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5.0 Barriers to energy efficiency in BrewingThis section summarises the evidence for barriers to energy efficiency in the brewing sector.The results from the UK, German and Irish case studies are reported in turn. Full results fromeach country and sector are contained in the relevant case study reports (Annex 1).

In each country, five case studies were conducted of energy management practices withinindividual breweries. The first stage was to ask the energy manager or equivalent to completea brief questionnaire. This contained questions on energy consumption, energy managementpractices, the adoption of specific technologies and perceptions of barriers to energyefficiency. Following this, interviews were conducted on site with one or more members ofstaff from each organisation, including the energy manager. Each interview was semi-structured and based around detailed protocols based on the theoretical framework for theBARRIERS project (Sorrell, 1999). Follow up telephone interviews were also used as ameans of resolving ambiguities or seeking additional information.

The results reported in this section are based primarily on the questionnaire and interviews.However, this is supplemented with additional information from a variety of sources,including interviews with sector specialists.

The discussion in each of the following sections is structured as follows:

• Characterising the brewing sector: The key features of the brewing sector in each countryare described, including size, structure, ownership, production mix, trends, patterns ofenergy use, and energy efficiency performance.

• Case studies of energy management: The results from the individual case studies in thesector are summarised in a structured way. The organisation of energy management in thesector is described and its effectiveness is evaluated, including an identification ofstrengths and weaknesses. The topics discussed include: energy policy; environmentalpolicy; information systems; accountability and incentives; capital budgeting andinvestment criteria; awareness and culture; purchasing and policy integration; and the useof ESCOs

• Evidence of barriers: The case study results are then analysed using the theoreticalframework developed in section 3. The evidence for each of the barriers is discussed inturn and an attempt is made to identify which of these barriers is most important in thesector. The latter are summarised in a table, together with an identification of the specificinstances where they occur and suggested policy measures to address them.

• Policy implications: Policy initiatives which may help overcome the identified barriers aredescribed. These fall into three categories: a) within individual organisations; b) via sectorassociations and other bodies; and c) national/EU policies for encouraging energyefficiency. Given the range of potential barriers, initiatives at all three levels are likely tobe required. But there are synergies between them: for example, national initiatives mayassist organisations in developing improved energy management.

The results from the UK contain an additional section describing the results of a postal surveyof energy management in UK breweries. The results from Germany contain additional workon the prospects for ESCOs within the brewing sector.

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5.1 BARRIERS TO ENERGY EFFICIENCY IN THE UK BREWING SECTOR

5.1.1 Characterising the UK brewing sector

There are 56 brewing companies in the UK, together with 200 micro breweries. Total beerproduction is approximately equal to consumption at around 59 million hectolitres. Beerconsumption has been steadily declining since the late 1970’s, leading to overcapacity,increased competition and reduced margins. In addition, there has been increasingdisplacement of ale by lager, a shift from licensed to off-licence sales, a shift from keg beer tobottles and cans, and a shift in market power from brewers to retailers.

Beer production is highly concentrated with three major companies accounting for around84% of production. There is also a high degree of vertical integration, with most companiesinvolved in production, wholesale and retail. Prior to June 2000 there were four majorcompanies, but the Belgium company Interbrew has taken over the Bass and Whitbreadbrewing interests, increasing concentration still further. The remainder of production is sharedbetween around 50 regional brewers who historically have brewed cask ale with a strongregional identity. These companies too are undergoing rapid change. Increased competitionin a declining market has led to a series of mergers, take-overs and brewery closures, withproduction being concentrated at the largest and most efficient sites. The number of brewerieshas declined from 142 in 1980 to less than 80 now. The 25 largest sites account for around94% of production.

The production process for beer can be divided into four stages: brewing, fermentation,processing and packaging. The processes are traditional, with limited technical innovation,although the larger breweries have invested heavily in electronic controls. Conservatism andtradition are characteristic features of the smaller breweries producing cask ale.

A 1998 survey suggested that the industry used around 1919TJ of electricity and 6964TJ offuel, corresponding to 0.53% of industrial electricity use and 0.58% of industrial fuel use.Brewing is relatively energy intensive, with energy accounting for up to 8% of total costs.Cost for water and effluent are also high.

