Boosting industrial manufacturing capacity for the energy transition

Accelerating progress: A phased approach to building capacity for the future

The manufacturing sector should consider a structured and strategic approach for navigating the challenges posed by the energy transition. A tri-phased scaling strategy, which progresses through three distinct phases with each building upon the previous one, can help create a comprehensive road map.

Phase 1: Elevating efficiency at the asset level through technological innovation and process integration

This phase focuses on broadening, strengthening, and transforming the foundational infrastructure.

• Fueling agility with data integration and a smart factory approach: By connecting machines, processes, and people through a data ecosystem, manufacturers can gain real-time insights into production metrics, equipment performance, and resource utilization. Such visibility can help enable them to quickly identify and resolve production challenges, implement predictive maintenance strategies, and optimize resource distribution. The advent of the smart factory, powered by this real-time data, ushers in a new era of operational excellence characterized by autonomous and optimized production processes. The tangible benefits of such advancements can include as much as a 20% increase in asset efficiency, a 30% enhancement in product quality, and significant reductions in energy consumption—all of which can contribute up to a 30% reduction in operational costs.⁵
  
• Boosting manufacturing efficiency through energy optimization and renewable energy utilization: Strategic inclusion of energy-efficient equipment, renewable energy, and the electrification of manufacturing fleets—including electric forklifts—are an important aspect of reducing carbon footprints. This involves the use of onsite renewable energy generation—like solar panels and wind turbines—or contracts with renewable energy suppliers.
• Accelerating production with agile manufacturing and optimized designs: Accelerating production efficiency is achieved by adopting agile manufacturing, optimizing component design, and minimizing waste.⁶ Agile methodologies help enable rapid adaptation to market and technological changes, while integrating 3D printing can facilitate quick prototyping and efficient small-batch production (see sidebar, “Using rapid prototyping to increase efficiencies”). Unlike traditional manufacturing methods, 3D printing can create intricate, lightweight parts on demand and on site, thus helping to minimize exposure to procurement or supply chain risks.⁷

Phase 2: Fostering strategic collaborations across an ecosystem of assets for enhanced production and market penetration

This phase stresses the importance of creating collaborative networks that include manufacturers, suppliers, customers, and communities to help address their scope 3 emissions. By fostering strategic partnerships, companies can build a resilient and responsive manufacturing ecosystem that can help them respond to market challenges and disruptions.

• Committing to reducing emissions in the supply chain: On average, supply chain emissions are 7.7 times higher than direct operations, underscoring the urgency of adopting an integrated supply chain management approach.⁹ Strategic collaborations with suppliers and distributors can be important in mitigating risks from climate events.
• Enhancing systemic efficiency by integrating suppliers into the manufacturing ecosystem:  Integrating suppliers into the manufacturing ecosystem, using technology, is vital for boosting systemic efficiency. The global supply chain—expected to grow from US$7.83 trillion in 2023 to US$11.93 trillion by 2032—is pivotal in industrial manufacturing.¹⁰ Through comprehensive collaborations that span across the product life cycle—from design and engineering to post-sales support—manufacturers and their partners can leverage enabling platforms for seamless coordination. This can help make products not only innovative but also scalable and sustainable. 

According to a recent Deloitte survey, most manufacturing respondents reported that their lines of visibility start to blur beyond tier 2 of their supply networks.¹¹ However, partnering with local and small suppliers (beyond tier 2) can help enhance original equipment manufacturers’ (OEMs’) ability to offer localized low-carbon solutions. These small suppliers also often excel in providing specialized services like last-mile installation and maintenance, addressing specific market demands, often in a much faster time frame. Digitally empowering them and aiding in building their digital capabilities could be essential to gain visibility across the entire supply chain and maximize the benefits of their specialized support.

