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1、34568101191213INSIGHT# 2010-05MJANUARY 28, 2010Factors In Industrial EnergySupply, Demand, and PriceBy Florian Gldner and Harry ForbesKeywordsEnergy Management, Electricity Markets, Commodities, Power, T&DThe energy and electricity market have aconstantly increasing effect onmanufacturing. This Insi
2、ght provides anoverview of important trends.Overview - Significance of EnergyEnergy efficiency is a hot topic across all industriesand markets these days. This is because energy hasdeveloped into one of the most important costfactors (and sometimes the single largest cost fac-tor) in a manufacturers
3、 cost structure. Energy management and electricitygeneration represent large business opportunities for automation suppliers.Ranking127IndustryMetals & Mining (excl.Aluminum)Cement & GlassChemicalPulp & Paper (incl.Printing)AluminumLeather & TextilesPetrochemAccording to ARCs Total Process Automatio
4、n study, auto-mation suppliers realize roughly 20 percent of their revenuein the process industries from either power generation orpower transmission and distribution customers.Thus, automation suppliers and end users alike need to un-derstand energy markets to be able to take the adequatemeasures f
5、or present and future demand. In this Insight, weprovide an overview and outlook on the most importantfactors that determine energy supply, demand, and price.Rubber & PlasticsFabricated MetalFood & BeverageElectronics, Electrical,& SemiconductorsMachineryMotor VehiclesEnergy as Percentage ofVariable
6、 CostsSignificance of Energy in ManufacturingEnergy represents a variable cost and therefore varies withproduction. Looking at the Energy intensity as EnergyCosts/total Variable costs, provides an insight into the im-portance of energy prices.The above chart (based on data from the National Bureau o
7、fEconomic Research and the US Census Bureaus Center forEconomic Studies) ranks different industries by the ratio ofenergy costs to variable costs. Process industries top the list. ARCs ongo-VISION, EXPERIENCE, ANSWERS FOR INDUSTRYARC Insights, Page 2ing end-user survey on energy usage and energy man
8、agement indicatesthat heating, air compressors, and machine drive applications are amongthe largest energy consumers across many industrial sectors.Demand in CommoditiesIn China and many other emerging economies, the largest demand forenergy comes from the industrial sector. In the developed economi
9、es (es-pecially the US) the transportation and service sectors have the largestenergy demand. While, in China, energy demand is tightly coupled withoverall GDP growth, energy usage and GDP have partly de-coupled in de-veloped economies, supporting more knowledge-oriented businesses.Energy Usage by S
10、ectors in Different Economies(Source: International Energy Agency)The following graph shows geographic energy usage by source.Industrial Energy Usage by Source(Source: International Energy Agency)2010 ARC 3 Allied Drive Dedham, MA 02026 USA 781-471-1000 ARCARC Insights, Page 3Electricity prices resu
11、lt from regional supply and demand. End users canrespond to rising electricity prices by either improving their productionprocess or employing more intelligent sourcing. Electricity cant be stored.Therefore, end users source electricity via special contracts with electricitysuppliers. The contracts
12、usually include both short and long-term compo-nents. This means that one part of their monthly bill is fixed, while asecond part varies with the current prices at the electricity spot market.Thus, monthly input prices change with the electricity prices.Supply of CommoditiesGlobal commodities market
13、s vary from relatively free markets to syndicate-controlled. On the supply side, consumers face finite primary energy sup-plies (renewable energy sources excepted).Short term supply is nearly fixed. In the longerterm, new factories and new energy develop-ment create the possibility to be able to rea
14、ctto changing demand, but ultimately all naturalresources are finite.Electricity DemandDemand of Electricity by Sector(Source: International Energy Agency)Various factors drive demand for electricity.In mature economies, electricity demand byindustry has grown less than GDP in recent decades, while
15、electricity de-mand in the residential sector has grown faster than population. In the US,the residential sector demands more electricity than the industrial sector.Lifestyle changes explain this.Electricity SupplyIn contrast to commodities, which aremostly traded on global markets, electric-ity sup
16、ply differs from country tocountry and depends on the regionalregulation, carbon tax, and the structureof installed power plants. While majorelectricity sources depend on volatilecommodities such as oil, gas, and coal asinput; nuclear energy, or energy fromElectricity Supply Curverenewable resources
17、, face a more stable2010 ARC 3 Allied Drive Dedham, MA 02026 USA 781-471-1000 ARCARC Insights, Page 4price situation. The supply curve of electricity results from the costs ofproducing one kWh and the installed base of different types of powerplants.Renewable energies are not shown in the graph, sin
18、ce their installed base isnot directly linked to the actual output. In general, production quantityfrom renewable sources is more volatile. Renewable energies add volatilityto the grid that must be compensated for. This compensation generallycomes via pumped storage and gas turbines.Generating capac
19、ities with short ramp up times typically have larger shareof fuel costs, as the graph below demonstrates.This creates a steepersupply curve and therefore increasing electricity prices.Cost Structure of Electricity from Various SourcesOutlook on Supply and DemandIn the future, commodity supply and de
20、mand will each increase in differentways. The demand in coal, steel, and copper is largely bound to the devel-opment of emerging economies. The faster they grow, the faster demandrises. Demand from mature economies is expected to grow slowly, evenslower than economic development.Demand in electricit
