energy consumption - the climate group€¦ · energy consumption produced by accenture strategy...

TRANSFORMING ENERGY CONSUMPTION

PRODUCED BY ACCENTURE STRATEGY FOR THE CLIMATE GROUP

Opportunities for companies to drive business and societal value

FOREWORD Advances in energy technologies and digitalization are key forces driving a global energy transition set to provide business leaders with a broad range of ways to create value for both their companies and society.

This paper, produced by Accenture Strategy for The Climate Group, aims to show how businesses from across the commercial and light-industrial sectors can unlock this value potential to reduce carbon emissions and improve air quality while reducing net energy spending, improving operational productivity, reducing risk exposure and building stakeholder trust.

Spanning broad categories of energy demand including heat, power and transportation, the paper places special emphasis on how organizations physically consume energy to heat, cool and illuminate buildings, operate machinery and processes, and meet transportation needs.

The perspectives within reflect the observations of energy and sustainability practitioners in Accenture Strategy and The Climate Group, and incorporate insights derived from 14 interviews with senior sustainability and energy specialists from 11 leading international companies. Case studies introducing the activities of five of these companies have been developed to showcase the range and pace of engagement. The authors express their sincere thanks to all who contributed.

Transforming energy use is a journey unique to each company and not without its challenges, but the pressing need to tackle climate change and address dangerous air pollution, combined with the hardening expectations of key stakeholders and tightening environmental regulations, makes corporate leadership all the more urgent.

We hope this paper persuades more businesses to think differently about how they consume energy and proves useful to those bold enough to translate understanding into action. The end goals—cleaner air, a less carbon-intensive economy and tangible benefits for the organization making the transition—are worth it.

Mike PeirceCorporate Partnerships DirectorThe Climate Group

Kris TimmermansSenior Managing DirectorSupply Chain, Operations and Sustainability StrategyAccenture Strategy

1 | Transforming Energy Consumption

CONTENTS EXECUTIVE SUMMARY Key findings and report structure 2

UNDERSTANDING URGENCY The need for less polluting, lower-carbon energy consumption 4

Air pollution and rising greenhouse gas emissions are critical issues for all humankind 5

Challenging the conventions of energy consumption is essential to cutting air pollution and greenhouse gas emissions 6

Broader developments in the energy landscape will support efforts to transform consumption 8

ARTICULATING VALUE The shared value proposition to support a less polluting, lower-carbon energy consumption strategy 9

Companies must protect and strengthen the trust that stakeholders hold in them 10

Companies should prepare for stricter and costlier emissions regulations 12

Companies can seize new opportunities to improve energy productivity and performance 13

IDENTIFYING OPPORTUNITY Technologies to deliver less polluting, lower-carbon energy consumption 14

Deploy less polluting, lower-carbon energy technologies 16

Digitally optimize energy consumption 26

ENVISAGING TRANSFORMATION Emerging opportunities for transformative energy consumption 30

Sophisticated microgrids can provide unique benefits to energy users in the near term 31

Electrification of heat and transport will bring new opportunities to monetize flexibility 32

Low-carbon hydrogen may be an important component of C&I-scale energy systems in the longer term 33

TAKING ACTION An illustrative approach to transitioning to less polluting, lower-carbon energy systems 34

Screen opportunities for feasibility and fit 35

Quantify the value potential and understand the capabilities required to execute 36

Pilot, evaluate, refine and scale to realize the full value potential 37

ACKNOWLEDGEMENTS 38

REFERENCES 39


EXECUTIVE SUMMARY Key findings and report structureBusiness must urgently tackle air pollution as well as greenhouse gas emissions and can deliver value to shareholders and society by doing so. This paper presents the urgency and value case for acting on both, the key technology-enabled opportunities for businesses to consider, and snapshots of emerging transformational energy setups. It closes with an illustrative example of a high-level approach to transition to less polluting and lower-carbon energy consumption.

UNDERSTANDING URGENCY The need for less polluting, lower-carbon energy consumption

• Businesses must recognize the critical urgency of tackling both air pollution and climate change and prioritize alternative technologies to support both less polluting and lower-carbon energy consumption.

• Greater electrification of end demand, decarbonization of grid-supplied power, decentralization of energy production and digitalization of energy management are all key trends supportive of energy users’ efforts to transition to less polluting and lower-carbon energy consumption.

ARTICULATING VALUE The shared value proposition to support a less polluting, lower-carbon energy consumption strategy

Ambitious businesses can target a compelling, three-pronged value case for transitioning to less polluting, lower-carbon energy systems that bring internal and external benefits (i.e. shared value):

• Build stakeholder trust through a differentiated, credible and embedded commitment to environmentally and societally-responsible energy consumption.

• Reduce exposure to expanded clean air controls and carbon pricing that could impact profitability and bring added complexity to doing business in many jurisdictions.

• Improve energy productivity and performance by increasing operational efficiency and effectiveness whilst earning financial rewards as an operator of flexible energy assets.


IDENTIFYING OPPORTUNITY Technologies to deliver less polluting, lower-carbon energy consumption

• A suite of technology-driven opportunities, once limited to conceptual demonstrations or niche applications, have emerged as economically viable alternatives to the air-polluting and climate-harming energy systems of today. Front and center are electrified vehicles and stationary fuel cells that emit ultra-low levels of air pollutants during use and can reduce value chain emissions of greenhouse gases.

• Digitalized energy systems underpinned by data- and analytics-driven asset coordination can deliver improved energy efficiency and operational efficacy, and present opportunities to dramatically cut costs and earn new revenues by harnessing the collective optionality and flexibility of these inter-connected assets.

ENVISAGING TRANSFORMATION Emerging opportunities for transformative energy consumption

• Radically less polluting and lower-carbon energy setups look set to become a reality accessible to many, and the frontier of sustainable energy consumption is continually expanding thanks to the combinatorial effects of energy technologies and system digitalization.

• Those ahead of the curve are best placed to effectively exploit the emerging opportunities to create shared value in the near, medium, and longer terms—opportunities including sophisticated microgrid systems, integrated electrified heat and transport, and low-carbon hydrogen consumption.

TAKING ACTION An illustrative approach to transitioning to less polluting, lower-carbon energy systems

• To realize maximum value for minimum cost, organizations should move early to scan for, evaluate and activate key opportunities that are best aligned with their corporate footprints and objectives.

• This should not be a one-off but a recurring capability to ensure organizations remain abreast of the rapid evolution in technology and energy markets.


UNDERSTANDING URGENCYThe need for less polluting, lower-carbon energy consumptionSummary• Air pollution and rising greenhouse gas emissions are critical issues. The corporate

sector can play an important role in addressing them by challenging the conventions of energy usage.

• Physical energy consumption in operations must remain a priority area of focus for organizations committed to dramatically reducing their air pollution and greenhouse gas (GHG) footprints (Figure 1).

• Opportunities to consume energy in ways that prioritize clean air and carbon reduction (Figure 2) are rapidly improving thanks to technological advances and the continued evolution of energy markets.

Figure 1: Typical focus areas of an energy-centric corporate environmental strategy

This report focuses on physical energy consumption in operations:

Physical energy consumption concerns the energy carriers used to heat, cool and illuminate buildings, operate machinery and processes and meet transportation needs (within direct operations)

Physical energy consumption in direct

operations

Energy use in upstream & downstream supply chain

e.g. supplier energy audits

Energy consumption during product use and end-of-life

e.g. design for efficient operation

Energy procurement mechanisms

e.g. corporate renewable power purchase

agreements

SUSTAINABLE ENERGY STRATEGY

Figure 2: What is meant by a “less polluting, lower-carbon” energy consumption strategy?

Less-polluting energy consumption

Issue: Threats to public health from concentrated ambient air pollution

Solutions include: Technologies that emit ultra-low levels of hazardous-to-health air pollutants

Lower-carbon energy consumption

Issue: Climate change linked to human-caused GHG emissions

Solutions include: A smaller end-to-end carbon footprint versus existing or conventional setups


AIR POLLUTION AND RISING GREENHOUSE GAS EMISSIONS ARE CRITICAL ISSUES FOR ALL HUMANKIND

Corporate climate action continues to evolve from strength to strength, with ambitious commitments now a hallmark of many businesses’ environmental efforts in the years since the launch of the UN’s 2030 Sustainable Development Goals and the adoption and subsequent ratification of the landmark Paris Agreement.

Given the fossil energy-carbon nexus, energy remains a cornerstone of corporate environmental stewardship, and hundreds of major businesses have made global commitments encompassing support for renewable energy infrastructure at scale, greater energy productivity and investments in lower-carbon energy technologies and assets.

But the need for greater collective action by all parties, the corporate sector included, could not be clearer. The situation is urgent: 2018 was a year of stark warnings of what is in store for the health of our planet and its inhabitants if decisive action is not taken to stem rising greenhouse gas (GHG) emissions and dirty air, two serious forms of pollution that are often closely interlinked.

Rising carbon emissions risks a global climate crisis

The overwhelming scientific consensus holds that the rapidly rising concentration of GHGs in the Earth’s atmosphere will severely threaten economic and environmental prosperity in a matter of decades as sea levels rise, ocean acidification accelerates, marine ecosystems collapse, and extreme weather events become more frequent and intense.

Greenhouse gas levels reached another record high in 20181 as emissions from the world’s advanced economies rose anew for the first time in five years. The global scientific community has stressed the need for a 45% reduction in net global carbon emissions by 2030 and net-zero emissions by 20502, yet international ambition remains insufficient3. To limit warming to no more than 1.5°C by 2100, as sought by the Paris Agreement, countries’ existing commitments to abate GHG’s must increase fivefold4 with deep decarbonization of every sector required to stay within safe planetary limits.

Dirty air represents a growing public health emergency

In parallel, pressure is growing to address what is now described as the single greatest threat to human health globally—polluted air5. Air pollution here refers to a broad range of emissions including fine particulate matter, nitrogen oxides and sulfur dioxide that can directly harm both human health, as well as the natural and built environments, and which are released in varying concentrations during the combustion of most fuels6.

The Director-General of the World Health Organization (WHO), which held its first Global Conference on Air Pollution and Health in late 2018, has decried the “smog of complacency” lying heavy on the “silent public health emergency” that is air pollution7. The European Court of Auditors has described air pollution as the greatest environmental risk to health in the European Union (EU), responsible for 400,000 premature deaths and hundreds of billions of euros in health-related external costs8. In the EU, health-related costs arising from road traffic related pollution alone amount to 80 billion euros a year9. And the situation in countries with historically weaker controls on air pollution is even more desperate—14 of the 15 cities with the highest levels of dangerous airborne pollution are in India10, and just 3 percent of cities in low- and middle- income countries meet the WHO’s air quality guidelines11.