Additionally, in the design and engineering phase, OEMs can collaborate more closely with electronic manufacturing services (EMS) providers to leverage their expertise in areas such as design, testing, building, delivery, and providing support for electronic parts in the aftermarket¹² (see sidebar, “Strengthening core competencies by leveraging EMS partnerships”). For instance, a smart energy solutions company is collaborating with Jabil, an EMS in the turbine-manufacturing space, to optimize wind turbine production. This collaboration leverages Jabil’s manufacturing capabilities, exemplifying the impact of EMS partnerships on innovation and efficiency.¹³ EMS companies are helping advance electronics manufacturing in industries like smart lighting, solar energy, renewable energy, and electric vehicles, and the global EMS market for energy applications is projected to grow at a compound annual growth rate of 6.4% from 2023 to 2030.¹⁴

• Empowering a sustainable future through customer decarbonization: Manufacturers can directly enable customers to decarbonize, primarily through offering a clean and electrified product slate (see sidebar, “Growth in clean energy manufacturing”) and actively engaging with customers to meet sustainability needs. By tailoring products to consumer demands for lower-carbon materials and energy efficiency, manufacturers can help integrate clean energy solutions into customer operations. For example, ABB partnered with Coolbrook to develop innovative technologies to help reduce emissions and energy consumption in critical industries such as chemical, cement, and other asset-heavy industries.¹⁵

Phase 3: Creating an interconnected ecosystem across industries

Forging strategic partnerships and collaborations across various industries and interconnected ecosystems enhances production capabilities and fosters global market penetration and sustainability by integrating diverse technologies and expertise.

• Forging cross-sector collaborations for sustainable manufacturing: Partnerships between OEMs and tech companies can lead to the development of smarter, more energy-efficient manufacturing equipment and processes. Integrating Internet of Things technology, artificial intelligence (AI), and other digital innovations, manufacturing systems can help achieve unprecedented operational efficiency, predictive maintenance, and energy savings. For example, Caterpillar, Microsoft, and Ballard Power Systems have collaborated to showcase hydrogen fuel cells as a sustainable backup power solution for data centers.¹⁸

Additionally, collaborating with energy producers and utility companies is important for integrating renewable energy into manufacturing, optimizing energy use, and ensuring supply stability. Such collaboration helps not only minimize the carbon footprint of manufacturing but also often bolsters the grid’s resilience. For instance, in Michigan, Ford is purchasing carbon-free electricity through DTE’s MIGreenPower program, thereby avoiding as much as 600,000 tons of carbon dioxide emissions annually.¹⁹

• Harnessing academic partnerships for innovative manufacturing solutions: Deepening partnerships with academia and research bodies can provide manufacturers access to co-develop cutting-edge technologies, advanced materials, and innovative manufacturing methodologies. These collaborations can lead to developing next-generation renewable energy sources, further improving the sustainability and efficiency of manufacturing processes. For instance, the NExT initiative—involving NETL, Penn State, and some turbine manufacturers—aims to develop a modern turbine, enhancing US manufacturing with new design methods.²⁰
• Developing multi-OEM collaborations using complementary forces for market expansion: This approach involves OEMs from different segments, including those beyond renewable energy, working together to develop integrated solutions that address wider market needs and offer higher efficiency and better user experiences. For instance, Siemens and Desert Technologies formed Capton Energy, a joint venture focusing on solar photovoltaic projects to electrify markets in the Middle East, Africa, and emerging Asia.²¹

This tri-phased scaling strategy can help manufacturers navigate through the complex landscape. Figure 2 provides a visual road map, outlining the key actions and considerations that can help decarbonize manufacturers across their value chain.

The tipping points of change: Important factors shaping manufacturing capacity and supply chain resilience in the net-zero transition

Efforts to boost manufacturing capacity and strengthen the core supply chain are expected to be aided by four key enablers: finance, talent, technology, and business models. However, navigating these elements is complex due to intertwined challenges—for instance, while financing is crucial, it can be hampered by political uncertainties and investor hesitancy.

