluctuations and regulatory changes; it attracts customers, partners and employees interested in corporate responsibility and drives corporate growth by maintaining pace with the competitors. This could improve supply chain by decreasing long-term costs, providing price stability, mitigating future regulatory risk, enhancing brand value, driving new revenue and improving employee engagement. Renewable energy requires careful upfront feasibility assessment, based on the availability of resources, infrastructure, investment strategy, financial returns and secondary considerations, such as, reputation enhancement.

Recent developments and outlook

Overcoming traditional barriers has accelerated the pace of adoption and progress of renewables, making it more accessible and affordable than ever. The United Nations Conference on Climate Change (COP21) which resulted in 195 countries approving the first universal, legally binding global climate deal on greenhouse gas emissions & underscores the growing influence policy has in shaping renewable energy growth. In response to shifting public sentiment, many organisations are reviewing and modifying energy management initiatives, of which renewables are typically a core component. Corporations, such as, Apple Inc, and Kohl’s are ‘going all-in’ on renewables. 154 companies have signed the American Business Act on Climate Pledge and 81 companies have committed to pursuing 100% renewable energy through the RE100 initiative.

Benefits of renewable energy in supply chain

Increasing the use of renewable energy in supply chains has the potential to increase revenue. Consumers increasingly choose to purchase from and invest in more environmentally and socially responsible companies. Generally speaking, many of today’s supply chains are still people intensive. Positive impact on corporate talent strengthens the case for adopting renewable energy. Company performance on sustainability issues can help attract and retain talent. Switching to renewable energy in ways that are visible to employees can help decrease attrition rates, thus reducing training costs, increasing in-house experience and serving as a talent differentiator.

These talent-related, intangible benefits may be more difficult to quantify but are nonetheless an important consideration in renewable energy strategy decisions. Installing highly visible renewable energy technologies — solar carports in parking facilities, for example — is just one-way companies can achieve intangible benefits from renewable energy.

Criteria for evaluation and adoption

Operational considerations

Increase in renewable energy used across the supply chain starts by developing an energy procurement strategy based on the company’s profile and specific needs. The following five attributes can help shape one’s renewables strategy decisions and determine the potential overall return on the company’s renewable energy investments.

  1. Company size and energy profile

    Renewable energy procurement options and constraints vary according to company size and energy profile, with smaller companies typically being the most challenged. It is important to assess that does one represent a small (< $100M revenue), midcap ($100M-$500M revenue) or an enterprise company ($500M+ revenue); the energy used each year and if the company’s energy profile is chiefly purchased energy or an onsite generation.

  2. Facility profile

    Energy procurement decisions should be based on facility type and whether it’s owned or leased. Leased properties are typically more challenging; installing onsite renewable energy is more viable when a company owns the building and has decision-making power as well as access to the roof, parking lot and other real estate required for system installation. It is necessary to understand the types of facilities (laboratory, data centre, manufacturing facility, distribution centre, etc) that would be used with renewables.

  3. Locations and markets

    Energy incentives and regulations vary among and within countries. What is viable in one country may not be in another. In the United States, for example, PPAs are only possible in states with deregulated electricity markets. Facility locations and local markets will offer different options for available types of generation and ownership models. Basic evaluations need to be made on the basis of, the countries one operates in, if the facilities are concentrated in one state or country or are they distributed worldwide, availability of renewables in the specific location(s) and the impact of regulations and business model options in each location on one’s renewables strategy.

  4. Investment

    Renewable energy procurement can be heavily tailored to limit risk and overall investment. Even for companies in highly competitive, energy-intensive industries, renewable energy can be a good option that conforms to specific financial obligations and risk tolerance. One must take into account the investment that would go in and the financial feasibility of new energy generation at the specific location.

  5. Proximity and visibility

    Renewable energy has the potential to be a highly visible corporate responsibility statement. This is becoming increasingly important as stakeholders, such as, downstream customers, have become more vocal in their expectations, and even more so as employees and customers align with more responsible corporate environmental action. Many companies adopt renewable energy to be more socially responsible. Selecting a highly visible location for the system may be more important in this case than the actual renewable energy type, as long as the financials and technical viability are sound. One must asses if & why the visibility of a renewable energy system’s important and are there any other alternative measures that could provide value.

Framework for decision making

  • Renewable energy success factors

    Leveraging industry leading practices can help define and facilitate implementation of an optimal renewable energy strategy. Goals for driving renewable energy in the supply chain should match the company’s overall vision, goals, strategy and ability to implement and continuously improve.

  • Investment impact matrix

    Renewable energy investments should be prioritised to achieve energy procurement and sustainability goals. While renewable energy can pay dividends in many ways, it is important to work towards the optimal portfolio for the company’s profile and specific operational considerations in order to achieve the desired benefits. The dividends realised for talent, growth, risk mitigation and cost & efficiency will differ based on the magnitude and type of renewable energy investments made. Returns, or derived benefits, such as, an energy portfolio that creates positive cash flows and reduces long-term energy costs, should be strategically managed to create the desired position.

  • Renewable energy procurement options

    Once one has established the desired outcomes for increased adoption of renewable energy in the supply chain, he can begin to evaluate procurement options and determine which best suit his organisation’s goals. The key takeaway is that today’s renewable energy leaders can and should tailor investment decisions to their company’s individual energy profile and corporate goals.

Key levers for renewable energy in supply chains

Supply chain applications

Significant renewable energy opportunities exist at each stage of the supply chain. Examples:

  1. Develop: Energy consumption is often high during designing and prototyping activities due to the energy requirements of early stage designing of equipment. Renewables can help reduce energy spent and the impact, improving overall Life Cycle Assessment (LCA) of products during this stage of the product lifecycle.

  2. Plan: Improve forecasts and reduce exposure to commodity price fluctuation associated with traditional fossil fuels

  3. Source: Effectively shift energy from an overhead to direct material by sourcing a 15-year PPA for energy generated from an offshore wind farm

  4. Make: Decrease manufacturing-related operational costs and sensitivity to commodity prices by locking in cheaper, longer-term contracts for renewables

  5. Deliver: Reduce warehouse energy spending through onsite rooftop solar photovoltaics and reduce transportation fuel costs through truck electrification technologies powered by the same system

  6. Return: Use material waste or unsellable organic products (food waste) to make energy using waste-to-energy technologies, such as, anaerobic digesters

These examples are just a few of the many opportunities to advance supply chain with renewable energy. Opportunities exist in end-to-end supply chain for cost reduction and value creation.

Motivation for action

The time for companies to assess their supply chains for renewable energy adoption is now. Access to renewable energy is better than it has ever been. Overall technology costs have decreased and new financing structures are providing flexibility for dynamic implementation. Through improving shifts in capital costs, technology efficiency, regulations and public or other stakeholder opinions, the motivation and momentum for renewable energy is strong. Renewable energy can be a significant source of value for many organisations. While each company that builds the capabilities to capture value from renewable energy must design a portfolio of investments tailored to its own organisational profile, making investments in renewable energy can have a profound, positive impact on their businesses.

Courtesy: Deloitte

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  • Renewable energy investments should be prioritised to achieve energy procurement and sustainability goals

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