CHALLENGING THE CONVENTIONS OF ENERGY CONSUMPTION IS ESSENTIAL TO CUTTING AIR POLLUTION AND GREENHOUSE GAS EMISSIONS

Leaders within the corporate sector are responding to these crises on several fronts.

Many are shifting from wasteful linear economic models to more efficient circular models that allow economic growth to be decoupled from resource consumption12. Hundreds are flexing their influence and purchasing power to support lower-carbon power generation on the grid at scale—over 160 companies have committed to going “100% renewable” through the RE100 initiative led by The Climate Group and CDP, the global environmental disclosure Non-Governmental Organization (NGO)—or collaborating with their suppliers and other “business-to-business” (B2B) partners to drive sustainable energy use throughout the value chain13.

Asking hard questions of how energy is physically consumed to heat, cool and illuminate buildings, power machinery, fuel processes and meet transport needs should be equally important for two reasons. Firstly, the threat to human health posed by air pollution often reflects how energy is consumed in the local vicinity - local air pollution cannot be “offset” or otherwise made up for through activity elsewhere. And secondly, energy consumption can address greenhouse gas emissions from a broad range of sources (Figure 3).

But balancing reductions in greenhouse gas emissions and the promotion of clean air can, in some cases, be difficult. For instance, a biofuel-powered vehicle might produce fewer lifecycle GHG emissions than one using gasoline/petrol or diesel, but it will still emit air pollutants from its tailpipe. Conversely, there exist energy technologies that produce very little air pollution at point of use, but which result in local or upstream greenhouse gas emissions at varying levels of intensity.

Figure 3: Means to reduce GHG emissions through addressing energy consumption

EMISSIONS SCOPE ADDRESSES… EXAMPLES OF EMISSIONS SOURCES

EXAMPLES OF ACTIVITIES TO REDUCE EMISSIONS

DIRECT GHG EMISSIONSSCOPE 1

Emissions from fuels consumed by owned or controlled assets

• Fuels consumed by (owned / controlled) vehicles

• Fuels consumed by boilers and electricity generators

• Switch to alternative fuels / energy sources / technologies

• Increase efficiency of energy-consuming assets

INDIRECT GHG EMISSIONS – PURCHASED ELECTRICITY, HEAT OR STEAMSCOPE 2

Upstream emissions from generation or purchase of energy carriers

• Power plants feeding the grid from which power is drawn

• Thermal plants feeding district heating systems

• Increase efficiency of energy-consuming assets

• Displace carbon-intensive grid electricity

INDIRECT EMISSIONS – OTHERSCOPE 3

All other emissions

• Outsourced transport and logistics

• Transmission and Distribution (T&D) system losses

• Choose logistics partners operating electrified vehicles

• Generate power on-site to avoid T&D losses


Figure 4: Challenges of physically consuming energy that is emissions-free, economically viable and widely available

Example: Deep geothermal energy for heat and power

Example: Renewables-powered hydrogen production (electrolysis)

Example: Conventional fossil-based fuels

Example: Specific situations at limited scale – e.g:

• On-site renewable generation + storage at scale, in conjunction with demand electrification

• Battery electric vehicles charged with locally generated (direct-wire) renewable electricity

Note: The emphasis on physical energy consumption in this report means the use of grid electricity or fuels matched with environmental attribute certificates (EACs) is not described as “zero-carbon” consumption

Very low air pollutant emissions and greenhouse gas

emissions across value chain

Widely available today / in near-

term in sufficient capacities to meet a company's total energy demand

Economically viable today

or in near-term

The terms “less polluting” and “lower-carbon”, rather than “pollution-free“ or “zero-carbon”, are deliberately used to encourage an appreciation of upstream emissions, and to reflect current limitations on economically viable and widely available energy solutions of sufficient capacity to meet an organization’s energy demand (Figure 4).

LOWER-CARBON

A smaller carbon footprint vs. conventional arrangements. An example is heat and/or power generation from natural- gas fuel cells that displaces a conventional thermal natural gas combustion unit.

LESS-POLLUTING

Negligible emissions of harmful- to-health pollutants at the point of local energy conversion or end-consumption. Examples include zero tail-pipe emissions from electrified vehicles, as well as electrified heating systems.

This paper champions opportunities for businesses to consume energy in ways that prioritizes clean air locally whilst simultaneously supporting value chain-wide decarbonization efforts. Such solutions are hereby termed “less polluting” and “lower-carbon” respectively. The distinction is important—here, “less polluting” refers to reductions in hazardous-to-health air pollutants only, whilst “lower-carbon” relates to reducing emissions that contribute to climate change such as carbon dioxide.


BROADER DEVELOPMENTS IN THE ENERGY LANDSCAPE WILL SUPPORT EFFORTS TO TRANSFORM CONSUMPTION

External forces will better empower energy users to respond

Continued improvements in the value case for energy consumption transformation (see next chapter) can be expected as it becomes simpler and ever more cost competitive to electrify end energy demand, support power grid decarbonization, generate and store energy locally, and digitalize energy assets and systems (Figure 5).

Figure 5: Trends supporting the move to consume less polluting, lower-carbon energy

TREND OBSERVATION WHY IS THIS IMPORTANT?

EXAMPLES (NOT EXHAUSTIVE)

ELECTRIFICATION OF END ENERGY DEMAND

A greater share of end energy demand can be economically electrified than ever before.

Electrification—using electrical energy in place of fossil fuels to meet end energy demand—avoids local air pollutant emissions and can reduce overall GHG value chain emissions.

• Electrified vehicles are already economically viable in some markets.

• Heat pumps can displace combustion-based heating systems in buildings and light industry.

DECARBONIZATION OF ELECTRICITY SUPPLY

The carbon intensity of electric power grids is declining in many markets around the world.

Electrified energy demand delivers greater GHG reductions as electricity supply is increasingly decarbonized.

• The GHG-intensity of assets (battery electric vehicles, heat pumps etc.) will fall as power grids are decarbonized through fuel switching and the integration of renewable energy.

DECENTRALIZATION OF ENERGY PRODUCTION

Energy users have more financially and operationally attractive options to generate (and store) their own energy.

Energy autonomy provides organizations with direct control over the air pollution and carbon intensity of the energy they use.

• Solar energy can provide totally emissions free heat (solar thermal) and power (solar PV or CSP).

• Fuel-cell costs have fallen dramatically in recent years with suppliers increasingly offering zero-upfront cost financing models.

DIGITALIZATION OF ENERGY MANAGEMENT

Sophisticated low-cost, highly scalable digital technologies are readily available to energy users.

Digitalized systems can be intelligently coordinated in pursuit of reduced costs, lower emissions, improved resiliency, and other benefits.

• Coordinated systems will consume less energy and serve the needs of organizations more effectively.

• System flexibility can be monetized through Demand Side Response mechanisms.


ARTICULATING VALUEThe shared value proposition to support a less polluting, lower-carbon energy consumption strategySummary• Businesses can create shared value by transitioning to less polluting, lower-carbon

forms of energy consumption that are aligned with corporate drivers and which help address the collective societal and environmental threats of polluted air and rising greenhouse gas emissions.

• The shared value framework comprises three branches that can be used to support strategic and tactical decision making in respect of energy consumption: corporate trust, regulatory risk mitigation and improved energy productivity (Figure 6).

Figure 6: Shared value framework

BRANCHES OF THE SHARED VALUE PROPOSITION

1. BUILD TRUST 2. REDUCE REGULATORY EXPOSURE

3. IMPROVE ENERGY PRODUCTIVITY AND PERFORMANCE

DRIVERS

Enhanced competitiveness of companies that can generate profits while demonstrating genuine shared purpose

Expanding clean air and carbon regulations in many regions and local jurisdictions such as cities

Improved energy-related productivity without sacrificing operational performance

ACTIONS

Transform operational emissions footprint and communicate scale of achievements and benefits to key stakeholders

Switch to energy-consuming assets with a less polluting and lower carbon emissions profile to reduce current or future regulatory compliance costs

Embrace cost effective technologies and digitally optimize energy consumption

OUTCOMES

Improved stakeholder trust that strengthens license to operate and enhances brand and reputation

Reduced exposure to schemes that could increase operating costs today or in the future

Lower net energy expenditure through increased energy efficiency, operational effectiveness, and flexibility


COMPANIES MUST PROTECT AND STRENGTHEN THE TRUST THAT STAKEHOLDERS HOLD IN THEM

As expectations grow for concerted collective action to cut carbon and clean up the air breathed by billions, success in minimizing the health- and climate-harming emissions linked to energy consumption will increasingly influence the ability of a business to build trust with key stakeholders.

Trust underpins stakeholders’ acceptance—or not—that a company’s activities are genuinely founded on a sense of societal purpose, itself an important facet of a firm’s overall “social license to operate”. Senior business leaders would seem to agree—79 percent of CEOs surveyed in a 2016 UN Global Compact—Accenture Strategy study cited brand, trust and reputation as drivers of sustainability-minded initiatives, whilst 80 percent believe that demonstrating a commitment to societal purpose is a differentiator in their industry14. Meanwhile, “purpose” appeared in the title of Blackrock’s annual letter to its CEOs for the second year in a row, which described the inextricable link between profits and purpose15.

Consumers and employees

Consumer sentiment is critical since alongside product selection, price and customer experience, consumers—and particularly younger consumers—are increasingly making decisions based on how they perceive the brands they buy impact the world. A recent global Accenture Strategy survey of nearly 30,000 consumers in 35 countries16 found that 62 percent of consumers want companies to take a stand on current and broadly relevant issues such as sustainability. 55 percent of CEOs surveyed on the subject see consumers as a key influencer, the highest of any stakeholder group.

Employees are another critical stakeholder group. In a point of view supported by several companies interviewed in the course of this paper, perspectives from Accenture Strategy on the workforce of the future paints trust

as an increasingly potent differentiator in the battle for top talent with a company’s reputation and action record important to both existing and prospective employees17.

But communicating action on energy and carbon can be difficult. Audiences may struggle to understand complex mechanisms and nuanced approaches involving “green certificates” or carbon offsets, or identify with efforts to reduce carbon dioxide, a colorless, odorless gas that invisibly lurks in the atmosphere.

Focusing on physical energy consumption may be more straightforward, and therefore more valuable, route for companies to engage environmentally-minded consumers for two reasons. Firstly, consumers may find it easier to grasp the decarbonization potential of electrified vehicles on the road, renewable or otherwise lower-carbon on-site generation, and highly efficient energy systems using the latest technology. Secondly, it elevates companies’ efforts to promote clean air, an increasingly prominent issue given the links between air pollution and public health. Dirty air reports regularly feature in major national newspapers and many cities measure and publish data on pollution levels. Multiple environmental Non-Governmental Organizations (NGOs) focus explicitly on air pollution. Greenpeace has even used satellite data to map nitrogen dioxide pollution around the world, so users can see pollution hot spots for themselves18.