The UK industry has good data on trends in specific energy consumption (SEC), measured inMJ per litre of beer. This shows that the average SEC of the sector has decreased from3.03MJ/l in 1976 to 1.70 in 1998, a reduction of 44. The data also shows substantialdifferences in SEC between different sizes of brewery. In 1998, the average SEC ofbreweries producing >500 th hl/year was 1.63MJ/l compared to 3.26MJ/l for those producing<100 th hl/year. There was also considerable diversity in performance within each size range,suggesting that while there are many examples of good practice, there are also a number ofpoorly performing breweries.

The SEC of an individual brewery is strongly affected by the shift pattern, product mix andpackaging mix. Electricity use is greater for lager production than for cask ale, due to greaterrefrigeration needs. Similarly, energy use for packaging is very low for casks, but high forbottles and cans. The brewing trade association has developed formulae to allow thesedifferences to be taken into account when assessing a breweries’ performance in energy

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efficiency. Trends in packaging have meant that electricity has formed an increasingproportion of costs compared to fuel. However, trends in industrial energy prices have meantthat energy has formed a declining proportion of total costs during the 1990s.

the small, independent regional breweries are very different organisations from the large sitesused by the majors. In small breweries, energy is one of many responsibilities of the ChiefEngineer, supported by a small number of technical staff. In large breweries, there may be adedicated energy/utilities manager, whose primary responsibility is the control of a siteservice centre, including water treatment, heat and electricity production, compressed air,industrial gases and refrigeration. In both cases, attention is primarily focused on processtechnology, rather than buildings energy use, as this accounts for the greatest proportion ofconsumption. Also brewing and engineering staff are separate, and frequently have differentperspectives and priorities.

5.1.2 Survey on energy management in the UK brewing sector

A postal survey was conducted with the aim of identifying current energy managementpractices at UK breweries, the extent of adoption of energy efficient technologies, andperceptions of the most important barriers to improving energy efficiency. It was sent to theindividual responsible for energy management at 75 breweries, with replies being obtainedfrom 40 sites (53%). Breweries were classified by production volume as follows: small = <100 th hl/year; medium 100 - 499 th hl/year; and large = >500 th hl/year. Key results includethe following:

• Respondents were asked to fill in a ‘self assessment’ matrix on energy management, whichgrades performance from 0 (poor) to 4 (excellent). The overall average score was 1.9, with1.4 for small breweries and 2.4 for large. The results suggest that breweries are relativelygood on information systems and investment, but poorer on organisation andcommunication.

• Only 29% of respondents had an energy policy and none were signatories to thegovernment Making a Corporate Commitment Campaign (MACC). But 56% ofrespondents had conducted energy/environmental audits.

• 39% of respondents had an environmental policy and 28% had an environmentalmanagement system. However, none were accredited to ISO14001 or EMAS.

• Energy information systems differed substantially between small and large sites. Overthree quarters of small breweries metered electricity at the site level, compared to only aquarter of large breweries. Similarly, one third of small breweries recorded energy solelyon an annual basis, but no large breweries did. 67% of large breweries recordedconsumption weekly and 25% daily.

• 90% of respondents monitored trends in consumption, 68% adjusted for production output,47% used a monitoring & targeting (M&T) scheme and 58% compared consumption withsector benchmarks provided by the BLRA. Again, there were substantial differencesbetween large and small breweries: for example, 92% of large breweries used an M&Tscheme, compared to only 15% of small.

• Only 34% of breweries devolved responsibility for energy to individual cost centres. Tworespondents used contact energy management for the central utilities plant.

• Only 38% of respondents gave a quantitative answer to a question on investment criteria.These reported a mean payback of 2.8 years with little difference between large and small

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sites. The results suggest that investment appraisal is unsophisticated and that stringentpayback criteria dominate.

• 47% of respondents agreed or strongly agreed that a wide range of measures could beimplemented that would yield paybacks of <5 years at current energy prices. 19% wereneutral and 33% disagreed.

• Respondents used a wide range of information sources on energy efficiency opportunitiesand exhibited a wide diversity of views on their usefulness. Although several sources wererated as good, very few were rated as excellent. The most useful sources were professionalassociations, technical conferences and trade journals. The DETR Energy Efficiency BestPractice Programme (EEBPP) was rated good to excellent by 41% of respondents, but wasonly considered average by 29% and was not used at all by a quarter.

