Clean Energy Strategies for the Manufacturing Sector

The manufacturing sector consumes over 30% of all energy in the U.S., making it a prime candidate for energy management.[i]  Simple measures can greatly improve manufacturing efficiency, thereby insulating the industry from rising energy prices and increasing its competitiveness. 

Rising Energy Prices:

The manufacturing industry relies on a large and stable supply of affordable and reliable energy to keep its factories running.  Along with the effects of globalization, rising energy costs have taken their toll on America’s manufacturers.  Take, for instance, recent rises in the price of natural gas.  Since 2002, natural gas prices have increased dramatically and, at one point, natural gas reached the equivalents of a $16 gallon of milk, a $9 gallon of gas, and a $13 pound of beef.[ii]  Because manufacturers account for roughly 36% of all U.S. natural gas consumption, these rising costs have seriously strained the industry. [iii]   The effects of rising natural gas costs are felt by all types of manufacturers, and by the U.S. manufacturing economy as a whole:

• Metalcasting.  The metalcasting industry manufactures components for a number of end uses including motor vehicles, construction and industrial machinery.  This industry uses vast quantities of energy, approaching an amount equal to the residents in New Hampshire, New Mexico, Rhode Island, Wyoming, and Hawaii combined.[iv]  It represents roughly 1% of U.S. manufacturing energy use[v] and .2% of U.S energy use.[vi]  . The industry meets 59% of its energy use through natural gas and 27% through electricity.  The metalcasting industry directly employs 227,000 workers and mostly consists of small businesses.[vii]
• Steel.  In 1998 the steel industry accounted for roughly 6.7% of all manufacturing energy use and 1.5% of U.S. energy use.[viii]  Within this sector, ironmaking is the most intensive energy user. Like metalcasting, the steel industry is heavily dependant on natural gas. The industry employs over 189,000 workers and has annual shipments valued at $60 billion.[ix]
• Chemicals.  The chemicals industry consumes rougly 6% of domestic energy and 19% of all manufacturing energy. This industry uses natural gas for fuel and feedstock, and is highly vulnerable to price volitility.  The chemicals industry employs over 1 million people.[x] 
• Glass.  According to the most recent Manufacturing Energy Consumption Survey (MECS), the U.S. glass industry consumed 206 trillion Btu of energy in 1998.  This represents roughly .9% of manufacturing energy consumption and .2% of U.S. energy demand.[xi] Energy expenditures within this sector account for rougly 6-12% of production costs.  Over 50% of its energy is derived through natural gas.  The industry employs more than 145,000 workers with annual shipments exceeding $27 billion.[xii]
• Paper. In 1998, the pulp and paper industry spent $7.6 billion on energy equaling roughly 3% of the value of total goods shipped by the industry.   The Pulp and Paper sector accounts for nearly 11% of all manufacturing energy use and nearly 3% of U.S. energy use.[xiii]    It is the manufacturing sector's fourth largest fossil fuels consumer.  While its energy consumption is indeed large, the industry makes significant use of biomass waste products.[xiv]

Increased Manufacturing Efficiency for a Healthier U.S. Economy:

High energy costs force those manufacturers who seek to remain competitive to achieve cost savings by reducing their energy consumption.  The manufacturing sector is an important part of the American economy, diretcly employing over 14 million people and indirectly creating jobs for millions more.[xv]  Each dollar spent on end use products creates an additional $1.43 in intermediate economic output.[xvi]  To that end, making the manufacturing sector more efficient and competitive is vital to the health of the U.S. economy.

Fortunately, the manufacturing sector offers many opportunities for improvements in efficiency.  In comparison to its overseas counterparts, U.S. manufacturing uses antiquated technology.[xvii]   One such example is the industry’s wide use of inefficient electric motors to operate everything from conveyor belts to industrial lifts.  These motors consume roughly 70% of all industrial electricity and old, inefficient versions can require up to five times their capital cost in energy annually.[xviii]   Simply replacing these inefficient or improperly sized motors can reduce energy usage between 30 and 60 percent, often generating enough savings for firms to pay off the cost of the new motor in less than three years. 

