What's a European manufacturer to do? Already impaired by a strong euro and rising raw material prices, there's no letup in sight for perhaps the greatest ongoing productivity challenge: oppressive energy prices. The year started with oil hitting $100 a barrel for the first time ever, and the price continues to dance around that staggering level while natural gas prices rise as well.

For makers of everything from cars, to cement, to steel, price increases are hitting hard. London-based Consensus Economics forecasts a tepid rise in Eurozone GDP of 1.6%, down from 2.6% last year, and continually warns of rising energy prices in its monthly reports. So does the Royal Bank of Scotland (RBS) in its joint monthly outlook with London research firm NTC Economics. In early March, they noted that manufacturing indicators in the Eurozone were registering their weakest growth in two-and-a-half years.

While energy providers may be raking it in – British Gas in February reported a whopping 500% rise in annual profits, to £571 million – for most manufacturing companies, high energy prices are bad news.

"Oil is so high. This is hampering the profitability of European companies," says Pierfrancesco Manenti, EMEA research director for IDC's Manufacturing Insights in Milan. On the positive side, Manenti says that energy's unrelenting price rise is altering manufacturers' mind-sets. While companies have traditionally regarded energy-saving expenses as a "cost" exercise aimed largely at complying with EU green directives, they are starting to think more progressively. "Now with the cost of energy, reducing energy consumption is bringing value to the business," he says.

But what, exactly, are manufacturers doing? Of course, there are the big, visible moves to alternative and green fuels and technologies. Volvo, for instance, now generates half of the electricity for its truck manufacturing plant in Gent, Belgium, using wind turbines.

But there's plenty stirring in information technology's behind-the-scenes software, hardware, and services that also can help.

What better place to start cutting energy costs than among the companies generating Europe's electricity in the first place – the power utilities and the many operations generating a considerable amount of their own juice?

That's what London-based Invensys offers with its InFusion software, which can range in price between €20,000 and €1.5 million, depending on the size of the implementation. InFusion sits on top of Invensys' machine control technologies, such as Triconex and I/A Series, and helps companies efficiently schedule their power production so that they are generating electricity only when they need it and at the lowest cost.

For instance, a power utility such as Scottish Power might need to spike production for 15 minutes to feed a customer that bought power on Europe's open, deregulated electricity market. InFusion helps to do that. The technology knows the obligation is coming up and it also knows which of Scottish Power's generating plants is available at the cheapest cost, so it orders that plant to produce and feed the grid. InFusion detects when, say, a coal-fired facility is down for maintenance – coal plants require more maintenance than gas – and intelligently routes the job to an available facility in a timely manner. In Europe, where coal dominates as the fuel source for generating plants, that's a key advantage.

Invensys is also marketing InFusion to oil and petrochemical refineries, which tend to generate about 30% of their own electricity needs.

It all sounds good, but Invensys concedes that the 2-year-old InFusion is off to a slow start. Worldwide, customers include ExxonMobil's Port Allen Lubricants plant in Louisiana and BP's Bulwer Island refinery in Queensland, Australia. But, Invensys chief technology officer Hartmut Wallraf says, "We had higher expectations when we introduced it." He characterizes the oil, gas, and power industry as a "conservative" group that doesn't deploy new systems quickly.

What's more, Wallraf notes that they resist the systems integration projects often required to make use of InFusion. Energy consumption information from InFusion can feed an ERP system such as SAP, which many Invensys customers use, and help an executive decide whether to purchase more fuel. But, as Wallraf says, "All the stories about ERP integration into production facilities – they're just not the reality." Among the users' concerns: "They don't want to have the IT people in the production facility," he says.

Invensys is not the only vendor encountering resistance. As Eduardo Gallestey, ABB's product manager for Optimizer Solutions, says, when it comes to potential customers, "some argue that control algorithms based on mathematical models are unreliable and perhaps superfluous." He's referring not only to big-picture management software, but also to control technology that ABB and others sell aimed at running motors, pumps, furnaces, and other power consumers at just the right level. "There are always believers and people who want to be convinced," Gallestey says. 

Zurich-based ABB's Advanced Process Control Management software and hardware line, called Expert Optimizer (EO), monitors electricity and fuel consumption, and adjusts inputs. ABB sells into many high-energy-consuming industries, such as cement and paper and pulp. The company claims that it can reduce energy consumption by 5%, which can translate into a huge savings on heavy power machinery, such as the high-intensity furnaces and massive grinders that cement mix manufacturers run as they crush limestone, iron, silica, and other ore into powder. 

System costs range from roughly $100,000 to $300,000, but services can bring the price into the millions. Still, considering the high cost of energy, "payback would be a year, maximum, often less," Gallestey says. He likens EO to a "chess computer" that takes into account myriad variables to predict and deliver just the right rotation speed, fuel input, oxygen, raw materials, and other elements that feed a production process.