21、y will also rise. First, growth in the US is primarily dueto population growth. While Europes population is expected to be stable,if not shrink, rising wealth will increase demand for electricity, especially inEastern Europe. In China and other emerging economies, demand will riseas more people adop
22、t a higher standard of living.2010 ARC 3 Allied Drive Dedham, MA 02026 USA 781-471-1000 ARCcycle.Now,costs.ARC Insights, Page 5Electricity supply in mature economies, especially in Eastern Europe, willchange in the next years as many power plants reach the end of their life-In general, Europes insta
23、lled base will shift towards renewableenergy sources.Outlook on Energy Prices: Commodities and ElectricityEnergy prices will likely rise in the long run due to rising demand and in-flexible supply. The latest crisis demonstrated another mechanism that willdisturb the future. In the good old days (pr
24、ior to the 1990s), demand andsupply largely determined energy prices. The two oil crises aside, both arecomparably stable factors. In 2008 however, speculators also played a roleindeterminingoilprices!The graph at left sug-geststwothings.First, rising energyprices in the US aresustainable. The redtr
25、end line has beenabove zero since theearly nineties, result-inginthepricePrice Development of Producer Energy Prices in the US(Source: Federal Reserve Bank of St. Louis)growth seen in theblue area. Second,volatility is growing.This is shown by the rising variances. While in the 1970s, hardly any inf
26、lu-ences other than the trend that affected energy prices existed.increasingly important short-term factors add volatility to energy prices.Next to commodities, manufacturing depends on electricity, whose pricedepends on energy prices (oil, gas, and coal) and the share of nuclear andrenewable energy
27、. The power price is often set by merit pricing (e.g., at theEEG in Leipzig, Germany). In this process, every utility offers a certainamount of electricity at a certain price. The volume and price, where de-mand equals supply, then determine the price for all power offered.Theoretically, it is best
28、for utilities to offer their electricity at their marginalThe exception to the merit pricing is electricity from renewablesources.Due to government initiatives, renewable energy sources are2010 ARC 3 Allied Drive Dedham, MA 02026 USA 781-471-1000 ARCARC Insights, Page 6treated at the market like a n
29、egativedemand. Since they must be purchasedthey are excluded from the classicalsupply curve.This is shown in thegraph at left. This could also lead todrops in electricity prices.In general, supply from renewableenergies is much more volatile in termsof energy actually supplied.Wind,frombothonshorean
30、doffshoreEffect of Renewable Energy and Rising Fuel Priceson Costs(Source: Eurostat and ARC calculations)sources, is very volatile, especiallysince turbines are pitched duringstorms to avoid damage. Solar is alsovolatile, even though projects, such as Desertec, aim to serve base loadswith thermal so
31、lar power plants.Possibilities and Challenges for End UsersA sound energy management strategy goes beyond cost reductions. To-days manufacturing and infrastructure operations are highly dependentupon energy costs to remain profitable.Thus, energy management isamong the foremost business strategies f
32、or creating a competitive advan-tage. Motors are a common source of energy inefficiency, especially inapplications such as fans, conveyors, pumps, and compressors. Accordingto the US Department of Energy, motor-driven equipment accounts for 64percent of electricity consumed by the US industrial sect
33、or. Replacing anold motor with a properly matched, energy-efficient motor and drive com-bination can provide an ROI measured in months.Energy management also includes energy KPIs. In the long run, personnelincentives could be linked to energy consumption and energy efficiency, asthey are now linked
34、to output. Organizations need to approach energyefficiency in a holistic manner. Additionally, automation, lighting, powerdistribution, and power generation have to be integrated into one strategyto enable efficient energy usage.Possibilities and Challenges for Automation SuppliersOffering industry-
35、specific solutions will provide automation suppliers withcompetitive advantages. These can include innovative combinations of2010 ARC 3 Allied Drive Dedham, MA 02026 USA 781-471-1000 ARCARC Insights, Page 7passive energy management technologies (such as AC drives and energy-efficient motors) and pro
36、active energy management systems. Increasingly,these will integrate to or even encompass production control systems, facili-ty control systems, and electrical control systems.In this manner, themarket for energy management will increase in the future.Automation suppliers could also continue to grow
37、their business in thefossil, nuclear, and renewable electric generation sectors, which offer tre-mendous opportunities. Due to the increasing share of volatile electricitygeneration from renewables, there will be a higher demand for flexibility inpower generation. This includes new builds and retrof
38、its of old powerplants that have to be more flexible to ensure cost-efficient energy produc-tion. Flexible coal and gas power plants will be most successful in copingwith the new market environment and many utilities already think of de-creasing the ramp up time of nuclear power plants.In Europe and
39、 other areas these problems are partly also addressed by abetter and smarter grid. In addition to smart metering, this includes im-provements such as HVDC infrastructure to connect de-coupled areas andbalance regional/national strengths and challenges.For further information or to provide feedback o
40、n this Insight, please contact youraccount manager or the authors at or .ARC Insights are published and copyrighted by ARC Advisory Group. The infor-mation is proprietary to ARC and no part of it may be reproduced without priorpermission from ARC.2010 ARC 3 Allied Drive Dedham, MA 02026 USA 781-471-1000 ARC
