Sustainable manufacturing roundtable: Turning challenges into opportunities
Sustainability and energy management experts from some of the world's biggest businesses recently gathered in London for an exclusive roundtable hosted by edie and British Gas, to explore the role of the manufacturing sector in shaping the future of energy.
Given that we are on the cusp of a low-carbon manufacturing revolution, there was arguably no better time for this discussion to be had.
At a global level, we are witnessing an era of unprecedented technological change, with the Fourth Industrial Revolution being driven by rapid advances in artificial intelligence (AI), robotics and the internet of things (IoT).
But here in Britain, it appears that the only certainty is uncertainty for manufacturers large and small across the country, with industry growth hanging in the balance. The sector, which accounts for around 11% of the UK’s economic output, continues to battle a perfect storm of rising inflation pressures, increased international competition and a growing skills shortage.
And then there’s Brexit. Last year’s vote to leave the European Union has caused the value of the pound to plummet. Industry surveys have suggested that many manufacturers are now considering moving operations overseas to boost productivity or reduce costs, with China and India expected to be the main beneficiaries of the potential exodus.
So, where does all of that leave us? How can Britain’s manufacturers take the lead on energy management and efficiency when our policymakers are yet to release an overarching industrial strategy? How can energy and sustainability managers working within major manufacturing firms secure much-needed buy-in from all parts of their business to take their strategies onto the next level? And what does sustainability leadership look like as the world gears up for this next industrial revolution?
Those were some of the crucial questions that edie sought to answer during the manufacturing roundtable last month. The event, sponsored by British Gas Business, brought together 10 sustainability and energy management experts to discuss the potential solutions to some of the biggest challenges facing the sector, and to identify the energy management opportunities that will allow businesses to continue moving forward despite the turbulent backdrop.
Transforming the grid
The discussion began with a look at the current state of Britain’s energy system. Roundtable chair Susanne Baker, head of the environment and compliance programme at TechUK, kicked off with what she referred to as “the million-dollar question”: how can we modernise the national energy grid?
“A lot of Government strategy has been focused on generation but less interventionalist on a grid level,” said Baker. “Even though the grid has itself indicated that a significant amount of money needs to be invested into modernising the grid – I remember a £20bn figure which it stated a few years ago. How can we achieve this modernisation?”
Business development manager for British Gas Business, Dave Adams, noted that his company has been engaging with “a number of customers that have had a lot of trouble working with the grid”.
“It’s a huge problem we’re seeing across the board for energy customers,” Adams said. “The answers need to be coming from the top – it’s time for Government to step in and come up with a viable solution, with the help of suppliers.”
Richard Laxton, group sustainability manager at Leeds-based dairy products company Arla Foods, said the distribution grid “remains a big issue” for his company.
“I’m concerned that, through the UK’s 2050 decarbonisation strategy, there’s a big move towards using more electricity – but this country has got an amazing gas grid,” Laxton said. “We’ve tried on numerous occasions to get renewable energy into the grid, but it’s impossible because there’s just not the capacity on the electricity grid. As a result, we are focusing on the gas grid because we know that it’s able to manage what we need to do in the future.”
Richard Carter, head of finance and sustainability at Suffolk-based brewer Adnams said he had found “exactly the same problem”. “It’s not the creation of the renewable electricity that’s the problem, it’s the distribution of it,” Carter said. “That has forced us into looking at more innovative solutions – electricity storage, for example – and also adjusting our usage patterns.”
Rolls Royce energy manager Daniel Waller was also in agreement. “Distribution issues have driven us in a new direction,” Waller said. “We’ve got a site in the north west where we’re buying modular, small-scale co-generation units and we’re going to start generating our own power to manage power increases at that site – that brings some resilience benefits as well.”
Taxes or targets?
And what of the policy frameworks that underpin Britain’s energy system? The roundtable was in general agreement that the country’s current tax-based approach to reducing energy consumption has lost touch with the decarbonisation efforts of those working in manufacturing sector.
Martin Hills, head of energy and carbon at building materials company Cemex UK, said: “With things like the UK Emissions Trading Scheme (ETS), the Climate Change Agreement (CCA) and the Carbon Reduction Commitment (CRC), you’ve got to ask a serious question as to whether they’re actually doing anything.
“If we want to decarbonise at the lowest cost, we must start putting energy efficiency targets on businesses rather than taxes.”