• Participants were given a list of 38 widely promoted energy efficient technologies andasked which they had adopted. The detailed results give a useful picture of technologyadoption in over half of UK breweries. Widely adopted technologies include insulation ofprocess plant, condensate recovery, power factor correction and variable speed drives.Technologies with relatively limited adoption include CHP, boiler economisers, highfrequency fluorescents and various forms of heat recovery, including copper vapour heatrecovery (CVHR).This suggests that many apparently cost effective technologies are stillbeing overlooked.

• There were significant differences in the level of technology adoption at small and largebreweries. On average, the listed technologies had been adopted by 30% of smallbreweries, 42% of medium and 56% of large.

• Participants were asked to rate the importance of 17 suggested barriers to energy efficiencyusing a scale of often important (2), sometimes important (1) or rarely important (0). Theoverall mean score was 0.97, with the score for individual barriers ranging from 0.47 to1.31. The results suggest that a wide range of barriers are considered relevant, with fewstanding out as being considered either very important or rarely important.

• ‘Technology inappropriate at this site’ was considered the most important barrier, closelyfollowed by ‘other priorities for capital investment’ and ‘lack of time’. Those barriersconsidered of limited importance included ‘lack of skills’ and ‘cost of staff replacement,retirement and retraining’.

5.1.3 Case studies of energy management in the UK brewing sector

The following table summarises the key features of the five UK brewery case studies.

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Table. 5.1 Summary of UK brewery case studies

Feature Brewery A Brewery B Brewery C Brewery D Brewery ESize category Large Medium Medium Small LargeProduction(th hl/year)

1987 373 182 58 1978

% casks 0 47 41 97 0% small pack 30 3 25 3 54Energy spend (£k/year) 800 375 276 34 1350Utilities spend (£k/year) 2300 535 496 52 2490SEC (MJ/l) 1.73 < 2.6 2.7 n/a 1.41Self assessment score 1.6 2.5 2.0 1.0 3.2Meter reading frequency weekly meeting daily annually hourlyMeter reading level cost centre

/process cost centre site site process

% of listed technologiesadopted

30-40% 60% 55% <30% 76%

Payback criteria < 3 years < 2 years 2 - 3 years ‘whennecessary’

2 years

Qualitative assessment Good Average Average Average toPoor

Very good

The main results from the case studies are described below:

• Organisation: Only the largest site, Brewery E, had a dedicated energy manager. At theother sites, energy management was one of a number of responsibilities of the ChiefEngineer or Utilities Engineer. In no case was there a dedicated budget for efficiencyinvestment and interviewees emphasised that most projects had objectives other thanreducing energy use. Production was typically organised into cost centres, includingbrewing, fermentation, kegging and small pack, with engineering staff providing a serviceto each. A dominant theme of the interviews was the time constraints on engineering staff,which had been exacerbated by the difficult business situation and by cost cutting throughredundancies.

• Energy policy: None of the case study breweries had a formal energy policy, althoughBrewery E included energy objectives within a broader environmental policy. Thisbrewery was also the only one to have established quantitative targets for energyconsumption.

• Environmental policy: Three of the case study sites had some form of environmentalpolicy, while Brewery D (the smallest) had won an environmental business award. Thelarger sites were seriously examining environmental management systems with the aim ofaccrediting to ISO14001. This was partly a result of supply chain pressure from largecustomers such as supermarkets. In no case had environmental policy or management hada significant impact on energy management or on energy efficiency.

• Energy information systems: These varied greatly depending on the size of the site. Thelargest site, Brewery E, had a highly sophisticated M&T system including electronicreading of sub-meters and the use of exception reports to identify problems. At the otherextreme, Brewery D (the smallest site) relied solely on utility bills and did not track energyconsumption. Three of the sites compared consumption to BLRA benchmarks. While therewas clearly scope for improving information systems, there were also large overhead costs,

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including the salary costs of engineering staff who devoted much time to running thesystems. Nevertheless, there was a clear correlation between the quality of the informationsystem and the energy efficiency performance of the site.

• Accountability & incentives: Three of the sites charged cost centres for utilitiesconsumption. However, in all cases interviewees were sceptical of the value of suchcharging as they considered that staff could do relatively little to influence energy use. Thebiggest improvements were believed to result from the installation of new equipment.

