Ripe for the Picking: Have We Exhausted the Low-Hanging Fruit in the Industrial Sector?

Anna Monis Shipley and R. Neal Elliott

April 2006

Executive Summary

A recurring theme offered by those opposed to the funding of industrial energy efficiency efforts has been that companies have already realized all the cost-effective industrial energy efficiency opportunities that exist. We have evidence that this premise is untrue, and economy-wide data shows that energy intensity has been improving, even during a period of fairly stable energy prices during the 1990s. While the reasons underlying this phenomenon are complex, the trend clearly exists. In this study, we will look for clues to how the potential and costs of energy efficiency investments have changed over time. From these clues we will show that energy-saving opportunities still exist in industry today, though perhaps their character and relative costs have changed. While we may not have the robust data to be able to determine how much of the efficiency opportunity is attributable to technology, structural change, or learning, we hope to provide clues that lead the reader to share our conclusion that industrial energy efficiency opportunities are fruits born by a healthy, growing tree—ripe for the picking.

Does the Potential Still Exist for Energy Efficiency in Industry?

Numerous analytical studies have found that abundant, low-cost efficiency opportunities exist in all parts of the industrial sector. These savings projections have been corroborated by actual evaluated program results in regions that have implemented robust programs and also at individual companies. Energy efficiency opportunities can be grouped into two broad categories: low-cost/no-cost measures that involve changes in operating or maintenance practices; and measures that involve capital investments in new equipment. The industrial sector, however, has changed fairly dramatically over the past thirty years. In order to examine the context, we can look at the energy use trends that have taken place during this period.

The 1970s were characterized by the first of several energy price spikes that have hit energy consumers. The 1980s were a period of rapid technological innovation in the industrial sector. Low energy prices during much of the 1990s made non-energy benefits equally important, if not more important, than energy savings in determining the adoption of energy-efficient technologies. With the dawn of the 21st Century, increasing energy prices and emergence of greater global competition have emerged as the leading trends.

Some of these efficiency improvements have resulted from the elimination of inefficient excess production capacity. The U.S. manufacturing base had developed significant excess capacity by the 1980s as a result of the capital investments driven by the economic expansion of the 1960s and early ‘70s. Beginning in the mid-1980s, we saw a trend toward reduced capital investment as the investment community began to focus on increased return on assets. This resulted in a period of consolidations within industries that has continued until recently.

Clues from the Industrial Assessment Centers Database

The study makes extensive use of the U.S. Department of Energy’s Industrial Assessment Centers (IAC) program database that reflects both the recommendations and the measures actually implemented. It now contains about 13,000 assessments, with over 96,000 specific recommendations, conducted by the program since 1980. A review of the data indicates that IAC participating manufacturers achieve on average $30,000 annually in energy savings and $30,000 in waste and productivity savings, totaling $60,000 per assessment, with replication and long-term implementation support adding an additional $15,000 to the average audit savings. Overall, a little more than half of the improvements suggested through the IAC program have been adopted by industrial users. The IAC program averages $5–9 of energy savings directly from assessment alone, per program dollar.

It is worth noting that even though efficiency opportunities may cost slightly more in real terms than they did 20 years ago, in absolute terms, these investments are still very inexpensive and offer fantastic paybacks. The median payback of 5.2 months in the most recent IAC data may be greater than the 1980s value of 3.4 months, but any payback period of less than 12 months is typically considered very attractive for industrial energy efficiency investments. Many would consider simple paybacks below 6 months to constitute low-hanging fruit. 

While the U.S. industrial base has changed over the past 30 years, the clue we can take from the data presented is that significant energy efficiency opportunities continue to exist. These opportunities do, however, look different today than did the opportunities at the end of the 1970s. It appears that the opportunities for gross waste elimination may be less than they were 30 years ago. As a result, we see the opportunities shifting to optimization and application of more efficient technologies. In the IAC database, during the 1980–1985 period (see figure), combustion systems represented 18% of recommendations, while thermal systems represented 57%, and motor systems represented 25%. In the 2000–2005 period, the recommended efficiency improvements shifted to be 26% combustion systems, 33% thermal systems, and 41% motor systems. So perhaps we could say that much of the rotting fruit lying on the ground has been picked up, but opportunities can still be found lying there or falling from the tree. Energy efficiency opportunities are still plentiful at facilities, whether at large or small facilities.

Conclusions

Data obtained from the IAC database, as well as the broader industrial market data provided by the current and historical Manufacturing Energy Consumption Survey (MECS), indicate that there still is significant potential for improving energy efficiency in this sector. The IAC program audits consistently are able to find low first cost and cost-effective recommendations for industrial facilities of about the same magnitude. This savings level has not changed significantly during the program’s over 25-year tenure. While the first costs of many efficiency technologies and procedures may have increased since the early 1980s, simple payback periods for these improvements fall well within a very attractive 6–12 month period. This indicates that rapid-payback opportunities still exist in abundance, as do low-hanging fruit, though perhaps in a different form than they had 20 years ago. Does low-hanging fruit still exist in the industrial sector? We believe that the answer is yes.

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36 pp., 2006, $16.00, IE061