Commercial partners, investors and other financial stakeholders

Sustainability is fast becoming a priority issue for inter-company business dealings, too. Many large, influential companies already leverage their purchasing power to incentivize the adoption of more sustainable business practices throughout their value chain, for example by introducing eco-clauses into commercial contracts. HP Inc. reported that some US$700 million of new revenue in FY17 featured contracts or sales in which sustainability factors were a known consideration and saw a 38 percent year-over-year increase in sales bids with sustainability requirements19. The Climate Group reports that more than a third of RE100 members

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responding to its survey are actively engaging suppliers to support the uptake of renewable energy throughout their supply chains20.

A differentiated position will become increasingly valuable to B2B service providers as purchaser scrutiny grows and companies formalize their business partner engagement. CDP reports that in 2017, 99 organizations representing over US $3 trillion in procurement spend engaged almost 10,000 suppliers via CDP’s Supply Chain program21. The Science Based Targets initiative requires that companies whose Scope 3 emissions represent more than 40 percent of their total footprint set a Scope 3 target22.

Investor expectations and other finance sector drivers should also be considered. Accenture research suggests a large majority of investors see sustainability as a route to competitive advantage and a differentiator in determining industry leaders23. Nearly two-thirds of CEOs report they engage investors in the value of long- term strategies and investments addressing global challenges14, although evidence also suggests that companies are failing to communicate effectively how they are taking action. And investor interest appears to be growing. In Autumn 2018, 392 investors collectively managing assets worth US $32 trillion signaled their support for action critical to tackling climate change and achieving the goals of the Paris Agreement24. Meanwhile, ShareAction’s Investor Decarbonization Initiative has brought together over 70 institutional investors in a clear show of support for science-based emissions targets and complementary commitments to The Climate Group’s renewable electricity (RE100), energy productivity (EP100), and electric mobility (EV100) campaigns25.

Companies should consider the hard costs of a loss in trust

But trust in business can become strained if stakeholders perceive a lack of action or if sustainability claims are not credible. When trust is eroded, the consequences can be dramatic and even a moderate trust incident can have substantive impacts for company’s competitive agility17. Accenture

Strategy has quantified the impact of trust on a company’s bottom line and found that over half of companies examined experienced a material drop in trust in their recent past. The average company that experienced a negative trust event also saw their “competitiveness score” drop, putting significant revenues are stake17.

Reputational risks can emerge extraordinarily quickly, as demonstrated by the dramatic backlash against plastic, and particularly single-use plastics, in the last two to three years. The UN Environmental Program “declared war” on ocean plastic in 201726, the EU rushed through new rules on single-use plastics in 201827, and at the start of this year some 25+ global companies from across the plastics value chain launched the US$1.5 billion “Alliance to End Plastic Waste” in direct response to stakeholder pressure28. December 2018 even saw the world’s first “plastic-free” flight take off29.

Comparisons can be drawn between the plastics backlash and air pollution from vehicles, a health hazard that can be highly localized30 and is more tangible to the public than greenhouse gas emissions, in relation to the speed and magnitude of the shift in stakeholder perceptions.

Fleet operators may find themselves increasingly operating in markets where their vehicles’ contributions to dirty air will become ever more transparent to consumers (several countries now require vehicles to display “pollution stickers” in their windshields), where those consumers are better educated on air pollution issues (particularly in cities introducing or expanding clean air zones), and where their peers are maneuvering to take decisive action (by, for example, transitioning to electrified vehicles). Under these circumstances, a failure to cut vehicular air pollution may mean a company’s broader environmental successes ring hollow as consumers observe their branded commercial vehicles pollute nearby homes, offices and schools.


COMPANIES SHOULD PREPARE FOR STRICTER AND COSTLIER EMISSIONS REGULATIONS

Companies can expect to face increased direct and indirect costs where pollution-targeting policies such as carbon pricing or air quality regulations come into force.

Financial risks might include:

1. Increased operational costs: These can come from increased taxes on emissions-intensive or highly polluting machinery, vehicles or fuels, retrofit requirements, performance standards or air pollution surcharges in certain areas such as inner-cities.

2. Disruptions to business operations:Companies might face curtailment or outright bans on operating assets that breach emissions limits in the most extreme circumstances.

3. Reduced asset resale value:Factors that increase operational costs are likely to constrain resale opportunities at the asset replacement stage, reducing residual asset value. This may be an important determinant of the overall business case and should be considered in evaluations on a “total cost of ownership” basis.

Air pollution controls

Much attention is directed towards carbon pricing, and this will be an important factor for some (see “Carbon pricing mechanisms”). But it seems likely that many companies will first see costs of doing business rise as a result of stricter air pollution controls. More and more countries are reviewing air pollution legislation—India and the United Kingdom (UK) both launched new clean air strategies in January 2019—as the true costs of dirty air becomes increasingly clear, particularly in cities and other densely populated urban areas where pollution can quickly build to critical levels. Already 52 cities, regions and countries spanning some 153 million citizens have joined the BreatheLife Network to demonstrate their commitment to bring air quality to safe levels by 203031.

And as technological solutions to air pollution proliferate and costs come down, it seems likely that regulators will increasingly target the emissions from a broader range of sources.

Road transport looks set to be a top priority for regulators and many fleet-operators are likely to face greater curbs on their business operations in the near term as cities clamp down on air pollution. Even in a country with strict controls such as the UK, road transport accounts for 80 percent32 of nitrogen oxide concentrations near roadsides.

Boilers, combustion-based generators and other stationary sources may also be subject to growing regulation, particularly those that use fuels that are air pollution-intensive. For example, the UK Government is considering clamping down on biomass installations in urban areas by making them non-eligible for low-carbon subsidies on advice that they can seriously worsen air pollution33. Last summer, the governing authority of the Indian national capital territory of Delhi and its 11 districts banned the dirtiest fuels from use in commercial and industrial plants to help improve the capital’s filthy air34.

Carbon pricing mechanisms

Many companies are already, or soon will be, subject to some form of direct carbon pricing in their operations. But at today’s levels, carbon pricing has limited financial impact for most businesses. Just 14 percent of global greenhouse gas emissions are subject to some form of carbon pricing35, mostly at low price levels36, with analysis suggesting that prices will need to increase by a factor of 5-10x by 203036 if we are to meet the Paris Agreement’s temperature targets.

Rising greenhouse gas emissions37 and concerns about the offshoring of carbon-intensive heavy industry (carbon leakage) is prompting calls for expanded, economy-wide carbon pricing schemes focused on sectors that have made only limited progress with decarbonization—sectors such as transport, buildings (with a large focus on heating) and light industry38 39 40. It is against this backdrop that companies should consider how carbon pricing might affect their future operations and assess the risk of future cost increases that are proportional with carbon-intensity.

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COMPANIES CAN SEIZE NEW OPPORTUNITIES TO IMPROVE ENERGY PRODUCTIVITY AND PERFORMANCE

Even without externalized costs being ascribed to polluters through clean air surcharges or carbon pricing, the economic business case associated with less polluting, lower-carbon energy consumption can be a compelling one.

Less polluting, lower-carbon technologies

Mature technologies such as rooftop-scale solar and heat pumps with proven economic credentials are now common across broad swathes of the commercial and industrial market, and complementary technologies (such as electrical and thermal storage) and market designs (such as demand-dynamic electricity pricing) will likely further boost their financial appeal.

But even more exciting is the emergence of alternative energy technologies with the potential to fundamentally disrupt established norms of energy consumption (described in detail in the next chapter).

On the road, financial barriers to mass fleet electrification are falling fast thanks to plunging component costs driven by vehicle manufacturers and infrastructure providers jostling for a lead in the market for light, medium and heavy vehicles powered by batteries or hydrogen fuel cells. Savings on a total cost of ownership basis are already a reality for certain vehicle types in several markets41.

And in commercial buildings and light industrial settings, conventional combustion-based systems for producing heat and power now have a serious competitor in the form of electrochemical fuel cells that are both more efficient and non-polluting at point of use. This trend is being supported by continued reductions in the cost of the technology (both organically as the sector scales, and artificially in markets

where policy support endures) and by the popularization of Power Purchase Agreements that offer reliable, competitively priced energy as a service without the beneficiaries having to make prohibitive upfront investments.

Digital optimization

Sophisticated, adaptable and affordable digital technologies enable energy users to optimize the operation of individual assets and the energy systems they collectively constitute in ways not possible before (described in detail in the next chapter). The interrogation of bulk data streams from connected assets enables intelligent coordination of systems, unlocking savings from greater energy efficiency and more effective asset management.

Digital coordination is also an important element in modern techniques to cut net energy spending by exploiting the flexibility of connected energy systems.

For example, significant savings on power bills can be realized with sensor technology, analytics capabilities and control systems that manage electrical demand from building environment systems, industrial processes, and other sources such as battery electric vehicles charging. Similarly, dispatchable energy assets including power generation units and batteries can be programmed to automatically start-up and reduce power drawn from the grids during peak price periods.

The collective flexibility of connected systems can also be a revenue earner. With the right sensors and control systems, and within certain markets, companies can get paid for providing different kinds of electrical services, collectively termed Demand Side Response (DSR), to transmission and distribution grid operators—typically by either adjusting electrical demand or by feeding electrical power back to the grid. The larger and more diverse the aggregated pool of DSR-suitable assets, and the more sophisticated the systems that control the asset pool, the more valuable the DSR opportunity is to the company.

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IDENTIFYING OPPORTUNITYTechnologies to deliver less polluting, lower-carbon energy consumptionSummary• To capitalize on the value potential described in the previous chapter,

organizations should consider the following components of less polluting, lower-carbon energy consumption:

1. DEPLOY LESS POLLUTING, LOWER-CARBON ENERGY TECHNOLOGIESEnergy assets that do not emit air pollutants during use and are less carbon-intensive than conventional technologies. Road transport and decentralized heat and power generation are priority areas of focus.

2. DIGITALLY OPTIMIZE ENERGY CONSUMPTIONDigitally-enabled optimization of energy networks and the assets they comprise. Optimization encompasses energy efficiency and better operational performance, as well as taking advantage of the flexibility inherent to digitalized energy systems to cut net energy spend.

• Each opportunity should be assessed against the shared value framework described in the preceding chapter (Figure 7 provides a 2019 snapshot).

• Less-polluting, lower-carbon energy technologies can effectively serve to build trust and reduce regulatory exposure, but in early 2019 will only offer marginal improvements in energy productivity and performance, in most cases.