• Capital budgeting and investment criteria: None of the breweries had a dedicated budgetfor efficiency investment. Instead the energy manager or equivalent had to make a case forthe funding of specific projects on their merits. All sites appeared to spend less on energyefficiency (as a portion of the utilities budget) than is recommended in best practicepublications. Pure energy saving investments were relatively rare and were considered as asecondary source of efficiency improvement. Two breweries used 3 year payback criteria,two used 2 years, while Brewery D invested ‘when necessary’, without calculatingpaybacks. There was no attempt to use IRR or DCF, and the rationale for stringentpaybacks was rarely explicit. The most common reason given was the short time horizonsresulting from business risk. Capital rationing within the business was a dominant theme,with energy efficiency being given a relatively low priority.

• Purchasing & policy integration: At smaller sites, utilities staff were intimately involvedin all new projects, so attention to energy efficiency depended largely on their knowledgeand awareness. At the larger sites, project managers were separate from utilities staff andthere was evidence of lack of consultation between the two groups. Whole life costingcould be neglected in favour of meeting capital budgets - a situation analogous to thatfound in the university sector and in new construction (section 4.1.4).

• Awareness & culture: The level of energy awareness among employees was uniformlyreported to be poor. All sites had used a variety of awareness campaigns - such as posters,presentations and information stands - but all reported that these were relativelyineffective. Awareness raising could be assisted through accountability for energy costs,through using the environmental impact of energy use as a motivator, and moves towards‘teamworking’ and greater responsibility for cost centre performance. But all sites lacked ahigh level ‘champion’ for energy efficiency and it was reported that awareness of energyefficiency was low within the ‘brewing culture’. Tension between brewers and engineerswas sometimes evident.

• Energy services and outsourcing: None of the case study sites had seriously consideredcontact energy management for any part of their business. In all cases there wasconsiderable scepticism about the value of outside contractors and of energy servicecontracts in particular. Risk was an important issue, and interviewees considered that theycould not enter into long term contracts when there was uncertainty over the future of thebusiness. Also, there was an overriding concern with reliability and avoiding productioninterruptions, which meant that there was a preference for having skilled people on siterather than relying on remote monitoring of utilities plant. CHP had been rejected at allsites due to ‘peaky’ steam demands, excess hot water or other factors which reduced itseconomic viability.

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5.1.4 Evidence of barriers in the UK brewing sector

The empirical results have been interpreted in terms of the theoretical framework for theBARRIERS project. This framework groups barriers under 12 broad headings (section 3.8).The barriers found to be of particular importance in the UK brewing sector are:

• Hetrogeneity• Access to capital• Hidden costs• Risk• Imperfect information• Split incentives• Power

Table 5.2 elaborates this list by identifying the particular instances where these barriersoperate.

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Table 5.2 Barriers considered to be of high importance in the UK brewing sector

General category Specific instance CommentsHeterogeneity Heterogeneity Very site/technology specific. But considered as the most important of the postulated

barriers in the survey.Access to capital Availability of capital to the

breweryBorrowing rarely contemplated for small investments. Capital shortage for investmentprojects within companies, but rationale for restricting borrowing unclear

Allocation of capital withincompany

Other priorities, such as expansion of the retail chain, may squeeze out available funds forefficiency investment. Budgets for energy efficiency typically less than EEOrecommendations.

Hidden costs Overhead costs of energymanagement

Salary overheads may be significant and may need to be recovered from savings oninvestment projects. Cuts in staff numbers to reduce salary overheads have resulted insevere time constraints on remaining staff. This provides one of the biggest obstacles toefficiency improvements.

Cost of productiondisruptions

Can be an obstacle to project and maintenance work. Efficiency measures must notthreaten reliability.

Imperfectinformation

Information onorganisational energy use

Many breweries could significantly improve their energy information systems. Level ofenergy awareness among staff is often poor.

Split incentives Purchasers of equipmentnot accountable for energycosts

More relevant to large breweries. Limited adoption of whole life costing. Problems inintegrating energy concerns into purchasing criteria and limited consultation betweenutilities and project management staff.

Risk Business risk Rationale most commonly used for strict payback criteria. Firms are operating in a difficultbusiness situation, with continuing threat of closures and take-overs.

Technical risk associatedwith energy efficienttechnologies

Any perceived threat to equipment reliability or product quality will prevent efficiencyinvestments from going ahead.

Power Conflicts betweenengineering and brewingstaff

Brewers have greater influence, but have differing priorities and different levels ofinformation/understanding about energy use.

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The subsequent sections briefly summarise the evidence for the full list of 12 barriers. Thebarriers considered of high importance are discussed first, followed by the remainingcategories of barrier.

