The pressure is building on energy intensive organisations who are seeking to decarbonise and achieve ESG goals or science-based target milestones. Many are considering electrification as the route to achieve that.
Electrification may be seen as a panacea, but there are many factors that need to be considered not least of which is the state of the grid, the emergence of new technologies and the economic outlook.
In a recent survey, 68% of manufacturing industry respondents said their organisation has made public commitments to a carbon reduction plan by 2050, with many setting interim target dates or having committed to Science-Based Targets. Missing these targets can have major repercussions on your company’s reputation. Decarbonisation performance is visible via the Energy and Carbon Reporting statement in your annual report, with comparisons to prior year.
What’s in favour of electrification?
- Easy to buy green energy tariffs – most suppliers offer zero carbon electricity tariffs
- Acceptance of offsets – most authorities accept REGOs
- Acceleration or achievement of CO2 emissions commitments – there may be competitive advantage to switch earlier and be seen to be “gas free”
- Corporate PPA or direct investment availability – there are plenty of private wire or remote renewable energy offtake opportunities, albeit most require take at time of production
- No technology barrier – electricity is understood
What’s against electrification?
- Trends in “green-washing” – acceptance of REGOs and other offsets is waning and may change
- Significant capital cost – electrifying gas processes can be costly with low / no payback
- Impact on operating costs – electricity is circa 4.5x as much as gas, so unless efficiency improves by this much, the cost of utilities will increase
- Capability of the grid – its not a given the grid will be able to supply as much power as you will need to switch from gas. Also, timing may be an issue. Connection offers in 2030’s are not uncommon.
- Non-energy costs are currently loaded onto electricity, representing up to 60% of the total bill. It is not yet clear how the switch to hydrogen and also adoption of carbon capture technologies will impact this. Also, there are significant Ofgem consultations due by the end of the decade that may restructure the electricity grid costs.
- Loss of control of rate of decarbonisation with Government – are you are giving up your ability to achieve your own target by switching to electricity. If the Government misses its targets (anyone willing to take that bet?), then its your company’s reputation on the line for missing your commitments
- Changes in process, changed operating conditions – switching fuel may impact product qualities or may not be possible at all
- New technology is advancing fast – replacements for gas technologies are emerging quickly, as well as energy efficiency and heat recovery technologies.
- The Economy is not presently in the best of shape, inflation rates and interest rates are volatile. Are corporates prepared to release the purse strings?
- Growing demand for electricity needs to be considered. For instance, what will happen with heavy goods vehicles?
Given this significance, our view is that electrification is not something that should be rushed into. Our view is the early 2030s is probably the time to make a move if one is decided upon. There are several factors supporting this approach:
- Grid connectivity issues should be mainly resolved by 2030, freeing up capacity and ability to connect more generation and increase import capacities
- The landscape of emerging technologies will be clearer by 2030
- Grid emissions factors will not be significantly lower than gas by 2030
- Volatility should hopefully have settled over the next 3-4 years
- Interest rates are expected to peak in the next few years, raising the costs of financing of measures
- Standards around emissions will have been resolved (green/blue hydrogen, carbon capture)
- Energy performance contracts, if applicable, will be closer to expiry and have lower penalties to break
Our general recommendations:
- In the 2020s focus on energy efficiency, it will also set you up well for electrification decisions later.
- Avoid “knee-jerk” action
- Adopt a holistic approach
- Develop a strategy, review it regularly
Every business, and often every site within a business, is different, and the decisions should be based on a data-led approach. There could well be very viable reasons to move sooner, for example for first mover advantage.
It’s important to recognise that net zero and/or electrification as the means of delivering that is a journey, not an event. Along the way, plans may need to be revised as new technology, legislation and other factors need to be taken into account. We are entering a period of rapid change, and flexibility to respond will be important.
Regardless of what route you choose to progress down, bear in mind that the projects towards net zero are major investments and can have fundamental impacts on your business. A properly considered roll-out plan is essential in all situations. Consideration should be given to proofs of concept projects, lead sites that will adopt ahead of other sites and an ongoing need to review outcomes and reconsider plans based on the business landscape.
It will be important to have a practical expert partner to work with along your journey.
About the author
David Kipling, CEO, On-Site Energy Group
David Kipling founded On-Site Energy Ltd to support energy-intensive manufacturers to decarbonise through the delivery of energy efficiency and onsite generation solutions, without any capex. Connect with David on LinkedIn here.