• Digitally-enabled optimization of energy consumption can deliver substantial financial benefits, but unless paired with less polluting and lower-carbon technologies, it is likely to be less potent in building trust or reducing regulatory exposure.


Figure 7: Summary of value opportunities performance against shared valued framework – 2019 snapshot

STRAND OPPORTUNITY BUILD REDUCE REGULATORY EXPOSURE

IMPROVE ENERGY PRODUCTIVITY

FLEET ELECTRIFICATION

High

• Contribute to cleaner air and healthier communities

• Drive deep cuts to GHG emissions from transport

Medium

• Reduce exposure to clear air / carbon pricing regulations that could increase costs

• Mitigate against reduced asset re-sale value

Medium

Reduce total cost of ownership for vehicles in certain markets

ALTERNATIVE HEAT AND POWER

High

• Contribute to cleaner air and healthier communities

• Drive deep cuts to GHG emissions from heat and power

Medium

Reduce exposure to clear air / carbon pricing regulations that could increase costs

Medium

• Renewable technologies can reduce OPEX

• Fuel cell CHP cost competitive vs. separate heat and power generation

IMPROVE EFFICIENCY AND OPERATIONAL PERFORMANCE

Medium

• Improve energy efficiency

• Increase comfort of building occupants

Low

Reduce exposure to clear air / carbon pricing regulations that could increase costs

High

• Increase energy efficiency

• Reduce cost of asset downtime & maintenance

• Gain valuable energy system insights

MONETIZE FLEXIBILITY

Low

Support flexible and more resilient power grid systems

Low

Mitigate against increasing non-commodity energy costs

High

• Cut power bills

• Unlock new revenue streams

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CHP = Combined Heat and Power


DEPLOY LESS POLLUTING, LOWER-CARBON ENERGY TECHNOLOGIES


Fleet electrification using battery-electric vehicles (BEV) and hydrogen fuel-cell electric vehicles (FCEV) represents one of the most compelling avenues for businesses to deliver shared value thanks to a strong pollution and carbon benefit-case and a rapidly improving economic outlook.

Leading the charge towards an electrified transport future is EV100, an initiative of The Climate Group, whose members are collectively committed to making electric transport the new normal by 2030. Within 18 months, EV100 has united over thirty leaders in electric mobility and provided a unique platform for these companies to showcase their leadership, share best practice, and engage with the wide variety of players involved in building a global electrified vehicle market.

Electrified vehicles signal that commercial fleet operators are committed to a healthier environment:

Conventional road transport is not clean. Fossil fuel vehicles are carbon-intensive with the commercial vehicle segment making up a significant proportion of total transport emissions—in the US and EU, commercial vehicles account for 27 and 30 percent of total

road transport emissions respectively42 43 44. Internal combustion engine (ICE) vehicles also emit harmful pollutants such as nitrogen oxides and particulate matter. Diesel, a popular light, medium and heavy-duty vehicle fuel, is particularly toxic. In the UK, light commercial vehicles are responsible for 30 percent of nitrogen oxide emissions but make up just 15 percent of road traffic45. Heavy goods vehicles are even more pollution-intensive, being responsible for a staggering 20 percent of nitrogen oxide emissions whilst accounting for just 5 percent of total miles driven in the UK46.

Switching to EVs demonstrates a clear commitment to cleaner air and carbon reduction (Figure 8), with purpose-linked goals amongst the key drivers for organizations that have committed to fleet electrification. Analysis by The Climate Group of its EV100 initiative members found that the top three “very significant” drivers for businesses are reducing greenhouse gas emissions, cutting local air pollution, and being seen leading the transition to electric transport40. Neither battery electric or hydrogen vehicles produce tailpipe emissions of air pollutants during use. BEVs are less carbon-intensive than petrol or diesel vehicles on a “well to wheel” basis, even when powered with the dirtiest grid electricity47. The greenhouse gas emissions-intensity of FCEVs can vary significantly dependent on how the hydrogen was produced and processed but FCEVs can still deliver carbon benefits versus ICE vehicles48, particularly when the electrolyzers used to produce hydrogen are powered by renewable electricity.

Figure 8: Electrified vehicles high level summary of environmental and health benefits

VEHICLE TECHNOLOGY

CLEAN AIR BENEFITS GHG EMISSIONS BENEFITS

BATTERY ELECTRIC VEHICLES (BEV) Yes

Zero tail-pipe emissions of air pollutants

Yes

In all cases, but greatest benefit when charged with low-carbon electricity

HYDROGEN FUEL CELL VEHICLES (FCEV)

Yes

But highly variable depending on hydrogen production technique* and the carbon intensity of process energy

*Hydrogen is usually produced in one of two ways. Steam methane reforming (SMR) of natural gas is the most common technique today. SMR results in GHG emissions from both the energy used in the production process and the chemical reactions during which hydrogen is produced. SMR of biogas or the use of carbon capture and storage can cut the carbon footprint of hydrogen produced in this way. The second method involves electrolysis of water—this only results in GHG emissions from energy used in the process. If renewable energy is used, electrolysis-produced hydrogen can be considered almost zero-emissions (although GHG emissions may occur when hydrogen is compressed and transported, as is also the case with SMR-derived hydrogen).


The total cost of ownership of electrified vehicles is falling fast as technology improves and regulations tighten:

The total cost of ownership (TCO – see Figure 9) of an electrified fleet is falling in many geographies as markets mature and regulatory pressures on conventional vehicles grow. Electrified vehicles already make financial sense in some markets with a third of The Climate Group’s EV100 initiative members citing financial savings as an incentive for switching to electrified vehicles. Small electric vans have reached parity with diesel models in some markets and larger vans look set to follow in the coming years49 with urban delivery cycles of under 100 miles already well suited for such vehicles50.

The competitiveness of EVs should improve further as greater scale drives component costs down and vehicle manufacturers and infrastructure providers compete for market share. A host of new light- and medium-duty battery electric models are coming to market, particularly in Europe, North America and China. The heavy-duty transport market, where hydrogen FCEVs could prove most viable, is also evolving and several major manufacturers have publicly announced plans to launch fuel cell models in the coming years—indeed, Hyundai announced in 2018 that it will commence commercial deliveries of hydrogen fuel cell vehicles as early as 201951.

Regulatory pressures also favor electrified vehicles, with conventional models likely to face higher operating costs as air quality controls tighten. 15 countries have committed to a “zero-emission future for transport”52, whilst the mayors of 27 cities have pledged to transition to “Fossil-Free-Streets” with major areas of their cities designated “zero emissions” by 203053. Two London boroughs operate a total ban on fossil vehicles, and the city of Oxford is considering a blanket ban from 2020. Paris, Mexico City, Madrid and Athens plan to ban diesel vehicles by 2025 whilst Los Angeles is aiming for one in four long-haul trucks, and up to half of medium-duty delivery trucks, to be “zero-emission” in 10 years’ time54.

Expanded carbon pricing may also push up vehicle operating costs. Fuel levies are one option for policy makers, as demonstrated by the recommendation from the UK’s climate advisory panel that a fuel duty freeze be reconsidered if national carbon targets are to be met55. Other options also exist - in December 2018, nine US states agreed to establish a first-of-its-kind Emissions Trading Scheme for the transport sector56.


Figure 9: Sample of key factors influencing total cost of ownership / appeal of an electrified fleet*

TYPE FACTOR EXAMPLES SAMPLE OF ELEMENTS INFLUENCING OVERALL TCO / APPEAL

UPFRONT COSTS

Unsubsidized upfront vehicle costs

Vehicle costs across the range and weight spectrum

• OEM competition for commercial EV market share

• Regulation of average OEM vehicle emissions performance

• Battery / fuel cell component costs

Financial incentives Grants, tax breaks • Policy support for EVs in mature / emerging EV markets

Private infrastructure Charging / refueling stations

• Competition amongst charging infrastructure providers for market share

RUNNING COSTS

Fuel prices Electricity, hydrogen, diesel etc.

• BEV charging optimization (Smart Charging)

• Cost of EV charging / fueling versus fossil fuel costs

System efficiency Battery / fuel cell cycle efficiency, drivetrain losses

• Battery / fuel cell engineering performance

Maintenance costs Drivetrain components life and replacement costs

• OEM warranty terms

• Component costs (per kWh basis)

Vehicle charges Road taxes, low-emission zone charges

• Incentives such as exemptions to national taxes or local pollution charges

OTHER FACTORS

Business disruption Restricted access to zero-emissions zones

• Bans on polluting vehicles in city-centers

Depreciation / asset residual values

Residual value of EVs and EV components

• Residual value of assets relative to conventional ICE vehicles

• Second life for EV batteries in stationary uses

Public infrastructure availability

Fast charging stations, hydrogen fueling stations

• Prevalence of public charging / fueling infrastructure

* Not exhaustive

TCO = Total Cost of Ownership; OEM = Original Equipment Manufacturer; EV = Electrified vehicle (includes BEV and FCEV); BEV = Battery Electric Vehicle; FCEV = Fuel Cell Electric Vehicle; ICE = Internal Combustion Engine


Companies demonstrating exceptional leadership in the transition to electrified vehicles:

A host of ambitious companies are putting electrified vehicles at the heart of efforts to transform their commercial fleets and embrace less polluting and lower-carbon transport. The commitments and progress of these leading organizations, three of whom are showcased below, send very material signals of a growing demand for clean transport at a time when the vast majority of vehicles sold are still fossil-powered.


Deutsche Post DHL

• Deutsche Post DHL has a pioneering vision for zero logistics-related emissions by 2050, backed by comprehensive interim goals for 2025.

• Electrification is core to Deutsche Post DHL’s emissions strategy—the Group already builds, sells and operates its own custom-design electric vehicle, the StreetScooter, throughout Europe and plans to replace its entire mail and parcel delivery fleet in the mid-term with electric vehicles.

• As reflected in Deutsche Post DHL’s near-term focus on first-and-last mile services, tackling air and noise pollution are also key strategic drivers as cities put pressure on transport providers to transition to cleaner, quieter vehicles that will benefit their citizens.

• As the operator of the largest electric fleet in Germany, Deutsche Post DHL knows what it takes to deliver top operational performance at the lowest cost, and the company is pushing forward with investigations into complementary technologies and innovative solutions such as repurposing older vehicle batteries for use as energy storage at their logistics and distribution centers.

• The Group’s experience operating a geographically-dispersed electrified fleet also supports critical decision making that will secure future competitive advantage, such as options to decarbonize the heavy-duty and long-haul freight fleet, and the evolution of the Green Solutions services the company provides to help improve the sustainability of customers’ supply chains.

