This post is the seventh in a series of excerpts from the Advanced Energy Now 2021 Market Report, prepared for AEE by Guidehouse Insights.
Advanced Industry consists of two subsegments: Manufacturing Machinery and Process Equipment and Industrial Combined Heat and Power (CHP). Manufacturing Machinery and Process Equipment tracks sales of industrial energy management systems, which are software and services for energy management within an industrial facility or across an enterprise to meet efficiency, cost savings, and sustainability targets while maintaining optimal operation of production processes.
In the United States, Advanced Industry revenue grew 10% overall from 2019 to 2020, to $11.6 billion. Since 2011, U.S. Advanced Industry revenue has more than doubled, growing at a CAGR of 12%. U.S. Manufacturing Machinery and Process Equipment revenue increased 10%, to $7.0 billion, in 2020, based on sales of industrial energy management systems. CHP revenue increased by 9% year-over-year, to $4.6 billion, following 13% growth in 2019. Though smaller in the United States than Manufacturing Machinery and Process Equipment, Industrial CHP has grown faster over the 2011-2020 time period, at 18% CAGR versus 9% for Manufacturing Machinery and Process Equipment.
Global Advanced Industry revenue reached $64.3 billion in 2020, growing by 7% over 2019. This continues an elevated growth trend that began in 2017, when revenues jumped 11% after a multi-year period of single-digit growth. This uptick in spending is a function of multiple market drivers, including digital transformation initiatives, cost reductions (operational, data management), shifts toward automated and predictive maintenance strategies, and worker safety considerations. While cost reductions and worker safety have always been market drivers, the proliferation of digital transformation initiatives has galvanized both the U.S. and global markets into higher levels of expenditure. Nevertheless, Industrial CHP remains the larger of the two subsegments globally, by revenue, but growing more slowly, at 7% CAGR, versus 11% CAGR for Manufacturing Machinery and Process Equipment, from 2011 to 2020. CHP revenue grew 4% in 2020, while Manufacturing Machinery and Process Equipment revenue rose 11% year over year.
Energy Savings and Sustainability Goals Drive Industrial CHP
Following the birth of initiatives such as Renewable Energy 100 (RE100), the Science-Based Targets initiative, and the Paris Agreement on greenhouse gas emissions, corporate sustainability efforts are permeating Fortune 500 and other large multinational companies across industry verticals with a new level of vigor. Manufacturing may not conjure images of clean energy and sustainable production. However, as a result of the energy and sometimes emissions-intensive nature of production, supply chain and public pressures are causing manufacturers across industries to explore a variety of mechanisms by which to decrease their energy consumption and GHG emissions.
CHP, also known as cogeneration, is particularly well suited for industrial manufacturers with high energy demand. Typically run on fossil fuels or biomass, a CHP unit is significantly more efficient than deriving electric load and thermal load from separate sources; CHP can operate at 65% to 85% efficiency, compared with 45% to 55% overall when these needs are met separately.
Industrial manufacturers have increasingly turned to CHP for onsite energy management as a means to achieve sustainability targets. Since 2011, Global CHP spending has grown by an average of 7% annually, reaching $38.9 billion in 2020. In the United States, CHP spending has grown even faster, at 18% CAGR, since 2011, with 9% growth in the past year, compared with global growth of 4%.
CHP is likely to remain the leading onsite generation technology deployed by industrial manufacturers. According to the Energy Information Administration’s Annual Energy Outlook 2019, natural gas-fired CHP capacity is expected to grow at the fastest rate for commercial distributed generation through 2050.
As an example, ArcelorMittal is the world’s largest integrated steelmaker, with vertical business operations extending from mining to iron and steel manufacturing and finishing facilities that produce an array of end products. Approximately 15% of the cost of turning raw materials into steel relate to energy. To secure savings and improve sustainability, ArcelorMittal obtains 62% of the electrical energy used in steel production from capturing and reusing coke oven gas (a production byproduct) and utilizing blast-furnace gas to fuel large CHP plants.
Industrial IoT Moves from Buzzword to Mainstream
The Industrial Internet of Things (IIoT) is transforming the way industries operate, creating more efficient, safe, and profitable operations. The proliferation of sensors in industrial environments provides a vast amount of valuable data. Advances in cloud computing make it possible to integrate machine learning, artificial intelligence, and advanced analytics to quickly respond to the changing dynamics at industrial sites. In simple terms, Industrial IoT is the use of digital and internet technologies and tools – e.g., hardware, software, and analytics – for the benefit of business processes.
Industrial IoT enables more efficient use of energy as equipment makes intelligent adjustments to energy consumption and lowers operational costs through enhanced predictive and preventive maintenance. IIoT follows the rise of Industrial Energy Management Systems (IEMS), software and services that support holistic energy management within an industrial facility or across an enterprise to achieve efficiency, cost savings, sustainability, and climate change targets while maintaining the optimal operational parameters for the production processes. Global IEMS revenue has grown from $9.8 billion in 2011 to nearly $25.4 billion in 2020, at a CAGR of 11%. The United States has shown a similar growth trajectory, growing 9% over the same period to exceed $7.0 billion in 2020.
However, this emerging trend differs from traditional energy management systems in that its focus is far broader than energy. IIoT systems are becoming the go-to solution for leveraging data to deliver economic and business benefits.
The coronavirus pandemic in 2020 has had a marked impact on industrial work environments. Industrial production in the European Union fell by more than 5% from February to September 2020, despite strong gains over the summer. With the global spike in new cases as of October, the outlook for production activity worsened through the end of 2020. Nonetheless, Guidehouse Insights believes that the trend toward digitalization and IIoT will overcome these constraints and continue to spark demand for industrial software platforms that can enable advanced asset performance management, predictive/prescriptive maintenance, and enhanced worker safety.
Most entities that set out to modernize their industrial operations have one or more objectives in common, including bringing agile software delivery and development mindset of IT into the operational technology (OT) world, reducing downtime of equipment with predictive maintenance and automated software updates, enabling centralized command and control to visualize overall operations, and implementing a consistent and flexible software architecture to eliminates barriers and connects processes into a unified whole.
The IIoT, with its sensor, software, and networking technology foundations, is spreading rapidly throughout the industrial world. Looking ahead, enterprise and industrial site managers must understand the competitive advantages that these solutions provide and make long-term investments to remain relevant and competitive.
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