The benefits of more efficient industrial equipment are not just limited to energy cost savings however.  More efficient equipment can trigger gains in productivity, which helps efficiency retrofits pay themselves off even quicker.[xix]  Manufacturers across the nation are using these strategies to make their business more efficient and competitive.  The experiences of two such manufacturers are detailed below.

• Greenville Tube in Arkansas supplies stainless steel tubing to a variety of applications. Their production process includes pulling metal tubes through dies that gradually slim their wall thickness.  One of these “drawing” stages utilized an inefficient and undersized motor that caused constant production bottlenecks.  An upgraded, efficient motor improved electricity use by 34%, providing payback within five years.  However the powerful motor could also shape the tube with fewer draws, greatly reducing related operational expenses.  The productivity gains brought the total annual savings to $77,000- a payback of only five months.[xx]
• In 1989 Kraft General Foods was closing its oldest and least profitable plants. The Framingham, Massachusetts plant, employing 200 workers, was among them.  In an effort to cut costs enough to survive, the plant conducted an energy assessment which revealed $3.6 million in possible improvements.  With assistance from the local utility, the plant executed a number of projects including heat recovery systems, efficient motors, improved refrigeration and better air handling.  These efforts alone reduced electricity costs by nearly one third.  Additionally, the highly efficient refrigeration system reduced the hardening times for ice cream by half, increasing productivity by 10%.  These efficiency savings and productivity gains spared the factory from closure.  The plant has since expanded its staff to 250.[xxi]

Resources for Manufacturing Efficiency:

Fortunately for manufacturers, a number of good resources exist for helping U.S. manufacturers achieve gains in energy efficiency, and the accompanying gains in productivity and competitiveness.  There is no single plan for all manufacturers to become more efficient – in fact, the most effective strategies to improve efficiency are industry specific. The resources below can help manufacturers determine the most effective measures for their business.

1.  Manufacturing Extension Partnerships (MEP)

The Manufacturing Extension Partnership program is a nationwide effort to maintain the global competitiveness of small- to medium-sized manufacturers.  Through its 350 U.S. centers, the MEP offers a variety of services ranging from business consulting to technical assistance.  The program has demonstrated a track record of success – the average MEP client benefits in the order of:

• 5.5 jobs added or saved;
• Increases of $370,000 in sales; and
• $43,000 reduction in labor and materials costs.

Often MEP work involves technical assistance for energy efficiency upgrades, which is particularly valuable to small business. Smaller firms often lack the resources for in house efficiency experts or the money to contract with qualified efficiency experts.  Accordingly, many small US firms trail their overseas counterparts in performance-enhancing technology.  The MEP helps these small manufacturers become more competitive, lowering their energy costs and helping them better use technology.  Click HERE to see a map of MEP centers around the country, and HERE for MEP case studies from each state.

2.  Industrial Technologies Program (ITP) Plant Assessments

The U.S. government, through the Industrial Technologies Program, provides assistance to manufacturers of all sizes looking to increase the efficiency of their facilities. 

Small- and medium-sized manufacturers are eligible to utilize ITP-sponsored Industrial Assessment Centers.  These centers are located at 26 universities around the country and offer free energy audits conducted by engineering faculty and students.    Plant managers are given detailed recommendations for energy efficiency, waste minimization and productivity improvement.  Energy costs savings are typically significant, in the order of $55,000 annually.

Larger, more energy-intensive companies can qualify for financial assistance under ITP’s Plant-wide Assessments (PWA) program.  The assessments target energy savings in a number of areas including steam delivery, process heating, motor systems, compressed air systems, heat exchange optimization, and combined heat and power.  Most companies participating in the PWA program reduce their energy consumption by 10% to 15% with a payback period of under18 months.  Access to this program is limited.  Participants are chosen through a competitive solicitation process and the program requires 50% minimum cost share with maximum awards limited to $100,000.