ZERO EMISSIONS BY 2050 within own logistics operations and those of subcontracted transport partners

70 PERCENTof first & last mile services by clean pick-up and delivery solutions by 2025

GREEN SOLUTIONSthat cut emissions in customers’ supply chains to make up the majority of sales by 2025



Ingka Group (formerly IKEA Group)


AB InBev

• Decoupling business growth from emissions is viewed as both a trust-building and risk-mitigating opportunity for Ingka Group (formerly known as IKEA Group), particularly as its e-commerce service grows, consumer expectations for sustainable operations rise, and many cities announce low- and zero-emission zones.

• Leading by example is core to Ingka ambition to halve emissions from customer and co-worker travel to IKEA touchpoints by 2030, and therefore Ingka will transform the fleet of vehicles used in its operations. Ingka Group have set themselves an aggressive timetable with last-mile electrification in Amsterdam, Los Angeles, New York, Paris and Shanghai by 2020.

• AB InBev is working to reduce emissions from vehicles as part of its leading-edge value chain emissions target that includes action to address direct and indirect greenhouse gas emissions in logistics.

• AB InBev’s vehicles focus spans inner-city deliveries, where reduced noise and air pollution can drive additional benefits, and long-haul distribution with trials scheduled or underway in the US, China and Latin America.

• The scale of AB InBev’s ambition is telling and the company is already trailblazing a new transport future across the globe. In the US, Anheuser-Busch last year placed an order for up

• Having achieved 100 percent “zero-emission” deliveries in Shanghai already , Ingka Group is looking to accelerate its transport transformation across the whole of China and expects to be 100 percent zero-emission well in advance of the 2025 target.

• This early push into electrification will equip the company with vital insight into how best to navigate operational complexities such as integrating charging infrastructure into its stores and distribution centers at scale and using new technology and new ways of working to offer more convenient and sustainable services to customers.

to 800 hydrogen fuel cell vehicles as part of plans to convert its entire dedicated trucking fleet to renewable-powered trucks by 2025. Meanwhile, Brazilian subsidiary Ambev’s order for 1,600 electric trucks was the world’s largest of its kind when announced in August 2018.

• AB InBev’s teams now have valuable experience with the practicalities of transitioning to electrified vehicles, including financial incentive eligibility, import constraints, vehicle leasing arrangements, and infrastructure access.

• In time, AB InBev hopes to support its supply chain partners in their own journeys towards an electrified transport future.

100 PERCENT of last-mile home deliveries using zero-emission vehicles by 2025

25 PERCENT reduction in value chain emissions intensity by 2025 (Scopes 1, 2 & 3)

5 MAJOR CITIESusing electrified vehicles for every inner-city home delivery by 2020

800 HYDROGEN FUEL CELL TRUCKS ON ORDERwith plans to convert the dedicated US trucking fleet to renewable-powered trucks by 2025



Where connections exist, organizations will often meet the majority of power demand with electricity sourced from the grid, with on-site generation assets used as back-up or to provide supplementary, intermittent power. The opposite is generally true of heat—typically heat demand is met by burning fuels on-site to produce the hot air, water or steam that delivers thermal energy to end-processes. Heat and power can also be cost-effectively produced together in high efficiency Combined Heat and Power (CHP) systems.

What many conventional on-site power generation, heating and CHP systems have in common is a combustion process—burning fuel to release energy—that results in emissions of greenhouse gases and harmful air pollutants that vary with the fuel in question and the system’s technical and operational characteristics.

But a number of less polluting, lower-carbon alternative technologies are available to businesses seeking to transform the energy consumption profile of their commercial buildings and light industrial facilities (Figure 10 and Figure 11).

Figure 10: Overview of typical corporate energy consumption arrangements and less polluting, lower-carbon alternatives

ENERGY NEED

TYPICAL CONSUMPTION ARRANGEMENT

CONVENTIONAL TECHNOLOGIES

LOCAL AIR POLLUTANT EMISSIONS?1

GHG EMISSIONS INTENSITY

LESS-POLLUTING, LOWER-CARBON ALTERNATIVES2

HEAT3

Usually generated on-site, unless district heating is available

Fuel-fired, combustion-based heating

Yes High(variable with fuel type e.g. gas, oil, coal)

• Solar thermal systems (lower grade heat)

• Heat pumps (lower grade heat)

Conventional electric heating(e.g. electric boiler)

No High(inefficient, depends on electricity mix e.g. coal, gas, hydro, wind, solar)

POWER

Usually supplied via a power grid (where available)

Grid-mix power from various sources

No Highly variable(Depends on power mix e.g. coal, gas, hydro, wind, solar)

• Solar PV

• Fuel cell

Auxiliary / back-up power is generated on-site

Fuel-fired, combustion-based generation(e.g. diesel generators or gas turbines)

Yes High(variable with fuel type e.g. gas, oil, coal)

HEAT + POWER

Generated together in a Combined Heat and Power system (CHP)

Fuel-fired, combustion-based CHP

Yes Lower than independent heat and power(variable with fuel type e.g. gas, oil, coal)

Fuel cell CHP(typically produces lower grade heat)

1. At point of transformation (e.g. chemical energy in fuel to thermal energy in hot water) or end energy consumption.

2. Not exhaustive. Heating alternatives not listed include blended gas networks, district heating, and direct-use / deep geothermal since such technologies are likely to remain highly limited in their availability to most businesses in the medium term due to geographic or technological limitations. Power generation from alternative renewable sources such as small hydropower or wind turbines may also be attractive dependent on local factors such as renewable resource potential or siting constraints.

3. In some system designs, heat is also used to produce cooling—this is known as “absorption cooling” and can make use of heat from solar systems and heat pumps.

PV = Photovoltaic; CHP = Combined Heat and Power


Solar systems and heat pumps can complement conventional energy assets:

Companies should first explore mature technologies that complement conventional systems and can deliver cuts to both energy bills and emissions—technologies accessible to many organizations include solar photovoltaic (PV) systems to produce electricity, and solar thermal systems and heat pumps to produce low-to-medium temperature heat (Figure 11).

Alternative heat technologies can be particularly beneficial given the pollution and greenhouse

gas footprint of conventional fuel-combustion heating systems. Solar thermal systems and heat pumps can often deliver a majority of a site’s heating needs, particularly in commercial buildings where space heating and hot water typically constitute the single largest demand for non-electrical energy by some margin57. Sectors with low-temperature processing activities, such as food and beverage production, are also typically good candidates for these technologies, which can substantially lower heating costs compared to conventional alternatives, especially where low-carbon policy support mechanisms are on offer.

Figure 11: Summary of select less polluting, lower-carbon energy production technologies

TECHNOLOGY ENERGY NEED

OPERATION ENERGY INPUT / CARRIER

AIR POLLUTION GHG FOOTPRINT

SOLAR THERMAL

Heat Converts sunlight to energy

Sunlight None No GHG emissions

HEAT PUMP1

Heat Efficient conversion of electricity to heat

Electricity None at point of use

Can be lower than gas-fueled boilers3

SOLAR PHOTOVOLTAIC

Power Converts sunlight to energy

Sunlight None No GHG emissions

FUEL CELL2

Power or CHP

Electrochemical reaction to produce energy from fuels

Hydrogen-rich fuels or purified hydrogen

Ultra-low at point of use

Lower than combustion-based system3

1. Heat pumps use electricity to “upgrade” low-grade heat to higher-grade heat, providing more units of heat energy than the units of electricity used to power them. Being electrically powered, they are also highly complementary of solar PV or any other source of low pollution and low-carbon electricity.

2. Fuel cells of different designs use different fuels. Some fuel cells can run on hydrogen-containing fuels such as natural gas and biogas. Other designs require purified hydrogen.

3. Decarbonization potential is dependent on factors such as the system being displaced, alternative system efficiency, and the carbon intensity of the electricity or hydrogen consumed


Ingka Group (formerly known as IKEA Group) is amongst those companies demonstrating the potential of heat pumps to provide less-polluting and lower-carbon heating and cooling, particularly when paired with renewable power generation.

Fuel cells provide unique pollution and greenhouse gas emissions benefits:

Another technology group with unique potential to combat air pollution and reduce greenhouse gas emissions is the fuel cell, which converts hydrogen-rich fuels to energy via a high-efficiency electrochemical process. Dependent on the specific type of fuel cell (there are several), they can effectively provide steady, baseload energy or operate in an auxiliary or back-up capacity. And fuel cells can produce power alone or operate in a Combined Heat and Power (CHP) configuration to produce both electricity and hot water or low-pressure steam.

The key advantages of fuel cells include:

1. Non-polluting and quietWith next to no moving or spinning parts, fuel cells operate very quietly and emit almost no air pollutants such as nitrogen oxide, sulfur dioxide and particulate matter in operation (since fuel is not burnt but electrochemically reacted). This makes them highly attractive in urban or closed environments where air and noise pollution are likely to be a concern.


Ingka Group (formerly IKEA Group)

• Ingka Group (formerly known as IKEA Group) continues to redefine environmental stewardship with an aggressive absolute emissions reduction target and a comprehensive approach to reducing air pollution and GHG emissions within its operations.

• By August 2018, Ingka Group had invested over EUR 2 billion in wind and solar and generated renewable energy equivalent to 81 percent of the energy used in operations in financial year 2018. Today the company has 900,000 solar panels installed on its sites and owns and operates 441 turbines.

• With 157 megawatts of installed rooftop solar and ground- and air-source heat pumps already delivering less-polluting and lower-carbon

energy in many Ingka buildings, including IKEA stores, distribution centers and shopping centers across Europe, Canada and China, Ingka Group is now looking to scale the deployment of renewable heating and cooling technologies.

• Ingka Group is rolling out a global retrofit program for existing sites and have directed that all new buildings prioritize renewable heating and cooling technologies in their designs. Heat pumps have been found to be one of the cheapest ways of cooling and heating buildings due to improved energy efficiency and reduced operational costs—for example, a retrofitted ground source heat pump for the IKEA Helsinki store will use 100 percent renewable energy and deliver energy savings of EUR 95,000 per year.

80 PERCENT reduction in absolute GHG emissions by 2030 (Scope 1 & 2)

100 PERCENT RENEWABLE HEAT & ELECTRICITYin operations by 2030 (Scopes 1 & 2)


2. Highly efficient and CHP-compatibleFuel cells can achieve efficiencies twice that of combustion-based systems when generating power alone58 59 - several US States classify fuel cells in the same category as renewable technologies such as solar and wind60. And in a CHP configuration, fuel cells are as efficient as combustion-based systems61.

