Decarbonising Europe's energy use will create opportunities for manufacturers of low-carbon energy technologies, such as Vestas and General Electric. Their operational and upstream impacts will come under growing scrutiny as they compete on all-round energy and carbon efficiency.
The European Commission unveiled a draft EU energy roadmap to 2050 recently, outlining plans for greater energy efficiency and more renewable energy. Low-carbon energy will cost about the same as if Europe continues to rely heavily on fossil fuels and nuclear power, as infrastructure built 30-40 years ago needs to be replaced anyway. Low-carbon electric utilities will play a greater role in the energy mix, as electricity replaces liquid fuels to power passenger cars and light duty vehicles.
Acting immediately can avoid more costly changes in 20 years. Investments in low-carbon energy will help stabilise energy prices in the future. Electricity prices are set to rise over the coming decade, but a lower cost of supply, energy-savings and improved technologies could cause prices to fall from 2030 onwards. Costs will partly be contained by tackling energy demand as well as supply. A draft EU energy efficiency Directive is among measures to step up efforts to use energy more efficiently at all stages of the energy chain.
The second law of thermodynamics, entropy, states that the energy in the universe is perpetually falling further into a state of disorder. As it is divided and spread into different forms, energy loses its ability to be exerted efficiently. Maximising entropy production and the efficiency of products is the lifeblood of manufacturers looking to tap into opportunities to supply clean tech energy solutions. But are they also keeping a check on energy use and carbon emitted in their own operations and supply chains? Producing turbines for wind, water and gas power generation uses energy-intensive processes and transport. The main greenhouse gas emitted during turbine production is carbon dioxide from energy use, so comparing the carbon efficiency of manufacturers can provide business intelligence on their relative energy efficiency.
When it comes to overall carbon efficiency including emissions from direct (first-tier) suppliers, Siemens and General Electric (GE) come in ahead of Vestas, Nordex, and Mitsubishi. Per US$ million revenue, Siemens and GE emit less greenhouse gases, measured in carbon dioxide equivalent (CO2e) compared to their competitors. When only emissions from operations (Scope 1) and electricity purchases (Scope 2) are measured relative to revenue, Mitsubishi and Vestas take the lead (see Chart 1).
Chart 1: Ranking of manufacturers on carbon intensity (Scope 1 & 2 emissions/revenue)
This means that Mitsubishi and Vestas have more carbon-efficient operations and electricity use. For Vestas, this is likely due to a policy to purchase renewable electricity where available. Over the four quarters to June 2011, renewables accounted for 35% of its energy use and 65% of its electricity use. However, this was down on the previous four quarters due to a shift in production from Denmark and Sweden, which have a high share of renewable energy, to Asia and the United States, where access to renewable energy is more limited in some regions. The shift, which reflects wider cost-cutting by turbine manufacturers, is likely to make Vestas' goal of using 40% renewable energy and 95% renewable electricity worldwide by 2011 unachievable. However, Vestas has reversed a trend of rising energy intensity at facilities worldwide since the last quarter of 2010, which will help keep a lid on its carbon efficiency while cutting costs. Vestas used 15% less energy in wind turbine production, measured as Megawatt-hours of energy consumption per Megawatt produced and shipped.
While the manufacturers analysed have different product mixes, a scenario analysis shows that if all they were to operate at their average carbon efficiency of 24 tonnes of Scope 1 and 2 CO2e per US$ mn, or better, their annual carbon emissions would fall by over 2 million tonnes CO2e. General Electric's emissions make up the majority of this potential cut.
In pressing times of rising energy costs and national policies to eek out resources and curb pollution, the light of efficiency is coming out from under a green bushel, and being recognised as a necessity for competitive business. Resource-efficiency is central to the low-carbon energy road map, and will rise up the agenda from January 2012 under Denmark's six-month Presidency of the EU - and beyond.
Liesel van Ast is research editor for Trucost. She writes and edits bespoke research for clients and oversees Trucost's series of sector reports that provide insight into the business implications of environmental risks and opportunities. She also produces guidance on environmental policies and regulations.