3.  Industrial Technologies Program (ITP) Training Sessions

The Industrial Technologies Program provides training programs throughout the nation to educate maintenance staff, plant managers and plant engineers on best practices in energy efficiency.  Currently ITP includes five training categories: motor systems, compressed air, steam systems, pump systems, and process heating.   The workshops are structured differently by category but typically include an overview, software training and certification. 

4.  Industries of the Future Program (IOF)

The Industries of the Future Program is a public-private partnership intended to reduce high energy usage through technological innovation in seven key industries: steel, aluminum, metalcasting, glass, chemicals, petroleum refining, and forest products. 

While these companies can clearly benefit from technology innovation, they often lack the resources to undertake extensive research and development on their own.  To that end, the IOF program works with industry stakeholders to direct industry-wide research projects whose costs are shared by IOF participants.  Private sector participation ensures that one goal of this research is to develop commercially relevant technology that will help U.S. manufacturers adapt to volatile and uncertain energy markets. 

5.  Local and Regional Programs

Manufacturers may also find support for energy efficiency projects at the state and local levels.  Many local governments and utilities offer considerable assistance for energy management and load reduction programs.  A few of these programs are listed below: 

• Seattle City Light provides complimentary facilities assessments for commercial and industrial customers.  They also subsidize industrial process improvements at up to 70% of qualified costs.
• The State of Indiana supports a host of industry-based efficiency programs including zero interest loans for efficiency upgrades and steeply discounted efficiency audits.  Additionally, the state government subsidizes some efficient and distributed technologies.
• New York State Energy Research and Development Authority (NYSERDA) Premium Efficiency Motors Program awards motor manufacturers up to $80 for every qualifying motor they sell.  This departs from conventional incentives programs because it rewards suppliers rather than buyers.  The theory behind NYSERDA is that the incentive will motivate vendors to market efficient motors more aggressively, ultimately creating a market for these motors that is independent of state subsidy. 

Click on the link below for a list of some of the manufacturing efficiency resources available in each state.  The link does not provide a comprehensive database of all state-specific manufacturing efficiency resources, so interested parties are encouraged to check with their state energy office, commerce department, and public benefits fund administrator for other possible financing tools for manufacturing efficiency projects. 

• Database of State Incentives for Renewable Energy (DSIRE) Industrial Sector Incentives

Creating a Program of Manufacturing Conversion Tax Credits

Improving the efficiency of American manufacturers requires that we bring efficient and renewable technology to mass market. The construction of this infrastructure can mean millions of jobs, but European and Asian firms currently lead the renewables market. Reaping the economic benefits of a more efficient manufacturing sector will require broad policy supports to make the American manufacturing sector competitive as the market grows. To that end, manufacturing conversion incentives should be provided to American manufacturers so they can better compete in the new market.
 
Tax credits will help manufacturers redesign their production facilities for cutting edge products. Some experts suggest that the conversion credit should be a significant percentage of the investment costs for creating the new product. For instance, the National Commission on Energy Policy suggests a $1.5 billion subsidy, spread over ten years. Applied towards converting auto manufacturing plants, the credit accounts for two thirds the capital investment needed to produce advanced vehicles. The Commission’s findings suggest that the subsidy would be recovered within five years through increased tax receipts from retained domestic manufacturing jobs. These incentives should be available for finished products, components, and sub components throughout the supply chain. Much of the policy discussion in this area applies to vehicles. However, these policies can be adapted to support other technologies such as gears for wind turbines.
 
As conventional energy use and supply becomes more problematic, new energy technologies will come into demand. Manufacturers are concerned, however, over promoting foreign technologies that will cost U.S. jobs. By contrast, manufacturing conversion incentives position manufacturers to compete in these markets through domestic capacity. In that sense, they are an important step in protecting workers, encouraging early entry into emerging markets, and supporting a healthy tax base.
 
For more information see: 

• Energy Future Coalition’s Transportation Report (Includes Vehicle Facility Conversion Credits), available HERE.