Energy Aspect of Auto Industry

By Avijit ChoudhuryAssociate General Manager & Business Head-

Energy UL-DQS India

Presented to SGS Tekniks Manufacturing Pvt. Ltd on 25th February, 2014

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Auto industry at a glance• Auto industry, world over, under tremendous

pressure because of sluggish economy and escalating fuel prices.

• Under present circumstances, more than 75% of new demand is from emerging markets like India, Brazil, China etc.

• Over all 11.0 million vehicles (all types) are sold in India out of which 1.2 million cars and 2.6 million commercial vehicles are manufactured every year in India.

• Therefore auto industry plays a pivotal role in our overall GDP.

• Hence sustainability of this sector is crucial for our economy

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Nature of operation• Auto industry is complex with highly fragmented

supply chain.• Major operations like procuring raw materials

(like steel, aluminum, plastic, glass etc.), forming & producing parts, assembling parts into finished products are done by various vendors/ suppliers.

• According to one global estimate only 12% of automobile manufacturing energy is consumed by the OEM in assembly while a whopping 88% consumption occurs in supply chain.

• Hence training and capacity building of the supply chain is essential for the overall achievement of sustainability of this sector.

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How important is energy?• If we consider three major production costs-

man, material & energy: 10 – 15% cost comes from the energy at present.

• Then why should we really bother for this?• Reasons are manifold-

a) Sustainability of Energy Price.b) GHG emission norms. c) Earning of CER, white certificate etc.d) Enhanced brand value &e) Enhanced share price.

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Sustainability of energy price• Three major types of energy are used by the

auto industry- electricity, natural gas or LPG and HSD or FO or LDO.

• More than 70% of our indigenous power generation comes from coal based thermal power plants.

• Due to high ash content and lower GCV of Indian coal, power producers are heavily dependent on imported coal.

• Price of imported coal in international bidding has just become double in recent days.

• Average price of imported coal comes around Rs 6500- 8000/- per ton (CIF).

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Sustainability of energy price-2• For petroleum products we are heavily

dependent on import. More than 73% of our crude requirement is met by import.

• International crude price has gone up by 5 times in last 10 years. Nymex crude which was $ 23.71/ barrel in 2002 has become $ 109.32/ barrel in 2012.

• Our currency Rupee has add to our misery. From Rs 51.80/ $ in last February, it had jumped to 68.73/ $ in last August.

• Under such international price rise and worst performing currency- be prepared to pay 1.5 to 2 times more price in near future.

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Sustainability of energy price-3• Price of indigenous natural gas is decided by

Petroleum Ministry in consultation with empowered GoM.

• The single largest producer of NG, M/s Reliance Industry is demanding just the double of the existing price $ 4.21/ MBtu.

• It is predicted that the energy cost of auto sector which is 10-15% at present may become 19 to 26% in the next five years time.

• Just think- Can you afford to increase your production cost by another 10% under such fierce competition in the market?

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Restriction on GHG emission• Environment has been given prime importance

in our legislation. Even constitution of India has two distinctive articles on this-

i. Article 48 A : “The state shall endeavor to protect improve and safeguard the forest & wildlife of the country”.

ii. Article 51 A : “ It shall be the duty of every citizen of India to protect and improve the natural environment including forest, lakes, rivers & wild life and to compassion for living creatures”.

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Mitigation of GHG emission and Prevention of climate change

• Six major green house gases covered by Kyoto Protocol are-

a. Carbon dioxide (CO2)b. Methane (CH4)c. Nitrous oxide (N2O)d. Sulfur hexafluoride (SF6)e. Hydro fluorocarbons (HFCs) &f. Per fluorocarbons (PFCs)These gases cause global warming which results into climate change and loss of bio-diversity.

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Direct relation between Energy & Emission

• Use of energy or burning of any kind of fossil fuel finally emits CO2 & water vapour (H2O) in the environment.

• CO2 alone contributes around 60% of the total Green House Gases present in the atmosphere.

• European countries and Japan have mandatory emission norms for the industries.

• In India we have different acts/ rules to control the emission- “The Water Act, 1974”, “The Air Act, 1981” & “The Environment Protection Act, 1986”.

• Predominantly we control emission by controlling energy consumption.

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Incentives on Emission Reduction• Emission Trading: Applicable between the

countries that have made commitments to reduce green house gas emission. The surplus emission allowances are sold to the countries where it is expensive to achieve the emission target.

• Joint Implementation (JI): One industrial country can invest in other industrial country (Annex-I of Kyoto Protocol) to reduce GHG emission at a lower cost.

