Enterprises Switch to Electricity

Four Trends Reshaping How Businesses Power Their Operations

Electric cars garner most of the headlines, but fundamental changes in how industrial and commercial businesses and institutions use energy also will make big news in 2020 and beyond.

That’s because demands to reduce carbon emissions, while lowering costs, are driving the largest consumers to aggressively switch from burning coal, gas and oil to electricity. Manufacturing processes and machinery, space and water heating, and heavy-duty fleets all are targets. The transformation is well underway across the country, as evidenced by these four trends:

1. Environmental Concerns Redefine Business Cases

   In heavy industries, heating for manufacturing of everything from steel and glass to petroleum, chemicals and food releases carbon emissions that contribute to greenhouse gases and global warming. Electricity can replace fossil fuels as feedstock for process furnaces, especially as the growth of solar, wind and other renewable sources continues to lower the cost of zero-carbon electricity.ⁱ

2. Solar and Wind Renew Generation

   The growth rate for electricity from renewable sources already exceeds those for coal, gas and oil. Even more, demand for renewables is expected to be seven times higher than the average for the other fuels.ⁱⁱ The costs of both solar and wind energy are now below the cost of traditional fuels, and are likely to fall further during the next decade.ⁱⁱⁱ Another signal about where businesses are heading: in 2019, electricity produced from renewables in one month surpassed coal-fired generation for the first time in the United States.^iv

3. Electrify for Better Efficiency and Costs

   Businesses, governments and institutions all can reap operational benefits and lower energy bills when they replace fossil-fueled equipment and vehicles with versions powered by electricity. Examples include:

   • Fleets — from on-road buses, garbage trucks and emergency response vehicles to non-road transportation such as forklifts and heavy-duty trucks for factories, distribution centers, marine ports and airports
   • Commercial and Industrial Equipment — from space heating and refrigeration to cooking, petroleum refining and high-temperature processing for chemicals, glass and steelmaking

   Efficient charging technologies and reliable manufacturing and material handling equipment are becoming more widely available. Ultimately, adoption will be driven by economics, but the business case for these large capital investments is becoming stronger. Utilities offer rebates and other incentives to encourage their largest customers to electrify machinery and processes. Switching to battery electric vehicles, for example, already has proven cost-efficient, with a total cost of ownership that’s about 20 percent less than vehicles powered by conventional internal combustion engines.^v

4. Big Data Requires More Juice

   Also accelerating is the rise in digitalization of business processes. Massive amounts of energy will be needed for data processing and storage in edge computing centers near factories and offices and also in remote hyperscale data centers. The U.S. Department of Energy estimates that 3 percent of all electricity is consumed by data centers.^vi And that share will grow: data center traffic is expected to increase three times within the next five years.^vii

   Count on more computing facilities being built wherever power and other infrastructure exist to support them and their data-hungry business customers.

Powering up for the Challenge

Industrial and commercial businesses and institutions have a big job ahead. The industrial sector alone accounts for about one-third of the energy consumed in the United States.^viii This usage is not particularly efficient, as more than half is wasted in industrial processes.^ix So the opportunities for organizations to improve operations, achieve financial goals, and become greener are big. That’s what’s fueling businesses and institutions as they move to electrify everything.

Sources

ⁱ Alliance Manchester Business School, “Preparing for a Net-Zero Future: What Are the Options?” Forbes, November 18, 2019, https://www.forbes.com/sites/alliancembs/2019/11/18/preparing-for-a-net-zero-future-what-are-the-options/#7d61833354b3 (accessed February 3, 2020).

ⁱⁱ Sven Heiligtag, Jan F. Kleine and Andreas Schlosser, “Fueling the energy transition: opportunities for financial institutions,” McKinsey and Company, May 2019, https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/fueling-the-energy-transition-opportunities-for-financial-institutions (accessed February 3, 2020).

ⁱⁱⁱ Sven Heiligtag, Jan F. Kleine and Andreas Schlosser, “Fueling the energy transition: opportunities for financial institutions,” McKinsey and Company, May 2019, https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/fueling-the-energy-transition-opportunities-for-financial-institutions (accessed February 3, 2020).

^iv Lauren Leatherby and Chris Martin, “How Each Country Contributed to the Explosion in Energy Consumption,” Bloomberg, July 9, 2019, https://www.bloomberg.com/graphics/2019-international-energy-use-renewables-coal-oil (accessed February 3, 2020).

^v Markus Forsgren, Erik Östgren, and Andreas Tschiesner, “Harnessing momentum for electrification in heavy machinery and equipment,” McKinsey and Company, April 2019, https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/harnessing-momentum-for-electrification-in-heavy-machinery-and-equipment (accessed February 4, 2020).

^vi Ender Ayanoglu, “Energy Efficiency in Data Centers,” IEEE Communications Society, November 13, 2019, https://www.comsoc.org/publications/tcn/2019-nov/energy-efficiency-data-centers (accessed February 3, 2020).

^vii Ernest Sampera, “Is the Cloud Driving Data Center Power Consumption?” VXChnge, April 16, 2019, https://www.vxchnge.com/blog/cloud-data-center-power-consumption (accessed February 3, 2020).

^viii Susan Partain, “New loads, new challenges: Advancing industrial electrification,” American Public Power Association, September 24, 2019, https://www.publicpower.org/periodical/article/new-loads-new-challenges-advancing-industrial-electrification (accessed February 3, 2020).

^ix Susan Partain, “New loads, new challenges: Advancing industrial electrification,” American Public Power Association, September 24, 2019, https://www.publicpower.org/periodical/article/new-loads-new-challenges-advancing-industrial-electrification (accessed February 3, 2020).