Finance

It is estimated that around US$26 trillion of investments in renewable technologies will be needed globally by 2050 to achieve net-zero targets.²² This can be complicated by the absence of innovative, shared risk-pricing mechanisms and macroeconomic uncertainties like the withdrawal of government incentives, weak investor confidence, or falling venture capital funding.²³ Manufacturers should consider:

• Leveraging government incentives effectively to access capital: Government incentives in the form of tax breaks, grants, subsidies, and other types of financial assistance can help overcome cost as a barrier to entry and raise funds. For instance, the Inflation Reduction Act includes almost US$6 billion for financial assistance competitive grants to be made administered by the Department of Energy on a competitive and 50-50 cost-share basis for advanced industrial technology designed to accelerate greenhouse gas emissions reductions in an industrial process. It can be for new equipment or for retrofits and upgrades.²⁴
• Securing funds by leveraging orderbook strength: Manufacturers can raise funds by directly aligning with customer needs for sustainable products and maintaining a healthy orderbook. For instance, Adani Solar tapped into trade finance from multiple banks, for solar manufacturing, which will be used to support its confirmed export orderbook.²⁵ Such a funding strategy not only strengthens market positions but can also accelerate the transition toward sustainable technologies.
• Mobilizing funds from international development banks: Public funding alone falls short of achieving a net-zero future, requiring US$140 billion to US$300 billion by 2030 and up to US$500 billion by 2050.²⁶ International financing and development bodies are expected to play a crucial role in bridging this gap. For instance, the Asian Development Bank committed a US$150 million loan for an innovative green finance mechanism in Indonesia. The loan will implement a finance and infrastructure investment platform to mobilize public and private funds for bankable projects. The initial batch of supported subprojects is worth over US$420 million and is expected to reduce carbon dioxide emissions by 250,000 tons per year. The assistance will improve investment planning and project identification and build capacity to accelerate the project pipeline.²⁷

Talent

By 2030, the construction and manufacturing required to realize energy infrastructure projects is expected to require nearly 10 million people globally.²⁸ To achieve this, amid challenges such as increasing competition for skilled labor from other sectors and a need for clear career progression pathways, manufacturers should consider:

• Implementing adaptive work models: An increasing number of workers are seeking flexible workplace options. Manufacturers are generally receptive to this and according to a recent survey by the National Association of Manufacturers, 57.7% of surveyed manufacturers in the United States alone pointed out that they are exploring scheduling changes—including compressed workweeks, adjusted shift times, and split shifts.²⁹ Solutions like varied shifts, “floater” roles, and shift-swapping can help enhance workforce diversity and support the energy transition.
• Leveraging partnerships with local educational institutions: Companies can forge partnerships with educational institutions to develop a workforce skilled in new digital and operational skills to reflect the advent of new technologies in the workplace. This can help build a talent pipeline for sectoral innovation, accelerating the energy transition. For instance, ABB’s collaboration with Imperial College London—in carbon-capture technology—can provide students with relevant skills for the future.³⁰
• Improving labor productivity: Integrating technologies such as smart factories³¹ and the industrial metaverse can potentially enhance labor productivity by up to 12%.³² Digitalization and automation can free up three hours per employee daily for training in advanced skills and immersive simulations, promoting career development in clean energy manufacturing.³³

Business models

Traditional business models tend to be distributed in nature, which can impede rapid response and adaptation in the face of market disruptions. To help form synergies, consider the following:

• Enable circular economy integration: This approach encourages manufacturers to innovate in product design and resource utilization, creating products that are easier to repair, upgrade, or recycle. By integrating circular economy principles, manufacturers can decrease dependency on raw materials, reduce environmental impact, and cater to the growing consumer demand for sustainable products. Philips integrates circular economy principles by refurbishing medical imaging equipment, such as CT scanners, offering trade-ins for hospitals to receive discounts on upgraded systems, and promoting sustainability and affordability in healthcare technology.³⁴
• Embrace aftermarket services: Many manufacturers are shifting from just selling to offering aftermarket services, generating consistent revenue with as much as 2.5 times higher margins than new sales.³⁵ They’re adopting performance-based contracts to ensure operational efficiency and minimize downtime. For instance, Siemens Gamesa offers optimized performance of wind turbines through aftermarket add-ons.³⁶
• Adopt product-as-a-service: This allows manufacturers of solar components to offer their products with minimal upfront costs, managing installation and maintenance while selling unused capacity back to the grid. This approach can help with adoption, opens new revenue streams, and aligns with sustainability by meeting demand more efficiently, making the model scalable and profitable across various technology sectors. Multiple solar OEMs offer this model, installing solar plants at consumer premises at no cost and then selling the excess electricity not used by the consumer.³⁷