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Incentives on Emission Reduction-2• Clean Development Mechanism (CDM): Annex-I

countries can invest in emission reduction projects in other countries who don’t have any mandatory emission reduction target. For example a company in UK can invest in a company of India and take back the CERs (certified emission reduction) for entire period of CDM project cycle. CERs can also be auctioned in various carbon exchanges.

• White Certificate: Many European countries like Italy, Germany etc. issue white certificates to the industries who implement EnMS and obtain ISO-50001 certification. White certificate allows industry to claim rebate in corporate tax.

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Brand Value & Share Price• The era of judging the performance of any

company by its financial balance sheet alone has gone. New methodology has been developed based on triple bottom line approach-

1) Environmental2) Social & 3) FinancialA company is considered to be “Sustainable” if it performs in all the above three fronts. Companies are required to publish their sustainability report (GRI-III accounting standard).

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Products of EnMS• ISO 50001 Certification: Obtain DAKKS, ANAB,

UKCAS etc. accredited certificate.

• Better CDP Leadership Index: Get a higher scoring and better position in CDP annual report.

• Better carbon index (CARBONEX of BSE): Initiative started in Bombay Stock Exchange.

• Solid carbon foot print reporting : Prevalent in EU countries.

New Company Act, 2013 & CSR• When President of India gave his assent to the

company bill, 2013, India became the first country in the world to mandate the spend on CSR activities through a statutory provision.

• The act says- “Every company having a net worth of Rs 500 crores or more or turnover of Rs 1000 crore or more or net profit of Rs 5 crore or more during any financial year will have to spend at least 2% of the average net profit of the past three financial years on specified CSR activities”.

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General CSR guidelineAs per general convention there are four different kind of CSR activities-• Environmental CSR: Focuses on ecological &

climate change issues.• Community based CSR: Focuses on business

model that improves the quality of life of the people living in local community.

• HR based CSR: Projects that improves the well -being of company staff.

• Philanthropy: Donate a money to a good cause usually thru a charity partner.

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Eligible CSR activities as per the act

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Energy analysis of OEM

OEM having only press, body, paint, engine & assembly shop

Type of Vehicle SEC (kWh/ unit)

Passenger Car, SUVs 500 – 700

Commercial Vehicles 1100 – 1500

Tractors 500 – 650

Two Wheelers 30 – 35

20% Energy savings in 2,00,000 cars manufacturing unit will generate INR 100 million at the present electricity rate of Rs 5/- per unit.

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Typical Energy Share of Automobile Plant

In utility, compressed air alone consumes more than 50% power while second most important is

HVAC

Paint Shop (35%)Engine & Transaxle (25%)Utilities (28%)Others (12%)

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Major areas to be audited

Compressed Air System, Ventilation, Ovens, Hot water generating system, Heat Treatment (Sealed Quenched

Furnace & tempering), Test Bed cooling water system, Press machines & Pumping system.

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Renault-Nissan Sustainable Operation New Renault-Nissan JV plant was

inaugurated in Morocco in February, 2012. With an annual capacity of 4,00,000

vehicles it is world’s first zero carbon and zero effluent automotive plant.

The facility is the fruit of unique partnership among Kingdom of Morocco, Renault and Veolia Environment.

Compared to an equivalent factory, CO2 emission has been slashed by 98% - a feat to save 1,35,000 tones of CO2 emission annuallyUL-DQS India 21

Renault-Nissan Case Study The plant doesn’t discharge any waste

water to the environment while the total water requirement has been reduced by 70%

Substantial energy savings has been made by combining innovative technology & best practices.

Paint shop which consumes 70% of thermal energy was put under innovative measures. By this, total thermal energy requirement of the plant was cut by 35%.

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Renault-Nissan Case Fuel for hot water boiler and oven were

replaced with biomass. Locally sourced olive stones & eucalyptus wood used as biomass fuel.

Electricity requirement of the plant is also met from renewable source like wind-power & hydro-electricity.

These efforts were recognized by EU with “Sustainable Energy Europe” award to Renault.

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Conclusions Energy will become a crucial part of

production for auto industry in the coming days.

To have meaningful savings in the overall process, all vendors/ suppliers need to be trained and brought under energy saving plan.

Energy and Environment are co-related and they need to be treated with equal importance. Energy action plan should cover the environmental aspect as well.

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Conclusions-2 There are various statutory & legal

requirements of the country and industry should comply them thru energy efficiency measures.

Energy management is nothing but judicious and effective use of energy to maximize profit (minimize cost) and enhance competitive position.

The fundamental goal of energy management is to produce goods or provide services with the least cost and least environmental effect.

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Thank you for your attention