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Manufacturing and Energy Changes Today to Influence the Next Five Years

This is the last in a series of three Policy Updates on the potential for increased energy efficiency in the region's manufacturing sector.  The first reviewed energy use and conservation at the region's manufacturing plants.  The second assessed the impact of infrastructure, regulatory, and market changes on energy conservation in the manufacturing sector over a five-year horizon.  This post explores potential policy changes to increase energy conservation in the region's manufacturing sector.

Strong energy infrastructure offers metropolitan Chicago's manufacturers an edge in today's globally-competitive environment, as noted by the CMAP manufacturing cluster drill-down report.  ComEd, which supplies electricity to most of the region, has completed substantial infrastructure reliability improvements over the past several years through smart grid upgrades and the installation of smart meters. Planned expansion of these programs will support manufacturers through increased reliability and improved flow of electricity in the region's power grid.

Increased energy efficiency lowers manufacturers' costs and offers another competitive edge for energy-dependent and price-competitive manufacturers.  The region's manufacturing sector currently underutilizes available utility and government-sponsored resources for improved energy efficiency. CMAP interviews and a Delta Institute analysis of Cook County manufacturers indicate that low energy costs, complex application processes, and limited incentives tailored to the manufacturing sector are major drivers for this disinterest.  Over the next five years, state and federal regulation, utility infrastructure improvements and incentives, and supply-chain demands from the largest manufacturers are likely to be the primary drivers of energy conservation within the manufacturing sector.

Targeted and improved communication of utility incentives

The greatest opportunity for utility providers to increase manufacturer-based efficiency upgrades is through improved, targeted communications. Gas and electric utilities offer incentives to help meet state-mandated energy efficiency targets. Efforts initially focused on residential buildings and equipment, but are now expanding within the manufacturing sector.

As discussed in the first Policy Update of this series, manufacturers perceive utility incentive programs as cumbersome and minimally suited to industrial buildings and processes.  CMAP encountered similar feedback through its Energy Impact Illinois Commercial Buildings Initiative, which introduced a concierge-based model to promote energy efficiency.  Over the course of eight months, 21 program participants received customized savings packages designed to meet their commercial buildings' specific needs.  The participants noted that they found this individualized content to be one of the most valuable aspects of the program, and several have since implemented retrofit projects.  In fact, a growing number of utility incentives are targeted specifically to the manufacturing sector, but utilities have not aggressively marketed their incentive programs. ComEd indicated the need for a more robust outreach effort in its 2011-2014 Portfolio Plan. Expansion of these outreach efforts is critical to encourage manufacturers to improve energy efficiency.

Utilities can leverage their existing account managers to improve customer knowledge of incentives. As described in the first Policy Update, manufacturer dissatisfaction with and perception of the incentive application process are barriers to distributing incentive dollars. Utility account managers are an in-place asset that can be leveraged to provide more information and improve manufacturer understanding of available incentives.  Utility providers can increase account managers' knowledge of incentives through additional training or internal rewards.

The supply-chain networks of large manufacturers offer additional potential for utilities to encourage broader utilization of their incentives. Large manufacturers generate a substantial energy footprint, have more resources to commit to sustainability planning and initiatives, and can adopt standards that their suppliers must meet.  For example, McDonald's, which has its corporate headquarters and a large processing facility in Oak Brook, requires its suppliers to meet energy efficiency goals. McDonald's supports supplier efforts to achieve efficiency goals and honors its suppliers for their sustainability initiatives and projects.  One manufacturer interviewed by CMAP indicated that it upgraded to more energy efficient equipment to meet these standards.   This program could be a model for utility incentive programs; in partnering with a single large company to define supply chain efficiency requirements and offer targeted incentives, utility providers can leverage energy saving opportunities through an entire network of manufacturers and suppliers.

Peer-to-peer networks are another opportunity to disseminate information about successful energy efficiency upgrades and utility incentive programs. While the diversity of manufacturer types poses a unique challenge for energy conservation, common manufacturer systems such as lighting, boilers, or compressed air systems have significant energy savings potential.  To encourage peer-to-peer sharing of information about successful incentives for common products, utilities should consider implementing an industrial customer referral rewards program or encouraging manufacturers that have received incentives to participate in or help organize information sessions with peer groups.

Government policies and regulations  

The federal government promotes energy efficiency in the manufacturing sector through regulatory and standardization processes that mandate more efficient equipment and buildings. As the U.S. Department of Energy (DOE) enacts standards to increase the efficiency of common manufacturing equipment, all new off-the-shelf equipment will be more efficient.  This will make conservation automatic instead of requiring manufacturers to specifically seek out efficient equipment when they need to replace common systems. Increased adoption of equipment standards by DOE is critical to both improving off-the-shelf equipment options available to manufacturers and creating economies of scale for efficient products.

In addition, manufacturers interviewed for this analysis expressed value in the establishment of national standards to label buildings or plants as "efficient." These branding mechanisms can also educate building owners and tenants on their energy use. Some building operators and plant managers may not implement conservation improvements because they are unaware of how energy efficient they are compared to national building standards.  New voluntary initiatives such as DOE's Better Buildings Challenge reinforce the benefits of equipment standards and efficiency upgrades.  The program aims to build, strengthen, and promote networks of building managers and operators committed to reducing energy consumption. Other voluntary initiatives include national standards such as LEED Certification or ENERGY STAR

Local governments can also help building owners understand and improve their energy use. For example, the City of Chicago enacted reporting requirements in September 2013 for public and private buildings larger than 50,000 square feet.  This ordinance applies to 1 percent of Chicago buildings and 20 percent of total building energy use. Once the data is compiled and released, the resulting information will help building owners understand their energy use, compare their use with other buildings, and identify areas for improvement. 

Looking forward

Low energy prices and high reliability make the U.S. manufacturing sector more competitive on the international scale.  The high level of manufacturing activity in metropolitan Chicago makes the region unique and offers untapped potential for energy conservation.  Although manufacturers in Illinois currently pay less for energy than in many other areas of the country, CMAP analysis indicates that the state's energy prices can fluctuate significantly. Ensuring continued access to reliable and low-cost energy can help preserve the region's advantage of strong energy infrastructure.

The highest level of energy use is concentrated in a few industries within the region, but many manufacturers also use common building and process equipment that can be made more efficient. Ongoing efforts by local utilities and various levels of government have the potential to increase the energy efficiency at the region's manufacturers. In particular, continuation of federal standardization programs, in combination with enhanced utility incentive programs, is critical to increase the availability of low-cost, efficient equipment and to ensure the region's manufacturers maintain a long-term competitive advantage for the region.