Electrification in industrials

As cost parity approaches and the focus on sustainability grows, most industrial manufacturers are moving toward the electrification of industrial fleets, processes, and spaces, in line with the broader energy transition taking place across the economy.

Electrification in industrials: Transitioning to a lower-carbon future through electrification of industrial processes, spaces, and fleets was released by Deloitte Research Center for Energy & Industrials. It identifies the macro trends that are driving adoption of electrification in industrial products and the impact it is having on industrial fleets, processes, and spaces. It provides a timeframe for their penetration and offers key considerations for planning and timing investments in electrification.

Viewpoints / key findings

Why now? Electrification and the rise of sustainability as a corporate mandate

Over the past several years, there has been a shift underway toward electrifying certain aspects of industrial operations. Simultaneously, many companies have published sustainability reports, detailing their strategies for increasing energy efficiency, reducing landfill waste, and lowering greenhouse gas (GHG) emissions. More recently, on the heels of the 2020 Davos economic conference, global manufacturing leaders expressed support for establishing a common set of environmental, social, and governance (ESG) metrics and disclosures in recognition of the sustainable development goals (SDG) as important to long-term business value creation.

In the 2020 Deloitte Energy Transitions survey, the majority of manufacturing executives indicated that improving environmental stewardship and increasing sustainability efforts were critical to becoming a leading organization in the future. 55% of manufacturing leaders confirmed that sustainability efforts have high-level support from their board of directors, which sets the strategy and goals, and then shares these goals with the executive management team for execution.

Where electrification is occurring in industrial manufacturing: Fleets, processes, and spaces

Electrification adoption varies from one industry to another, but each industry has made dedicated efforts in this direction. Electrical equipment and machinery manufacturers source almost 40% of their energy requirements from electricity. The machinery and equipment manufacturing sectors are poised to stay ahead of the curve in electrification adoption. The future of electrified systems within industrial manufacturers looks promising, with increasing penetration rates among a majority of companies analyzed for this study.

• Industrial fleets: Electrification is much closer than earlier estimated
  Industrial companies are experimenting with electrifying equipment and industrial fleets. A recent Deloitte survey identified that a majority of industrial manufacturers have targets of almost 40% fleet electrification by 2035. Some companies are slowly transitioning to electric equipment ranging from tugs to forklifts. Meanwhile, an ecosystem is developing to support fleet electrification, with companies focused on offering the services that a manufacturer may not be able to provide itself. For these reasons, manufacturing leaders plan to adopt electric vehicles (EVs) over the next decade for transportation and logistics as a means of shifting toward low-carbon fuel alternatives, which also as a way to increase fleet management efficiencies.
• Industrial processes: From production lines out through the supply chain
  Industrial processes are the backbone of any manufacturing operation and are a focal point for driving efficiencies. A recent Deloitte study found that the surveyed manufacturers targeted nearly 45% electrification of their processes by 2035. There are several benefits related to electrification of processes in industrial settings. Electric systems tend to have a relatively superior design, yield, process controllability, and flexibility compared with existing systems. Additionally, electric systems have a higher performance lifetime. And electrical heat pumps can be operated flexibly to balance the residual load in times of renewable production surpluses, adding to the system’s efficiency.
• Industrial spaces: Capturing ROI from electrification of space and water heating
  As adoption continues with industrial fleets and processes, there is expected to be continued transition toward electric sources for space and water heating in the coming decade. Electrification allows more efficient building energy management by using smart energy systems, when compared to gas or coal as an energy source. This could be a catalyst for using electricity to optimize industrial spaces, including factories, warehouses, and offices.

Recommendations for manufacturers

Many leading industrial manufacturers have set goals and launched initiatives that reflect the move toward electrification of industrial fleets, processes, and spaces in the coming decade.

Given the potential focal points of industrial fleets, processes, and spaces, the following recommendations may help guide manufacturing leaders in their decisions:

• Consider the timing of cost parity and technology maturity for electrification across industrial processes, spaces, and fleets. Work with vendors/providers in each area to create transition plans.
• Given the diversity of the industrial, it is important to match the strategy to the environment. For example, process electrification will likely be a viable solution for sectors that have processes where combined heat and power is not used, where induction heating technologies are viable, and/or where process heating temperatures are lower.
• Timing for electrification of specific areas such as processes or fleets will likely need to align with capital investment cycles and, for processes, any potential impact to production during the changeover.
• As a current or potential industrial fleet owner, evaluate the cost and benefits in line with the regulatory environment and create a strategy for starting the transition to electric vehicles in the coming decade. Part of the strategy can involve working with the utility to site EV charging facilities in areas that create the most value for the company and the grid.

As global major industrial countries progress from hydrocarbon dependence across the economy toward greater reliance on cleaner energy sources, many industrial manufacturing companies are becoming increasingly active participants in this energy transition.