Investing in energy efficiency – new insights from Swedish pulp and paper industry

Panel: 2. Sustainable production design and supply chain initiatives

Author:
Josefine Rasmussen, Linköping University, Department of Management and Engineering, Sweden

Abstract

The decision to adopt an energy efficiency investment is reached through a process, involving different actors, information (energy related and non-energy related) and different evaluation methods. Internal barriers to energy efficiency investments have been identified in previous research. Understanding the firm’s decision-making process can thus work as a means to improve the case for energy efficiency investments, implying a need to go within the firm to study how investment decisions for energy efficiency investments are made. Previous studies on energy efficiency investments are usually, with some exceptions, restricted to only include the perspective of energy managers, even though various actors are involved in the decision-making process. This study therefore takes a novel approach through a case study in which participants at different levels in the organisation and with different responsibilities are engaged. The aim of the study is to analyse the investment process for energy efficiency investments and on how non-energy benefits (NEBs) are acknowledged in the investment process.

The case study was conducted at a firm within the Swedish pulp and paper industry. The investment process for energy efficiency investments was analysed, including a complex and capital intensive case investment for which the investment process was studied more closely. The main source for data collection was semi-structured interviews on group level and at one of the firm’s mills. The interviewees had varying responsibilities and different roles in the investment process, ranging from identifying needs to making the financial evaluation or prioritising between investment projects. Other data sources were internal and external documents, such as the investment manual, sustainability reports and presentations.

The results indicate that the investment process is a multistage process in which the investment manual plays a vital role, both in terms of what information that should be included in the investment applications and how these applications should be authorised. The investment process is consistent for different investment categories, including energy efficiency investments, but varies depending on investment size. A higher degree of procedural rationality is indicated for larger investments, meaning that for larger investments, the decision to a higher degree relies upon analysis of collected information relevant for the investment . For smaller investment projects, it was rather a case of making the investment application “good enough”. Suppliers are much involved in the investment process and at an early stage. If NEBs are acknowledged, it takes place early in the process with emphasis on a few main effects, for instance NEBs related to reduced maintenance or reduced emissions. Moreover, NEBs such as improved public image, environmental benefits, availability in production, quality and work environment were considered important.

Energy efficiency investments are both driven and hampered by their potential cost savings, indicating a presence of a cost-savings paradox. Due to this paradox, acknowledging NEBs in the investment process becomes increasingly important when preparing the business case for energy efficiency investments. The emphasis on a limited number of main NEBs suggests that NEBs related to these prioritised issues should be highlighted when possible in order to show the potential of energy efficiency investments leading to more than energy cost savings, which in turn can increase the priority for these investments. The role of the supplier in the investment process and the importance of customer-related NEBs implicate a need for future research in which these external perspectives are included.