ADVANCED INDUSTRY: Industrial Energy Management Systems Drive U.S. Growth, Lead Toward Industrial Internet of Things

This is one in a series of excerpts from the Advanced Energy Now 2019 Market Report, prepared for AEE by Navigant Research.

Advanced Industry, the sixth largest advanced energy segment both globally and domestically, contains two subsegments: Manufacturing Machinery and Process Equipment and Industrial Combined Heat and Power (CHP). Manufacturing Machinery and Process Equipment is tracked through 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.

Global Advanced Industry revenue reached $54.5 billion in 2018, a 12% increase over 2017, building on 11% growth the year before. This is an acceleration over previous years of steady growth driven by the expansion of manufacturing machinery and process equipment caused by increased global production and the adoption of advanced technology in industrial processes. Compound Annual Growth Rate (CAGR) for global Advanced Industry revenue over the 2011-18 period was 9%. Growth in U.S. revenue was even greater over the period since 2011, more than doubling in that time, with CAGR of 12%, but essentially flat in 2018.

In the United States, the Advanced Industry segment plateaued in 2017 and 2018, driven by a contraction in CHP sales amid a deceleration in overall industrial expenditure.

While CHP is the dominant subsegment globally, Manufacturing Machinery and Process Equipment is the larger of the two in the United States.

In 2018, U.S. Manufacturing Machinery and Process Equipment revenue increased 3% to $5.3 billion based on sales of industrial energy management systems. CHP revenue declined by 5% year-over-year to $3.7 billion, following 11% growth in 2017. Since 2011, U.S. Advanced Industry revenue has grown at an impressive compound annual rate of 12%.

From Industrial Energy Management Systems to Industrial Internet of Things

Executives in charge of industrial facilities are becoming more aware of the benefits of data and automation as a source of opportunity for business improvement. As the costs of sensors and devices continues to decline, a vibrant market of industrial internet of things (Industrial IoT) is building on the growth of industrial energy management systems. 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 the enhanced predictive and preventive maintenance. 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 IIoT represents a transformative set of digital tools that managers can employ to improve efficiency throughout operations. While achieving greater efficiency is an overarching force in the marketplace, multiple drivers fuel the IIoT trend. Here is a sampling:

• More efficient use of energy: Equipment that senses how it is operating in terms of energy use and makes intelligent adjustments (e.g., slowing down or turning off when rates are high) is inherently more energy efficient, leading to lower energy costs.
• Predictive, preventive maintenance: Industrial machinery can last longer with sensors that continually monitor conditions and report when maintenance is necessary ahead of scheduled service, or delay work that is unneeded, thus lowering costs. For instance, a grocery store with an IoT system could receive alerts and accurate diagnostics hours or days in advance of when a specific chiller is about to fail, thus triggering precise maintenance work and preventing costly downtime and spoiled products.
• Competitive differentiation: As leading companies deploy IIoT solutions and gain efficiencies, they can offer products and services at lower costs, thus separating themselves from competitors. Customers want to work with companies that learn from and master IIoT technologies.
• Transforming businesses: Firms that deploy IIoT solutions can transform their business, offering customers enhanced services, and more efficient, reliable operations. For example, Schindler Ahead, a digital solution that elevator manufacturer Schindler calls its Internet of Elevator and Escalator strategy, provides real-time equipment status, operational metrics, and personalized services for improved passenger experiences.

Navigant Research expects global annual revenue for IIoT devices, software, and services to grow from $1.6 billion in 2018 to $7.5 billion in 2027, at a compound annual growth rate (CAGR) of 19%.

Over the next 10 years, early adopting companies will pave the way for others to follow and reap the benefits this technology offers: greater efficiencies, lower costs, and higher margins. Cumulatively, this revenue is expected to total more than $35 billion between 2019 and 2027.