Technology

Technology is vital for rigorous product testing, ensuring standardization, and mitigating workplace hazards. These solutions are expected to be important as manufacturers aim to decarbonize their operations and assist their clients in doing so as well:

• Enhance efficiency with technology: Leveraging technologies like computer vision, generative AI, drones, and digital twins enables data-driven optimization of manufacturing processes and product design. These solutions can optimize production lines and streamline product design, leading to faster time-to-market and reduced costs. For instance, simulating hurricane winds on a wind turbine’s digital twin lets engineers adjust its design for stability under extreme conditions.³⁸
• Standardize new components for quick integration: As manufacturers electrify and decarbonize their product portfolio, optimizing the use of components from existing designs could simplify the introduction and maintenance of new, electrified products for existing customers. By bringing such standardization, manufacturers can streamline production, minimize costs, and facilitate quick integration of renewable energy technologies, accelerating the energy transition.
• Elevate workplace safety: Manufacturers are leveraging technology to enhance safety protocols beyond conventional methods. Notably, OSHA’s Fall Protection Standard has been the most cited health and safety violation among US employers for 13 years in a row.³⁹ Technologies like gen AI can simulate and identify potential hazards and safety risks, helping manufacturers reduce workplace hazards.

Three pivotal architects: Policymakers, companies, and consumers play a distinct yet interconnected role in driving industrial manufacturing

The journey toward a lower-emissions manufacturing sector likely involves a cohesive effort from policymakers, companies, and consumers. Their distinct yet intertwined roles underscore the complex interplay required for a scalable and swift transformation in manufacturing. Recognizing and aligning the actions of these stakeholders is important for helping to drive significant advancements. Particularly, focusing on five key areas could yield substantial results:

• Continuing government and policy support: Government initiatives like grants and rebates have propelled capacity expansions within the clean energy supply chain. The future trajectory of new investments is expected to be significantly influenced by the continuity of these policies, particularly as more than 60 countries are due to hold elections in 2024 and national fiscal debts continue to escalate.⁴⁰
• Streamlining permits and aiding innovation: The 67% decline in energy transition-related patent applications in the fourth quarter of 2023 highlights the urgent need for streamlined permitting and funding processes to boost sustainable innovation and foster a resilient low-carbon economy.⁴¹ Simplifying these processes can greatly accelerate the adoption of innovative solutions, reducing wait times and uncertainties for manufacturers. For instance, Canada's Net Zero Accelerator initiative accepts applications on an ongoing and noncompetitive basis from manufacturers to promote their R&D efforts and foster innovation.⁴²  
• Adopting alternative materials: Addressing material scarcity through the innovative use of alternative materials, like using aluminum instead of copper in wind turbine cables, can reduce costs and resource demands. This shift is vital for sustainable manufacturing, with copper demand potentially tripling for offshore projects.⁴³
• Embracing a whole-of-government approach: Adopting a holistic government approach that integrates public investment in workforce training will be important to addressing the skills gap. Such a strategy can help promote youth employment, which refers to people aged 15 to 24 (where unemployment is around 12 percentage points higher than adults).⁴⁴
• Leveraging consumer influence for sustainable choices: The swift adoption of solar photovoltaic projects by some consumers illustrates the powerful role of consumer choice in driving down costs and expanding demand. Additionally, the emergence of strategic partnerships, such as the collaboration between a global industrial automation leader and a US-based clean energy firm to electrify mining vehicles, showcases the effectiveness of joint efforts in product development.⁴⁵ This synergy promotes sustainable manufacturing practices and illustrates the significant impact of consumer demand and collaborative innovation can have in advancing sustainable solutions.

The tri-phased approach from asset to ecosystem enhances efficiency, can help foster cross-sector collaborations, and embraces innovative business models. This strategy, advanced by public-private partnerships and adaptive policy frameworks, aims to help bridge investment gaps and integrate cutting-edge technologies.