Carter from Adnams agreed. “We don’t need a tax to incentivise us to reduce our energy,” he said. “Worse than that, things like the CCA can actually be a disincentive to people being innovative. We made huge reductions in our energy in the 2006-2008 period. As soon as these frameworks came in, we couldn’t continue making such big savings because we’ve already done them. So, it hasn’t really worked for us.”
Regardless of the legislative backdrop, the business case for operational sustainability in manufacturing is clear. A recent study conducted by Barclays Bank concluded that British manufacturers could inject as much as £2.6bn into the UK economy and cut energy consumption by nearly a third over the next decade by investing in clean technologies and efficiency measures.
The next frontier
During the roundtable discussion, the business representatives indicated an increased focus on renewable and decentralised energy systems as a way of driving sustainability.
Ian Knight, global site sustainability manager for food and drink manufacturer Mars, explained how his firm is transitioning away from fossil fuels at its manufacturing plants around the world.
“In the UK, we have a windfarm near Inverness that supplies our UK facilities with renewable electricity,” Knight said. “We purchase renewable energy through Power Purchase Agreements (PPAs), which mean that we’re contracted to buy renewable energy rather than using our own money and installing renewable energy assets.
“Having resolved renewable electricity for our sites, we’re now looking at gas – we’re trying to reduce our gas usage and looking for renewable solutions to replace methane.”
Carter from Adnams added: “We’re in exactly the same situation. We purchase renewable electricity, which is superb, and now gas is the next frontier. We also have sufficient land to start creating some energy – some micro-generation for our own use, and then to offer any surplus energy to residents in the local town.”
But as many people around the table pointed out, renewable energy is, by its nature, intermittent, and onsite clean energy systems cannot simply be relied upon to power an entire company’s operations. So, the discussion inevitably began to focus on the burgeoning solution of energy storage.
“To what extent have you been experimenting with energy storage?” asked Baker.
“The technology just doesn’t work for us right now,” admitted Waller from Rolls Royce. “We have what I consider to be pretty generous ROI thresholds, but we just can’t make it work with battery storage at the moment.”
Carter from Adnams agreed that the financial case for energy storage has been an initial barrier to deployment, but noted that the technology appears to be reaching a critical turning point.
“It’s very early days for us with storage,” he said. “The technology has been around for a while, but it’s just getting to the point of becoming really genuinely usable at the sort of level that we’d need it. It’s also important to note that energy storage is not just about the cost savings, it’s about the resilience of the organisation.”
Whether it’s the rollout of onsite energy efficiency technologies, large clean energy systems, or energy storage, there remains one vital challenge which must be overcome to deliver sustainability improvements: getting the board on board.
“How do you get the investment – what’s the business case you put forward?” Baker asked.
“For us at Rolls Royce, the PPA deals for renewables have been a great way of securing funds, because it is essentially just a utility contract,” said Waller. “If the finance team sees it as a 20-year utility contract then they’ll sign off on it. But they may not sign off a 20-year, third-party finance deal, because that’s borrowing money. Right now, that passageway to doing deals is much easier than borrowing money.”
Waller went on to reveal that his team have had a ring-fenced budget to deliver sustainability projects over the past four years. “What our capital committee has realised is that our investments are coming in with a return-on-investment (ROI) of 30-35% on a good day, 20-25% on a not so great day,” he said. “The folks from the manufacturing sector are coming in with projects that have a 5-10% ROI at best.
“So, although we might only be asking for £500,000 and they’re asking for £50m, the bankability of our projects is much higher and the ROI is much higher than an equivalent project from the rest of the business. Most of our projects have been successful, too, so the money has kept flowing.”
On the topic of securing buy-in, Richard Profit, global operations sustainability senior manager for food and beverage firm PepsiCo, stated that risk exposure has proved to be an important factor when securing leadership buy-in for key sustainability projects.
“We’ve looked at things like stranded asset costs,” said Profit. “If you’ve got a $100m plant and it’s not producing, then you can start putting that cost into the CapEx of the project. This starts changing the leadership’s perception of the risk and therefore a particular project can be more acceptable for a five-year payback.”
So, once the investment hurdle has been overcome, how can a sustainability or energy manager effectively monitor and measure the effects of that project in a way that allows for continual improvement over time?
Mobile app-based data management systems are fast-emerging as viable solutions for monitoring and measuring energy usage much more immediately, and at a more granular level. So says Adams from British Gas Business, who noted that a growing number of his clients have been placing an increased focus on data management to underpin their sustainability progress.
