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Report: Manufacturers Pay Massive Costs for Energy Inefficiency
Apr 10, 2014
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Insufficient communication and too much emphasis on controlling factory capital expenditures means that manufacturers pay massive energy-inefficiency costs over the lifetime of their plants, according to research firm IHS.

“There is a significant disconnect between those who make decisions regarding industrial capital expenditures, and those who are tasked with managing the costs of manufacturing operations,” said Alex Chausovsky, manager and principal analyst, Motor-Driven Systems and Industrial Automation, at IHS. “Individuals making capital-expenditure decisions when building new industrial facilities rarely, if ever, consider the long-term costs associated with projects."

The means that decision makers consistently make initial purchase price the priority, rather than total cost-of-ownership (TCO). Energy efficiency doesn't factor in to the decision-making process.

"Operators that take over these projects after their completion are often faced with much larger energy bills than they would have if the most efficient equipment had been specified during the construction phase of the project," Chausovsky said.

IHS gave the example of an average electric motor used in a factory. According to industry case studies:
• 2% of the motor’s total cost-of-ownership is the purchase price
• 2% of the TCO is for repair and maintenance
• 96% of the TCO is for the motor's lifetime electricity use. The age—with the remaining 2% going toward repair and maintenance, according to multiple industry case studies.

The firm also points out that electric motors used in industrial facilities and other settings consume close to half of the world’s electricity, according to International Energy Agency (IEA) data. Industry also is the largest single electricity-consuming segment, with 42% of total usage in 2006, far more than other segments, including residential and commercial.

The firm said the electric motor segment is a large and growing part of the industrial market. Globally, revenues from low-voltage motors used in industrial applications were estimated at $14.6 billion in 2012 and the firm expects this to reach $23.4 billion by 2017.

Governments around the world are enacting various Minimum Efficiency Performance Standards (MEPS), and this will change the product mix in the coming years.

High-efficiency motors made up just 28% of global low-voltage motor shipments in 2012; the remainder of the shipments were primarily standard efficiency motors. By 2017, higher efficiency motor types will make up 62% of shipments.

But motors represent just one example of problems resulting from a lack of communication between those behind capital expenditures and operating expenditure teams.

To lower operating expenses, companies must consider total cost of ownership when buying new equipment. HIS said that slightly more expensive, more-efficient equipment can help manufacturers save "massively" on electricity costs over the years. The firm suggests equipment suppliers encourage the adoption of high-efficiency equipment by offering flexible payment options, which can allow buyers to pay off equipment over time, as they attain TCO energy savings.

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