3. Fuel flexibilityDifferent types of fuel cells use different fuels. Several designs can be connected to a natural gas network. Other common fuels include Liquefied Petroleum Gas (LPG), liquified ammonia or purified hydrogen. It should be noted that fuel cells do still result in net emissions of greenhouse gases such as carbon dioxide, unless the fuel used is of a specific type such as biogas or renewably-produced hydrogen.

As with any form of on-site generation, using fuel cells to produce power close to the point of consumption avoids the energy losses that occur when electricity is transported between large power plants through the grid to the buildings and facilities where it is consumed. These “Transmission and Distribution” losses can be significant, typically ranging from 6 to 18 percent of total electricity output from power plants62.

This powerful combination of benefits has encouraged companies such as Microsoft to reconsider the very fundamentals of how energy is sourced and consumed within their operations.


Microsoft

• Fuel cells are at the heart of a pioneering Microsoft program to dramatically simplify the data center, reduce cost and emissions through step-change improvements in end- to-end energy efficiency and reliability within data centers.

• Using small-capacity fuel cells to generate power at the server row level, rather than a large unit in a conventional centralized configuration, Microsoft’s innovative solution further increases generation efficiency, reduces system losses and provides additional protection against individual asset failures that might otherwise threaten data center reliability.

• Besides the direct cost saving and emissions benefits fuel cells provide, Microsoft’s engineers hope the system will do away with the need for conventional fossil-fuel powered back-up generators in its data centers, further strengthening the solution’s environmental credentials.

• Currently fueled with natural gas, Microsoft expects to use biogas or landfill gas where it is available and explore opportunities to source high-purity hydrogen produced using renewable electricity with zero upstream emissions in the longer term—an exciting vision for a truly transformational and value-enhancing energy ecosystem.

75 PERCENT reduction in operational carbon emissions by 2030

INNOVATIVE EFFICIENT AND RESILIENT POWER SUPPLYtrials underway in data centers


Many other companies are already realizing the benefits of fuel cells in more conventional configurations:

• Data center provider Equinix is installing 37 megawatts of cumulative fuel cell capacity across 12 US sites, with supply structured according to a 15-year Power Purchase Agreement (PPA). The fuel cell solution will reduce GHG emissions by up to 45 percent compared to a conventional power sourcing arrangement, avoiding 660,000 tons of carbon emissions, and 87 billion gallons of water consumption that would have been used by natural gas or coal-fired utility generation, over the lifetime of the project63.

• African telecom integrator Adrian Kenya expects to save US$84 million over 10 years and reduce its carbon footprint by nearly 250,000 tons64 by switching from diesel generators to liquid ammonia-powered fuel cells at 800 off-grid base-stations across Kenya.

• A 20-year PPA for a new 5 megawatt fuel cell CHP solution installed by food manufacturer Campbell Soup Company meant that the site avoided the lengthy and expensive air permitting process in America’s most polluted city, and will reduce greenhouse gas emissions by 11 percent annually compared to grid purchase of electricity and combustion of natural gas in steam boilers65.

Fuel cells still make up a very small percentage of total installed commercial- and industrial-scale capacity. A key barrier to greater penetration of fuel cells has been their higher cost relative to combustion systems, however costs have decreased markedly as the fuel cell market has rapidly expanded. A survey by the National Fuel Cell Research Center based out of the University of California Irvine found the installed cost per megawatt of stationary fuel cells fell by 70 percent between 2009 and 2017 and operating and maintenance costs had reduced by 57 percent by 201666, trends the researchers expect to continue. The US Department of Energy’s own technical targets for stationary commercial and industrial-scale fuel cells describe costs reductions of 60 to 70 percent by 2020 compared to 201567.

Many fuel cell manufacturers now offer commercial and industrial-scale units for minimal upfront costs, instead entering into Power Purchase Agreements or similar financing arrangements to overcome buyers’ capital constraints. As was the case for on-site solar, falling system costs, flexible financing arrangements and a compelling environmental case look set to make fuel cells a high potential option for energy users seeking to reduce air pollution and climate impacts.


Figure 12: Elements of a digitalized energy system

ELEMENT COMPRISED OF…

ENERGY ASSETS EQUIPPED WITH NETWORK-CONNECTED SENSORS

Often these assets can be controlled to adjust their operation / output

• Assets that either generate, store or consume energy and so serve the energy needs of a building or facility in which they are located or sited nearby to (termed “behind-the-meter”).

• Sensors / devices to gather information about their environment (e.g. the operation of the asset in question, or the external environment).

• A means to relay information to a central “command and control” system—usually via internal communications networks or the internet.

COMMAND AND CONTROL SYSTEM

Often the command and control system adjusts the operation / output of digitally-connected assets

• A command and control software system (usually cloud-based) receives data from the connected assets.

• Data is analyzed against control parameters and signals such as energy prices, production schedules or Demand Side Response instructions.

• Output is used to dynamically control and coordinate the connected asset network to achieve a desired result, inform human users, or both.

USER INTERFACE

Some systems feature user-driven direct-control capabilities

• Advanced digital system solutions are capable of automated control, coordination and optimization (within set parameters).

• Even so, most systems will feature a user interface to inform users of the system’s status and notify of events that may require a response (such as predictive failure alerts or significant commercial decisions).

• Users may also be able to control assets directly via the interface.

Figure 13: Primary value levers for digitally-optimized energy consumption

Energy efficiency

Operational efficiency

Employee productivity

Non-commodity cost management

Grid services

DIGITALLY-OPTIMIZED

ENERGY CONSUMPTION

Improve efficiency and operational performance

Monetize flexibility (Demand Side Response)

DIGITALLY OPTIMIZE ENERGY CONSUMPTION

Digital technology is fundamentally disrupting the way large businesses use energy.

Digitally-equipped assets, transmitting data and receiving instructions, means opaque and pre-programmed (i.e. rigid) systems can be transformed into transparent and responsive (i.e. flexible) networks, primed for automated

optimization. This makes digital a powerful tool to reduce wasted energy, improve operational efficiency, and cut the effective energy rates paid by energy users.

Digitalized energy systems, which vary in sophistication and scope, are usually founded on the Internet of Things (IoT) precept (Figure 12). Optimization of these systems can be broken down into two interlinked but distinct opportunities—improving efficiency and operational performance, and monetizing energy flexibility (Figure 13).



With the right analytics capability to make sense of the data stream, sensor-equipped assets measuring energy use fluctuations in response to meteorology, building occupancy, and production schedules and processes can support radical improvements in energy efficiency and operational effectiveness. Automated control and coordination of a complex energy network avoids the unnecessary operation of heating, cooling, ventilation, lighting and any other energy-consuming assets, reducing spending on fuel and electricity but also helping to extend asset life thanks to fewer redundant operating hours.

Data-driven predictive asset maintenance—making use of data to predict equipment failure before it fails—is another hugely valuable application of an IoT-enabled asset base, with the potential to avoid costly unplanned downtime, reduce maintenance costs and boost workforce productivity compared to a scheduled (preventative) or reactive maintenance regime. Unsurprisingly, predictive maintenance is likely to be most valuable for light- and heavy-industrial energy users operating expensive, complex, mission critical assets.

Businesses of all kinds can benefit from this digital-enabled optimization. For example, in commercial buildings such as corporate offices, retail spaces and warehouses, most energy is used to provide building services such as space heating and cooling, ventilation, heating water and lighting57—all areas that can be readily optimized. Employee comfort can be improved too, which can help lower absenteeism and increase employee productivity68.

Energy demand from lighting provides a useful example, where IoT-enabled solutions comprising efficient LEDs, versatile sensor interfaces and sophisticated digital control systems look poised to unlock huge value for commercial and industrial building owners and occupants. Superior energy efficiency means intelligently controlled LED lighting delivers substantial cost savings as a matter of course. LEDs are by design highly amenable to sensor-based command and control systems, and responsive lighting can support far greater benefits, helping to improve employee wellbeing and productivity by contributing to a comfortable work environment finely attuned to workers’ biological lighting preferences throughout the day. New opportunities are emerging all the time. For example, the ubiquity of lighting means sensor- equipped light fixtures will naturally constitute a building-wide digital network that can provide highly granular data on occupancy, temperature, air quality and other conditions that will inform further optimization.

Energy assets increasingly come ready-equipped for connectivity, and new buildings are commonly designed for digital optimization from the outset. But effective retrofits are possible too, and indeed preferred if a building or the assets within it are not yet near end of life—for example, retrofits will be essential in the many markets where a large proportion of the building stock needed in the medium term has already been built.


HP Inc.’s strategy is reflective of this - the company plans to leverage insights acquired from operating new-build, digitally-connected sites to inform the retrofit programs for its existing building stock.

MONETIZE FLEXIBILITY

A network of digitally-connected and coordinated energy assets, from basic heating and cooling systems to the latest energy storage technologies, provide businesses with a valuable resource—flexibility. Where market conditions allow, energy users can exploit this flexibility to cut power bills and earn revenue from their assets, an approach collectively referred to as “Demand Side Response” (DSR).

The economic opportunity associated with DSR varies based on a company’s energy usage profile, its energy consuming and producing assets, and the local electricity market’s structure and DSR rules. Broadly, there are two routes to financial rewards under DSR (Figure 14).

The first, non-commodity cost management, involves energy users acting of their own accord to minimize exposure to peak pricing periods. The second involves responding to direct signals from a grid network operator or third-party intermediary. Participation in these schemes is formalized in some way, with a company financially rewarded for adjusting energy consumption or making output from generation assets available to external parties as required.


HP Inc.

• HP Inc. is taking a digital-led approach to simultaneously optimizing energy use, enhancing operational performance, and maximizing employee comfort across the company’s portfolio of commercial offices and R&D sites.

• Cost reduction is a primary driver and digital optimization has unlocked year-to-year demand-side savings thanks to improved efficiency, extended asset lifetimes, and overall greater transparency across HP’s energy networks.

• HP Inc. always prioritizes their people and recognizes that a comfortable workplace can boost employee productivity. This is provided through automated fault discovery and real-time occupancy detection that supports analytics-driven coordination of building services, improving indoor air quality and temperature regulation.

• Committed to excellence in green, connected buildings for all new sites, HP Inc. now plans to use data-backed insights generated from new-build sites to develop a retrofit strategy to be rolled out across its global operations.

25 PERCENT reduction in greenhouse gas emissions by 2025 (Scopes 1 & 2)

EMPLOYEE EXPERIENCEa key driver of digital optimization in the workplace


1. These reflect such costs as delivering electricity through the grid, balancing the grid, low-carbon levies, and many others – non-commodity costs independent of wholesale market prices.