Barriers considered of high importance in the UK brewing sector

• Heterogeneity: To clearly identify the importance of this, it would be necessary to conductsurvey research focused on a particular technology. However, the results suggest thatheterogeneity is an important obstacle for a number of the selected technologies. This is incontrast to the higher education sector where heterogeneity was considered of limitedimportance. A possible reason for the difference is that efficiency opportunities in brewingare frequently process specific and hence less uniform than the generic technologies usedin buildings.

• Hidden costs: The overhead costs of energy management was found to be a verysignificant factor, as is clearly demonstrated by the overwhelming prevalence of timeconstraints. These result in part through cost cutting through redundancies. If the salaryoverheads of energy management staff were to be entirely recovered from the returns oninvestment projects, it would be necessary to use significantly more stringent investmentcriteria for the capital costs alone. However, this rationale for short paybacks is not explicitin company practice and the question of what proportion of overheads should be recoveredin this way is difficult to answer. Costs associated with identifying opportunities,analysing cost effectiveness and tendering can also be significant in the context of severetime constraints, which may partly explain the relative paucity of energy audits. The costof production disruptions can be very high and the case studies provided a number ofexamples where efficiency improvements had been delayed to avoid interruptingproduction. Loss of benefits associated with energy efficient technologies were also acommon theme, with particular emphasis on equipment reliability and the need to preserveproduct quality. In sum, hidden costs appeared in a variety of forms, but by far the mostimportant was the overhead costs of energy management, as manifest in the severe timeconstraints on utilities staff.

• Access to capital: From the perspective of survey respondents and case study interviewees,limited access to capital provides one of the biggest barriers to energy efficiency. There aretwo possible explanations for this. First, the firm may be reluctant to borrow as this wouldincrease the level of gearing, thereby increasing risk and raising the firm’s cost of capital.Second, discretionary cost saving investment, such as energy efficiency, may be given alow priority in comparison to non discretionary investment (e.g. health & safety); andstrategic investment (expanding the retail chain). The latter is particularly important in thecontext of low brewery profitability, high profitability in the retail and leisure sector, andthe threat (or opportunity) of acquisitions and take-overs. It does not follow from this,however, that the decision not to borrow for efficiency investments represents rationalbehaviour by the firms.

• Risk: A series of mergers, acquisitions, and brewery closures have created considerableuncertainty in the sector which is expected to continue. Business risk can therefore providea justifiable rationale for stringent investment criteria if there is uncertainty over the sites’future. Technical risk may also be important for some technologies if there is any potentialthreat to equipment reliability or product quality. However, the latter is only relevant for asubset of efficiency opportunities.

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• Imperfect information: Information on current energy use in the brewery sector isreasonable, but there is still considerable scope for improvement - particularly in thesmaller sites. For example, only half of the small breweries are calculating their SEC andless than half are comparing performance against the BLRA benchmarks. Awareness ofenergy use amongst staff also appears to be poor, despite attempts at awareness raising. Incontrast, the level of information on generic energy efficiency opportunities appearsrelatively good, but many breweries lack more specific information as they have notconducted detailed energy audits.

• Split incentives: Split incentives appeared in two main forms: i) lack of departmentalaccountability for energy costs; and ii) lack of accountability for energy costs amongequipment purchasers and managers of capital projects. Neither survey respondents or casestudy interviewees considered the first of these to be a major obstacle. The primary reasongiven was that departments and individuals have relatively little influence over energyconsumption - although it was not possible to verify whether this perception was accurate.The second split incentive problem is found primarily in larger sites, where projectmanagers are separate from utilities staff and where there is limited consultation or use ofwhole life costing. In one case study, this was considered to be one of the most importantobstacles to energy efficiency.

• Power and status: Energy management has a status proportionate to its role in a breweriescost structure. But there is evidence to suggest that conflicts between brewing andengineering staff can be a barrier to efficiency improvements in some instances.

Barriers considered of less importance in the UK brewing sector

• Adverse selection: This problem was not considered important by either surveyrespondents or case study interviewees and good information was available on theperformance of utilities equipment. However, not all relevant purchasing decisions couldbe examined through the case studies and the results were insufficient to identify theimportance of this problem more generally.

