Electrification in industrials

Transitioning to a lower-carbon future through electrification of industrial processes, spaces, and fleets

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.

Most industrial manufacturers are just beginning to realize the economic viability of electrification in industrial fleets, processes, and spaces. Electrification in these areas seems to be gathering momentum for several reasons. First, the US electric utility sector is largely decarbonizing as lower-cost natural gas becomes more economical than coal-fired power, and as the cost of renewables continues to decrease. Second, as energy storage costs continue to decline, electrification of vehicles is beginning to make more economic sense due to lower maintenance and fuel costs. Third, customers appear to be growing more concerned about environmental and sustainability issues, and want their suppliers to become greener.

The growing trend toward electrification appears to reflect the broader energy transition (see sidebar, “Understanding the energy transition”). Industrial fleets, processes, and spaces are three key areas of energy transition in manufacturing, and electrification of these domains is a first step toward increasing system efficiency and decarbonization. A recent Deloitte executive study revealed that more than 70% of respondents have agreed to move toward electrification of industrial processes and more than 50% of respondents have targeted electrification of space and water heating and fleets within their ecosystem by 2030.

Electrification in industrials

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Understanding the energy transition

Electrification is a key part of decarbonizing energy sources, one of the six channels of the energy transition identified in Navigating the energy transition from disruption to growth. Energy transition is the process of reducing reliance on fossil fuel across the economy and moving toward greater use of cleaner energy sources such as renewables. The six channels along which progress in the transition is measured include: decarbonizing energy sources, increasing operational energy efficiency, commercialization of new technologies, investment in new business areas, adjusting to new policy mandates, and managing customer and stakeholder expectations.

This article 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.

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. In addition, 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.

The changes taking place in the power sector are also providing impetus to industrial manufacturers and assisting in electrification efforts in two ways. First, the decarbonization of the US power sector is well underway, with renewables’ installed capacity exceeding that of coal as of Q1 2020. As the cost of renewables alone and with storage continue to decline, renewables will continue to account for larger market share, allowing utility customers to benefit from lower-carbon electricity and reduce their carbon footprint. Second, a priority for utilities is helping their customers electrify. Seventy-percent of utility executives surveyed responded that the three critical areas for helping customers electrify include vehicles, industrial processes, and buildings (heating and cooling.)

Increasing nudges from investors, leaders, and customers are encouraging manufacturers to set ambitious targets. Industrial manufacturers surveyed across sectors target achieving 45% overall electrification by 2035, higher than their current rate of 35%. When asked how these goals could be met, 64% of manufacturing leaders cited plans to leverage partnerships and joint ventures to transition toward a sustainable future, while 61% will rely on outsourcing strategies with vendors and suppliers.

While the push toward electrification is in part a response to the increased focus on sustainability, industrial manufacturing is also driven by an underlying need to increase efficiencies and manage operational costs. These are often significant drivers in any decision to change energy sources. In fact, “reducing energy and overhead costs” and “improving the environment” are the top two benefits manufacturing executives surveyed are expecting from their long-term sustainability strategies. It is likely that these two drivers will continue to be intricately interwoven throughout the transition toward cleaner energy in manufacturing.

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.9 The machinery and equipment manufacturing sectors are poised to stay ahead of the curve in electrification adoption (figure 1). The future of electrified systems within industrial manufacturers looks promising, with increasing penetration rates among a majority of companies analyzed for this study.


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