Engaging in DSR is primarily an energy productivity play. But it can indirectly also help build trust. Electricity-intensive organizations, especially those with substantial behind-the-meter capacity, have an acutely important role to play in supporting the greener, cleaner grids of the future. By participating in DSR, these companies are helping to defer costly upgrades to electricity networks, safeguard network reliability, integrate variable renewable energy such as wind and solar into the grid, and minimize the use of polluting and expensive fossil fuel plants (“peaking plants”) that would otherwise be called upon to balance supply and demand.

Microsoft, for example, sees demand-side energy innovation as naturally complementary to the long-term renewable electricity contracts the company uses to support the development of new renewable capacity on the grid. In the US, Microsoft’s researchers and engineers are conducting trials to test the potential for a data center’s back-up energy systems to provide grid services at the behest of the local grid operator. Although still in the research phase—Microsoft must be absolutely confident that the back-up system’s core purpose of guarding against power disruption is not compromised in any way—the project’s backers expect to launch a full-size demonstration system in the near future before aggressively scaling out the approach across the global data center network.

Figure 14: Approaches to monetize energy system flexibility

APPROACH BASIS EXAMPLES OF HOW THIS IS DONE

CUT COSTS BY MANAGING NON-COMMODITY CHARGES

• Targets non-commodity costs1

which can make up a large portion (or even the majority) of a company’s power bill.

• Savings are achieved by reducing consumption of grid electricity at peak times when demand is highest (and where possible shifting consumption permanently to off-peak periods), with savings potential highly dependent on utility tariff structures.

• Reducing demand by turning down or switching off non-critical energy assets.

• Using on-site generation or storage assets to displace grid-sourced energy.

EARN REVENUES BY PROVIDING GRID SERVICES

• Companies earn payments for making input (or output) from energy consuming (or generating) assets available to electricity system operators and market participants.

• Typically done in response to signals from the entities responsible for ensuring that electricity supply and demand remains balanced.

• Increasing or decreasing electrical demand.

• Feeding power from on-site generation assets (e.g. solar PV, fuel cells, CHP) or batteries into the grid.


ENVISAGING TRANSFORMATIONEmerging opportunities for transformative energy consumptionSummary• The combinatorial effects of digital technologies and modern energy assets means

that transformative energy set-ups are within reach for organizations eager to break new ground in corporate environmental leadership. Such set-ups include:

- Sophisticated microgrid designs can bring resiliency and reliability benefits to the sites they serve, integrate and support a broad array of less polluting, lower-carbon energy technologies, and have greater potential to participate in the most financially lucrative Demand Side Response programs.

- The integration of electrified heat and transport can further increase the flexibility, and therefore economic potential, of an organization’s energy systems and present additional synergies such as the deployment of second-life vehicle batteries as stationary storage.

- In the longer term, low-carbon hydrogen may prove attractive in certain applications. Vehicle refueling stations and microgrid-based energy systems incorporating renewables-powered electrolyzers demonstrate hydrogen’s potential to drive dramatic reductions in air pollution and end-to-end greenhouse gas emissions.

• The availability and viability of these systems will differ from company to company and market to market, with a precise timeline for their widespread adoption hard to definitively pin down (Figure 15). To support strategy development and investment planning, organizations should ensure they are scanning for and continuously monitoring the commercial maturity of pertinent transformative system solutions.

Figure 15: Illustrative timeline for transformative energy opportunities’ viability in multiple markets at scale*

NEAR TERM: Viable today, increasingly valuable as technologies and flexibility markets evolveSophisticated microgrid designs supporting resilient, optimization-primed, & sustainable energy systems

LONGER TERM: late 2020s to 2030+Energy from low-carbon hydrogen produced via renewables-powered electrolysis or by conventional means combined with carbon capture and storage

MEDIUM TERM: from early-mid 2020sUltra-flexible energy systems featuring hybrid assets, such as electrified vehicles equipped for “Vehicle-to-Grid” technology

* Timelines may vary widely by market and in their accessibility to energy users


SOPHISTICATED MICROGRIDS CAN PROVIDE UNIQUE BENEFITS TO ENERGY USERS IN THE NEAR TERM

Microgrids are essentially miniaturized versions of the utility-scale power grids and may be connected to a main utility grid (“grid-tied”) or operate in an entirely off-grid capacity (typically only seen in remote areas).

Microgrids, which vary in their sophistication and complexity, typically share three key design features:

1. Sufficient generation and/or storage capacity to meet priority energy demand (non-priority systems may still shut down if usual power supply is disrupted).

2. Energy distribution infrastructure (cabling, inverters etc.) to physically connect energy generation assets, storage assets and energy loads across an organization’s site.

3. The ability to operate both synchronously or independently of a utility grid (for grid-tied microgrids).

As a result, microgrids support capabilities that bring unique benefits (Figure 16).

Sophisticated microgrid systems should be of interest to an increasing cross-section of commercial and industrial energy users in the near term. Falling component costs will reduce the investment required to realize resilient and ultra-reliable power. The array of physically- and digitally-connected assets means a microgrid-based system can be highly valuable where programs that reward flexibility exist (or are likely to emerge), with value potential increasing in line with the maturity of the flexibility programs on offer. And deep cuts to air pollutant and greenhouse gas emissions can be realized thanks to a microgrid’s ability to integrate significant amounts of “alternative” generation capacity (such as solar PV and fuel cells) and energy storage, twinned with electrified energy demand (e.g. heat pumps or charging battery electric vehicles).

A microgrid, whilst well established as a concept itself, also provides an excellent platform for the adoption of highly innovative emerging energy systems not yet commercialized at scale. Two such examples, expanded upon below, are two-way electrified vehicle charging and the production of renewable hydrogen close to the point of consumption.

Figure 16: Principal benefits to the operator of an advanced microgrid

Resilient and reliableCritical systems will keep running if the usual power supply (either utility grid power or generating assets in off-grid systems) is disrupted.

Optimization-primed and highly flexibleSophisticated digital and physical connections between assets presents a broad array of optimization opportunities.

Supportive of less-polluting, lower-carbon energy technologiesIntegration of multiple technologies can support far less polluting and lower-carbon energy consumption.


Ultra-flexible systems

Dedicated generation(e.g. fuel cells,

solar PV)

Optimized consumption(lighting, heat,

air conditioning, etc.)

Hybrid assets(e.g. electrified

vehicles)

Dedicated storage

(e.g. batteries, thermal or pumped

storage)

ELECTRIFICATION OF HEAT AND TRANSPORT WILL BRING NEW OPPORTUNITIES TO MONETIZE FLEXIBILITY

Organizations with larger (in capacity terms) and more diverse asset portfolios (e.g. featuring heat pumps and electrified vehicles) will likely have improved opportunities to monetize their flexibility for the highest financial rewards.

In turn, this can boost the economic attractiveness of electrified heating and transport technologies in a virtuous cycle. Basic price-led optimization is already possible - demand from heat pumps and battery-electric vehicles, as with other electrical loads, can be turned up or down in response to various price-based signals from the electricity market.

And now a new avenue in monetizing flexibility is emerging. It involves specialized two-way charging / discharging infrastructure that allows electrified vehicles to feed energy back into the electricity grid or act as a form

of flexible energy storage. A host of pilot projects are underway around the world as vehicle manufacturers, technology providers, utility companies and network operators come together to test the capability of battery electric vehicles (and, in time, fuel cell vehicles) to provide grid services and manage non-commodity costs. As these programs are commercialized in the coming years, fleet operators may come to recognize their electrified vehicles as “hybrid” assets and a valuable component of an ultra-flexible energy system (Figure 17).

Another synergistic opportunity linking electrified transport and valuable flexibility involves the emerging market for second-life batteries. Soon fleet operators in many markets may be able to repurpose older batteries from their own electric vehicles for use in stationary storage applications at the company’s sites—Deutsche Post DHL is one such pioneering company investigating just this opportunity—or sell their batteries to companies developing these services. Already several major automotive manufacturers and energy technology companies have launched programs and pilots to commercialize second-life battery storage products at scale.

Figure 17: Make up of next-generation, ultra-flexible energy systems

Generation assets whose primary function is to produce electrical and/or thermal energy for use on site.

Hybrid assets can fulfill multiple needs. For example, electrified vehicles can feed power back to the grid or act as form of energy storage at the site where they are located.

Electrical loads that can be optimized from both an economic and environmental perspective.

Storage assets, either electrical or thermal, whose primary function is to store and release energy.


Figure 18: Mainstream approaches to producing low-carbon hydrogen

METHOD INPUTS FACTORS INFLUENCING CARBON INTENSITY

FACTORS INFLUENCING ADOPTION AT SCALE

ELECTROLYSIS USING RENEWABLE ELECTRICITY

• Water• Electricity

• Carbon intensity of electricity supply

• Availability of low-cost renewable / low-carbon electricity

• Capital costs and efficiency of electrolyzer technology

STEAM METHANE REFORMING WITH CARBON CAPTURE AND STORAGE1 (CCS)

• Natural gas, biogas or similar

• High temperature steam

• Carbon capture efficiency (residual CO2 emissions can be significant)

• Upstream emissions from natural gas extraction & delivery

• Energy / fuel costs• Efficiency of conversion process• Capital costs of CCS technology• Hydrogen purification costs• Transport & end use of captured CO2

GASIFICATION WITH CARBON CAPTURE AND STORAGE (CCS)

• Coal or biomass

• High-grade heat energy

• Carbon capture efficiency (residual CO2 emissions can be significant)

• Upstream emissions from coal extraction / biomass collection, processing and delivery

• Energy / fuel costs• Efficiency of conversion process• Capital costs of plant & CCS technology• Purification costs• Transport & end use of captured CO2

1. Reforming of renewable liquid fuels such as bio-ethanol is another method that uses the same principle.

Note: Other production methods at various stages of research and development stage include: Biohydrogen, Zero-emissions high temperature water splitting, Photobiological water splitting, Photoelectrochemical water splitting. Source: US Department of Energy69

LOW-CARBON HYDROGEN MAY BE AN IMPORTANT COMPONENT OF C&I-SCALE ENERGY SYSTEMS IN THE LONGER TERM

Renewable or otherwise low-carbon hydrogen could enable a paradigm shift in energy consumption for commercial and industrial (C&I) energy users.

Hydrogen is a versatile energy carrier—it can be electrochemically reacted in fuel cells to produce electricity (and some heat, dependent on configuration), burned to produce heat, or used to store energy in various chemical forms. But most hydrogen is currently produced from natural gas in a process that releases carbon dioxide, whilst the extraction and delivery of the natural gas itself results in upstream greenhouse gas emissions. “Low-carbon hydrogen” by contrast, the carbon intensity of which can vary widely with production methods (Figure 18), is currently a rarity because it is expensive in comparison to fossil fuels or conventionally-produced hydrogen. Centralized hydrogen production also poses challenges surrounding its transportation from the point of production to the point of use.