Controlling Burn Rates 

ABB counts Holcim Cement, the CHF (Swiss franc) 27.1 billion ($26.2 billion) Zurich-based cement maker among its EO customers. Holcim's Lagerdorf, Germany, plant has used the EO to help move away from coal and toward alternative fuels by taking control of alternative fuels' widely varying burn rates, which, if not tamed, can yield erratic production and consumption results. Holcim's Untervaz, Switzerland, plant last year started using EO to improve the efficiency of its kilns, which burn a mix of seven variable raw materials, each with different burning qualities. Likewise, €3.5 billion Italian cement maker Buzzi Unicem used EO at its Guidonia plant to cut energy consumption by 5% last year.

The savings at the cement plants all stem from control technologies. But, says Marc Leroux, ABB's marketing manager or collaborative production management, factories can gain more efficiencies by tying the control systems into facilities-wide software that can then help determine when and whether to buy or even sell fuel and electricity. "Having that savings may not be as big a gain as it could be, because you're contracted to purchase a certain amount [of electricity]. So you might sell to someone else," Leroux says.

One user of the energy management software from ABB's Collaborative Production Management Portfolio is Finnish pulp and paper powerhouse UPM-Kymmene, which uses it to manage energy across at least 10 facilities.

Short of deploying cross-facility software systems, largely under-deployed nitty-gritty control technology could still save manufacturers a bundle in the energy costs of running everything from pumps and valves to fans and conveyor belts.

Peter Zwanziger, general manager for associations and regulation at Munich, Germany-based Siemens Drive Technologies, says that if widely deployed, variable speed drives and high-efficiency motors could save the equivalent output of 19 average-sized fossil-fueled power plants in Europe and offer a payback in less than two years.

Yet, Zwanziger, like his counterparts at Invensys and ABB, notes, the market has resisted buying these controller and motors, which, on average, cost 20% to 30% more than standard motors.

While heavy users are adopting them, many small- and medium-sized manufacturers are not. Buyers still tend to buy based on low price. "For purchasing departments, the KPI [key performance indicator] is to purchase the cheapest product, and the cheapest product is not the high-efficiency motor," Zwanziger says. "Today, I can hardly find anyone whose main responsibility is cutting down energy costs. If I talk to manufacturing people, they'll send me to purchasing departments and vice versa. Maybe a third one is the maintenance department. We see that there is some unsolved potential out there. For many buyers, purchasing motors is still like buying chewing gum."

A recent survey by United Kingdom-based industrial control and automation trade association Gambica corroborates Zwanziger's views. It found that controls and variable speed drives – made by the likes of Schneider, Siemens, and ABB, among others - have penetrated only 10% of the U.K. market. While big manufacturers tend to deploy them, "the real area of opportunity is the smaller companies getting a better handle on metering and motor systems," says Roger Salomone, energy adviser with U.K. manufacturing association EEF.

One company that has is prosthetics manufacturer Stryker Orthopedics in Ireland, which claims to have cut €140,000 off its annual energy bill using Hitachi drives in its Limerick plant. The company deployed Hitachi variable speed drives to separately control eight extractor fans that expel dust from the plant. The drives cut electricity consumption by €80,000 as the fans ran less often and less vigorously than before. The company also saved an additional €60,000 on its gas bill because the plant is able to recycle more heated air, according to maintenance manager Robert McKillican.

"For many years, we senior managers were able to ignore energy issues, but once we started monitoring usage, our attitude changed completely. This is now filtering out to the whole workforce. And the lesson is that monitoring energy consumption leads to a constant drive for more savings," McKillican says.

The same technology yields potentially significant energy savings across a variety of industries. Variable speed drive maker Mitsubishi, for instance, counts a Volkswagen auto paint shop in Germany; car mirror maker Flabeg's Birmingham, England, factory; and British medium-density fibreboard maker BLP among its customers.

BLP claims its Doncaster plant has cut its energy bill £120,000 a year. "Many of our major costs were pretty much fixed, but energy looked like it had potential to be better managed," engineering manager Dave White says. "We saved £10k of energy expenditure in the first 12 months, which more than paid for the capital costs, so I was confident when I went back to the board suggesting that we implement the scheme across all three buildings."

Likewise, Flabeg claims that its variable speed drives yielded a 65% reduction in energy costs, recouping its investment in 12 to 14 months.

Many additional manufacturers will have to deploy similar technologies if, as IDC's Manenti predicts for 2008, "green supply chain initiatives will move from compliance mandate to business value creation." Otherwise, manufacturers will relegate "green" to the buzzword category, while further ensconcing skyrocketing energy costs as the reality.