• Principal-agent relationships: The evidence here is inconclusive as alternative hypothesesfor stringent investment criteria (e.g. risk) have already been argued to have some validity.Monitoring the performance of investment projects is clearly difficult, but no more so forenergy efficiency than for other types of project. It is also notable that employmentcontracts for brewery staff contain no direct incentives for improving energy efficiency.This could be due to equivalent difficulties in monitoring the performance of utilities staff,or may simply reflect the lack of precedents for incentive contracts in the sector.

• Bounded rationality: The empirical results suggest both that energy efficiency is neglectedin a number of organisational routines and that actors are subject to time constraints andincentive structures which emphasise other priorities, such as avoiding productioninterruptions. In this context, bounded rationality may compound the neglect of energyefficiency that is encouraged by these other factors. It is, however, difficult to determinethe relative importance of bounded rationality compared to other factors.

• Form of information, credibility and trust: Lack of information is not considered a majorbarrier to energy efficiency in the sector. But there does appear to be a lack of good qualityinformation sources and personal contacts between staff in competing firms areincreasingly rare. Hence, there may be scope for improving the quality of information tothe sector.

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• Values and organisational culture: Environmental values and the establishment ofenvironmental policies have not to date been an important factor in improving breweryenergy management. Energy management is largely a technical exercise, motivated on costsaving grounds with environmental concerns playing a secondary role. External pressureson improving environmental performance are increasing from a number of directions. Butit is the fiscal measures within UK climate policy that are likely to be the greatest driversto improved performance.

It would also be desirable to assign the barriers to one of three categories: a) market failure;b) organisational failure; and c) non-failure (section 3.2.8). But in practice, these distinctionsare blurred. In general, we can say that most of the barriers under the headings heterogeneity,hidden costs, and risk can be considered to fall within the first category. This suggests thatmany of the reasons for not investing in energy efficiency (Table 5.2) can be interpreted asrational behaviour by firms. However, there are problems with this. For example, it is farfrom clear that the costs and benefits of staff cuts (including lost opportunities for efficiencyimprovement) have been adequately assessed.

5.1.5 Policy implications

Some key policy initiatives at the organisational, sector and national levels are highlightedbelow.

Organisational levelThere is a wide range of best practice literature on the measures which individual firms couldtake to improve their energy efficiency. Much of this is highly relevant to the brewing sectorand there are a range of best practice examples which can be followed. These applyparticularly to the larger sites, but simplified measures could be adopted by smaller sites.Recommendations include: adopting an energy policy; assigning responsibility for energymanagement; establishing an effective energy information system; creating an energymanagement profit centre; including include incentive terms in staff contracts; conductingprioritised energy audits; integrating energy efficiency objectives into capital projects androutine maintenance; charging cost centres for energy consumption; establishing energyawareness campaigns; conducting a CHP feasibility study; and, where appropriate,considering external financing.

Brewing sector levelInitiatives at the sector level consist primarily of improved information:

• Energy Efficiency Best Practice Programme (EEBPP): The government could expand therange of sector specific information literature, including workshops and visits to bestpractice sites. The work could be targeted on small sites, with marketing of the programmelinked to UK climate policy.

• Trade associations: Promotion of information through sector bodies is an effective way ofadding value and ensuring maximum impact of EEBPP programmes. The EEBPP couldwork with both engineering and brewing associations to alert companies to efficiencyopportunities.

National measuresThe above measures will only be effective in the context of a broad based climate policy,incorporating fiscal, regulatory and information measures. Such a framework is developing in

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the UK, including a revenue neutral energy tax (the climate change levy), negotiatedagreements on energy efficiency, IPPC and emissions trading. While these instruments haveyet to be introduced, they are already having a considerable impact throughout UK business,including the brewing sector. However, the policy mix is complex and there is considerablescope for interaction and conflict.

Since the larger breweries are regulated under the IPPC Directive, the entire sector (includingsmall breweries) has become eligible for negotiating an agreement with the government onenergy efficiency targets. If agreed, this will exempt the sector from 80% of the climatechange levy. The draft agreement includes a sector average SEC target of 1.53MJ/l by 2010.This implies a much lower rate of efficiency improvement than has been achieved over thepast 25 years, but the lack of transparency in the negotiated agreement process makes itdifficult to judge whether the target is justified. Furthermore, there are a number of broaderconcerns about the negotiated agreement process. These include:

• the complexity of the policy mix and the scope for conflict between different instruments;• the wide scope of the agreements, including sites which are very small sites and/or not

energy intensive;• the denomination of targets in energy use per unit output, rather than absolute carbon

emissions;• the attempts to introduce emissions trading in a system which does not have a fixed

emissions cap;• the scope for negotiating ‘soft’ targets in a context of severe information asymmetry and

tight timetables for completing the agreements;• the strict payback criteria used to define ‘cost effective’ investments;• the tension between predictability and the requirement for regular reviews, and the

consequent difficulty of tightening targets once agreed; and• the potential loss of public legitimacy if the negotiation process is closed and the targets

appear weak.