“I think we’ve sometimes overcomplicated data management solutions,” Adams said. “Lots of our customers just want an easy-to-use analytical programme which they can use at different levels across the business.”
Paul Barnett, the programme manager for the environmental sustainability centre of excellence at GlaxoSmithKline, agreed that data holds the key to successful energy management, having helped his Brentford-headquartered pharmaceuticals company halve energy use over a 17-year period. “We can now track data at a fairly low level very frequently,” said Barnett. “That has helped to make a lot of savings.”
Nigel Harley, internet of things subject matter expert for IT firm Dell, took the data management conversation a step further, explaining that some of the latest technological developments, such as the IoT, are helping sustainability and energy managers make the most of the information they are receiving.
“It’s so much easier to do now – you can do it on your mobile,” Harley said. “Once you start curating that data more accurately and more immediately, then you can start looking at things like predictive maintenance; you can start to factor in wear and tear, and then you start layering other parts on to that. Once you build up your ‘data lake’, you can essentially go on a journey based on the data you have – and that’s exactly what the IoT is.”
Harley went on to state that there is now “a new generation of workers coming through” – a generation which thinks differently to existing sustainability and energy managers. “I wonder if, in 10-20 years, this type of roundtable would be a totally different conversation in that respect,” he said.
Manufacturing the future
It’s a good point. In fact, how will manufacturers be operating in five, 10 or 50 years’ time, when looked at through the lens of corporate sustainability?
In terms of the business model itself, both Profit from PepsiCo and Harley from Dell discussed the idea of a products-based economy being replaced by a service-based economy. “The whole ‘as-a-service’ model could radically change how manufacturers operate,” said Profit.
And what of the manufacturing plants? Could new business models pave the way for new approaches to building development and ownership? Profit and Harley together touted the idea of manufacturers operating within closed-loop industrial parks, or being given floor space to make products rather than owning entire buildings or paying for the connection of the distribution of the utilities.
"Denmark and Sweden have created industrial sites based on circular economy models,” explained Profit. “The waste from one factory – whether it’s heat or materials – is a feedstock for the next factory. They’ve deliberately designed the entire industrial park to match each other.
Harley added: “The next generation of entrepreneurs that come through may say ‘we don’t need a manufacturing building, we just need to be able to make this product at this rate’.”
Knight from Mars responded: “One of our sites is on exactly that model – there’s a centralised CHP plant and the owners of the trading estate own all the buildings, they supply the energy the water the electricity and heat. Theoretically, it’s very efficient and some aspects are efficient in terms of sharing some of the assets.
“The planning in terms of the setting up of closed-loop industrial parks makes a lot of sense. But in the UK, we’re a prisoner of our history and it’s very difficult to create new industrial parks of a decent size.”
But we are also students of our history, we can learn from past experience related to particular challenges and then turn those challenges into opportunities in the future.
The 2008 recession saw manufacturers place a renewed focus on energy efficiency measures, with surveys revealing that as much as 80% of manufacturing firms increased the rollout of energy efficiency initiatives during that period of financial constraint. It is in this light that manufacturers should view the ‘known unknowns’ that currently surround the industry as an opportunity to ensure that the Fourth Industrial Revolution is built on a foundation of low-carbon, resource-efficient business.
Which brings us back to Brexit. The implications of leaving the EU undoubtedly remain uncertain, but if one thing has been made clear through edie’s roundtable discussion, it is that an increased focus on sustainability, energy efficiency and system flexibility will continue to be a key objective for British manufacturers. And, as Carter from Adnams concluded, that focus is only going to get stronger.
“I think some of the unknowns surrounding Brexit and the ongoing political changes in the UK are a really good reason for manufacturing businesses to be looking more closely at sustainability,” Carter said. “Because we can ultimately achieve long-term resilience through sustainability and that is a helpful outlet to have during these times of uncertainty.”
Manufacturing report: Setting the pace on UK energy
As this roundtable concluded, manufacturing has a unique opportunity to set the energy benchmark for the rest of UK business, driving tangible benefits for individual businesses, the sector and the wider UK grid.
To gain an insight and an understanding of the UK manufacturing sector’s approach to energy use, reduction and generation, edie undertook a survey in partnership with British Gas. The questioning sought to determine the greatest risks around energy and to understand where priorities and procurement decision-making lie within the manufacturing sector and in the broader business landscape.