But opportunities for organizations to source and consume low-carbon hydrogen should present themselves by the end of the next decade, despite the complex web of factors surrounding its commercial viability and environmental credentials. Electrolysis looks especially promising where access to cheap renewable electricity, local hydrogen demand, and high fuel prices could provide a winning formula. One such use case involves pairing large renewable plants with electrolyzers to produce truly “zero-emissions” hydrogen at vehicle fueling stations for fleet operators with hydrogen fuel cell vehicles.

Local hydrogen production via renewables-powered electrolysis could also support stationary heat and power generation, and the technology is well suited to integration with microgrid-based energy systems. Commercial viability will likely be highly sensitive to a host of technical and economic factors, but recent pilots serve to demonstrate the transformative potential of such setups: in Uganda, 3000 households and businesses look set to benefit from entirely emissions free energy thanks to a solar-hydrogen hybrid system70, whilst in Sweden, a 172-home apartment block will use hydrogen generated from solar PV during the summer to power and heat homes in the winter71.


TAKING ACTIONAn illustrative approach to transitioning to less polluting, lower-carbon energy systemsSummary• To realize maximum value for minimum cost, organizations should develop a structured

strategic approach to scan for, evaluate and activate those opportunities that are best aligned with corporate objectives.

• At a high level, such an approach should include screening, evaluation, and piloting and scaling projects (Figure 19).

• This should not be a “one-off” activity but an ongoing process—organizations should be systematically evaluating the technology, market and policy landscapes to ensure they are alert to and can capture emerging opportunities that can create shared value.

Figure 19: Three-step approach to assessing value potential of less polluting, lower-carbon energy consumption

SCREEN OPPORTUNITIES FOR FEASIBILITY AND FIT

• Conduct high-level appraisal of the shared value framework to confirm applicability of trust, regulatory exposure, and energy productivity and performance value levers.

• Continously scan for new opportunities directly and via ecosystem partners.

• Screen opportunities against internal and external factors that are most likely to determine value potential - screening activities should consider local market and operating conditions and capabilities in key geographies and business units.

EVALUATE VALUE POTENTIAL AND CAPABILITIES TO EXECUTE

• Gather inputs from functional departments such as Procurement, Engineering / Facility Management, Supply Chain & Logistics, Finance, HR, CSR / Sustainability, Brand owners etc.

• Engage with relevant external parties - e.g. with existing commercial business partners, technology or service providers, coalitions of like-minded organizations etc.

• Conduct relevant commercial, technical, regulatory, risk and other analyses and shortlist opportunities to pilot.

PILOT, EVALUATE, REFINE AND SCALE

• Gain familiarity with systems and solutions by piloting a range of solutions where conditions are conducive.

• Evaluate real-world returns by measuring benefits realized against a set of financial, environmental and any other relevant KPIs.

• Refine strategy to reflect the most promising leads and address deficiencies, and explore synergistic opportunities.

• Scale / replicate initiatives that deliver on their business cases.


SCREEN OPPORTUNITIES FOR FEASIBILITY AND FIT

First, test the value propositions at a high level by considering the response to simple, high level questions such as:

• Do trust-based value propositions ring true for us based on our exposure to external scrutiny from stakeholders? Is high / differentiated performance in this area an important source of competitive advantage for us? Might this change in the foreseeable future given trends towards greater transparency and corporate accountability?

• Do we operate in markets with stringent regulatory landscapes? What is our direct and indirect exposure to greater regulation

of carbon emissions, air pollutants or any other factors (noise, water use etc.) linked to our energy consumption? What is the external sentiment towards greater regulatory oversight and stricter standards?

• In which areas is our spending on energy highest? Do we think we can change the way we consume energy in these areas? What scale of investment or disruption might be required to make these changes?

This helps inform focused screening of individual opportunities and aids the down-selection of high-potential opportunities (example shown in Figure 20). The screening process should reflect local market conditions and aim to garner a high-level understanding of how future developments might influence the value case (e.g. future regulation or energy price scenarios).

Figure 20: Issues to consider when screening opportunities

APPROACH FOCUS LENS EXAMPLES OF ISSUES TO CONSIDER

Electrified transport

Internal

• Ambition: Scope / aims of relevant sustainability targets

• Control: Owned / operated fleet vs. outsourced transport

• Profile: Fleet size, fleet type/application (e.g. last mile vs. long-haul), urban vs. non-urban presence, site infrastructure needs (e.g. charging), fleet age/refresh rate, fuels used etc.

External

• Commercial: Capital and operating costs including energy prices / availability (electricity, hydrogen, diesel etc.) plus any financial incentives to purchase / operate EVs; model choice / function; critical infrastructure availability (charging, fueling, maintenance etc.)

• Environmental: Grid / hydrogen carbon; carbon pricing coverage and rates

• Societal: Clean air regulation / public sentiment (i.e. pressure to act); noise constraints

Heat and power production

Internal

• Ambition: Scope / aims of relevant sustainability targets

• Control: Owned / operated buildings vs. leased / managed service?

• Profile: Expected site tenures; heat; power demand ratio; criticality of ultra-reliable power

External

• Commercial: Capital and operating costs including energy prices / availability (electricity, hydrogen, natural gas etc.) and financial incentives to purchase / operate technologies

• Environmental: Grid / hydrogen carbon; carbon pricing coverage and rates

• Societal: Clean air regulation / public sentiment (i.e. pressure to act); noise constraints

DEP

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LOW

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APPROACH FOCUS LENS EXAMPLES OF ISSUES TO CONSIDER

Optimize processes

Internal

• Ambition: Scope / aims of relevant energy or people productivity targets

• Control: Owned / operated buildings vs. leased / managed service?

• Profile: Expected tenure of sites; energy consumption by type of buildings services / industry-specific activities; variability in normal consumption profile during a day / week etc.; prevalence / implications of asset downtime and unscheduled maintenance

External • Commercial: Energy prices (commodity costs)

Monetize flexibility

Internal

• Ambition: Scope / aims of relevant energy productivity targets; comfort with automated control of your assets (under conditions approved of by your energy managers)?

• Control: Owned / operated buildings and assets vs. leased / managed service?

• Profile: Expected sites tenures; asset availability and profile (conventional or renewable generation, storage etc.); degree of flexibility inherent to standard energy demand profile

External• Commercial: Non-commodity costs as a share of total power bills;

relevant utility tariff structures; availability / eligibility rules governing Demand Side Response-type programs

DIG

ITA

LLY

OPT

IMIZ

E EN

ERG

Y C

ON

SUM

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N

QUANTIFY THE VALUE POTENTIAL AND UNDERSTAND THE CAPABILITIES REQUIRED TO EXECUTE

The highest-potential opportunities identified from the screening should be subjected to some form of quantitative and qualitative appraisal to explore business case drivers, critical enablers and potential barriers.

This is a more resource-intensive stage, calling as it would on various internal and external stakeholders and subject matter experts to develop representative analyses and validate that findings are as accurate as possible.

Input and data from broad range of internal stakeholders from functions such as Procurement, Engineering / Facility Management, Supply Chain & Logistics,

Finance, CSR / Sustainability and even HR and Brand teams may be required. Due attention should be paid to whether the business has, or can gain access to, the right know-how and capabilities to drive the opportunities forward. And conversations with external parties may need to be launched—for example with existing commercial business or supply chain partners, potential new service providers and coalitions of like-minded organizations.

Some opportunities will be easier to evaluate than others. For example, opportunities involving such technologies as solar, heat pumps, fuel cells, combined heat and power, or storage could be accurately assessed by employing the services of specialist engineering contractors to conduct feasibility assessments and advise on potential financial incentives such as tax breaks. Turn-key projects based on off-the-shelf designs will be possible in many cases.

In other areas, such as a switch from a fossil-powered to an electrified fleet, economic and operational appraisals will be more complex.


With the electric vehicle revolution still in its early days, companies face a new set of questions concerning vehicle running costs, the residual value of assets at end of service, the availability of public charging or refueling stations, and the relative net benefits between on-site charging points vs. use of public points, amongst others.

However, rather than being dissuaded from moving forward and adopting a “wait and see” position, companies are well advised to start actively pursuing answers to these questions by acquiring real-world experience through partnerships and a strategic program of pilots and experimentation.

PILOT, EVALUATE, REFINE AND SCALE TO REALIZE THE FULL VALUE POTENTIAL

No framework, study or model can match the insight derived from a real-world test.

Starting small and starting early will provide companies with the best possible platform to identify a winning formula in the fastest time for the lowest cost. It also provides valuable opportunities to test and learn, with a much smaller downside risk in case of failure. Pilots are also effective in demonstrating to stakeholders a directional ambition towards less polluting and lower-carbon growth.

Business can consider a four-step approach to testing opportunities across markets:

1. Gain familiarity with systems and solutions by piloting a range of solutions at a small number of sites or within a market where capabilities and partnerships can be easily built, sufficient infrastructure is in place, and the regulatory landscape is conducive. A vision

for how the program will scale up should also be developed at this stage.

2. Evaluate real-world returns for each project by measuring benefits realized against a set of KPIs such as:

• Annualized net cost savings / ROI / Payback Period

• Efficiency gains or avoided exposure to carbon / air quality regulations (useful for forward-looking analyses)

• Greenhouse gas and air pollutant emissions reduction

• Performance metrics such as improved energy reliability or unscheduled maintenance

• Employee satisfaction and any other perceptions of key stakeholders

Organizations should ensure that experiences of the critical enablers and barriers encountered / overcome are appropriately recorded to learn and streamline future refinement activities.

3. Refine strategy and explore linked opportunities. The strategy should adapt to reflect the most promising leads and address deficiencies. Pilots are also useful means to identify and exploit synergies not previously identified.

4. Start to scale initiatives that have proven their potential. This will involve committing financial and human resources to champion the initiative, drive progress, engage implementation partners, fund investments and generally prepare for the required transformation.


ACKNOWLEDGEMENTSThe authors of this paper from Accenture Strategy are Gregory Whitby, Mauricio Bermudez-Neubauer and Zomo Fisher. The authors express their gratitude to all within Accenture who contributed to shaping the paper’s content, tone, and presentation.

This report benefited greatly from the input and reviews of The Climate Group team including Ole Høy Jakobsen, Constant Alarcon, James Beard, Sandra Roling, Kristin Hanczor, Jenny Chu, Toby Morgan and Marie Reynolds.

The Climate Group and Accenture Strategy extend their sincere thanks to all company representatives that participated in interviews for this paper and are grateful for the additional engagement by those companies featured within the case studies: AB InBev, Deutsche Post DHL, HP Inc., Ingka Group, and Microsoft.


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