Wider use of variable speed drives (VSDs) by industry could save ten of the world’s leading economies a combined total of more than €56bn over the next five years, according to a new analysis by Siemens Financial Services (SFS).

The study shows that the savings in the US could exceed €16.7bn, in China €8.6bn, Russia €7.2bn, Germany €6.4bn, India €5.4bn and the UK €3.1bn. The other countries included in the survey (and shown in the graph above) are Spain, France, Turkey and Poland.

SFS claims that its figures are “cautious and conservative”, being based on average VSD energy savings of 25% and electricity prices and consumption data from 2010, for example.

Although it is estimated that 50–70% of industrial processes could benefit from using motors controlled by VSDs – which typically cut energy consumption 20–70% – the current penetration rate of VSDs as a proportion of installed motors is just 10–20%. The potential savings are substantial because more than 95% of the lifetime costs of running an industrial motor come from the cost of the electricity it consumes.

According to the study, access to funding remains a major barrier that is preventing businesses from investing more in energy efficiency measures, such as VSDs. Bank credit is still tight and is expected to remain so in an atmosphere of faltering economic growth and concerns about stability in the Eurozone. Credit, the report adds, could become even more expensive in the future.

The paper describes several financing tools that industrial companies can use as an alternative to conventional bank borrowing to finance energy-efficient investments. These tools, such as leasing and renting, can offset the monthly cost of new equipment against the energy savings it delivers – effectively making it a zero net-cost, or even a cash-positive investment. The cash conserved by using these tools can then be spent on other areas such as marketing or acquisitions.
 
“In light of the steady upward trajectory of electricity prices, greater energy efficiency is becoming an urgent concern for industrial organisations as escalating energy costs will erode profit margins and damage competitiveness,” says Darren Riva, head of energy efficiency financing for Siemens Financial Services in the UK. “The magnitude of the estimated potential savings enabled by VSDs presents an extremely compelling business case for industrial companies to invest in this power-saving technology.

“More importantly,” he adds, “keeping in mind that VSD is just one of the many possible energy efficiency initiatives that industrial companies can adopt, the true potential for energy and costs savings in industry is very large indeed.
 
“The uncertain economic situation in Europe and the restricted access to traditional finance have prompted many companies to defer their investment intentions,” Riva continues. “However, companies can easily overcome this financial barrier by using alternative methods to fund energy-efficient equipment upgrades.

“Asset financing techniques, such as leasing and renting, aim to offset the monthly cost of the new equipment against the energy savings it delivers across the financing term, effectively making the investment zero net-cost or even cash-positive. Even when a project cannot completely offset the equipment upgrade with energy-efficiency cost savings, the financing arrangement can nevertheless subsidise the larger part of the upgrade cost.

“As up-to-date equipment may not only reduce energy costs, but also boost productivity and extend manufacturing capability, leading to improved revenues and margin, manufacturers should leverage such alternative financing solutions to capture the significant potential cost savings hidden in the industrial processes,” Riva concludes.