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5.2 BARRIERS TO ENERGY EFFICIENCY IN THE GERMAN BREWING SECTOR

5.2.1 Characterising the German brewery sector

The German beer market is the largest in Europe with an annual output of about 115 Mio hl.In 1996, there were about 1230 breweries employing ~47,000 people. Total consumption was108 Mio. hl leading to total sales of 10 billion Euros. About 7.5 % of output, i.e. 8500 hl beer,are exported, while less than 2200 hl beer are imported. More than 70% of total productionwas brewed in 22 large breweries, with more than 1 million hl output each. Small brewerieswith an annual production of under 30,000 hl/year are quite widespread. In addition there areabout 200 "pub breweries" catering mainly to the needs of one pub.

The German beer market is largely saturated and beer consumption per capita has beendecreasing continuously since 1975 from then 147,8 l/capita to now less than 130 l/capita. Inthe medium run beer consumption is expected to drop to 110-115 l/capita. On the supply sidethere are excess capacities of about 30 % due to decreasing demand, productivity growth, andadded capacities in the new German states. Consequently, prices have been decreasing in realterms and profits are at an all-time-low. The market is currently in a process oftransformation. Closures, take-overs and mergers are reducing excess capacity, and themarket share of the large breweries and brewery groups is increasing. This concentrationprocess is likely to be accelerated through the introduction of the PET bottle in a marketwhere the returnable multi-use glass bottle is dominating. The risk is, that only largebreweries have sufficient capital to survive the switch. A possible scenario for the futurestructure of the German beer market includes on the one side large brewery groups with morethan 1 Mio hl of output per year serving the national and, to a lesser extent, internationalmarkets. On the other side, there remain niche markets for small regional breweries notproducing less than 100,000 hl/year.

Breweries are relatively energy intensive, with energy costs typically accounting for 1-3 % oftotal sales. Total fuel consumption in 1995 amounted to approx. 4,100 GWh, and electricityconsumption to 1,086 GWh, of which 74 GWh was provided by self generation. Electricity ismainly required for cooling as well as for cleaning and filling (transport of materials,generation of compressed air, CO2 recovery). Fuel is mainly used to supply heat for thebrewhouse and for filling. In fact, the largest amount of heat demand (approx. 40-60%) inbeer production occurs in the brewhouse for heating and boiling mash and wort. Electricityconsumption is increasing as a result of to automation, but also since some RUE-measuresrequire electricity in order to reduce heat demand (e. g. in heat recovery). The following tabledisplays average specific energy consumption (SEC) figures for German breweries in 1997.Overall, these figures suggest that German breweries is more energy efficient than their UKequivalents (section 5.1.2).

Table 5.3 Average specific energy consumption figures for German breweries

Size 50000-100000hl

100000 –500000 hl

> 500000 hl

Fuel consumption (MJ/l) 1,74 1,49 1,07Electricity consumption (MJ/l) 0,47 0,44 0,38Total energy consumption 2.21 1,93 1,45

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(MJ/l)

5.2.2 Case studies of energy management in the German brewing sector

The following table summarises the key features of the five German brewery case studies.

Table 5.4 Summary of German brewery case studies

Feature Brewery A Brewery B Brewery C Brewery D Brewery EProduction(hl/year)

97,000 170,000 200,000 800,000 4,270,000

% casks 20 31 35 36 28% multi-use bottles 73 54 52.5 50 58Energy costs(Euros/year)

200,000 300,000 550,000 690,000 3,160,000

Energy consumption 5 GWhfuel1.18 GWhel

9 GWhfuel2.5 GWhel

12.8 GWhfuel3.5 GWhel

30.8 GWhfuel*9.4 GWhel

116 GWhfuel37 GWhel

Specific energy use(MJ/l)

1.8 MJfuel/l0.4 MJel/l

1.9 MJfuel/l0.5 MJel/l

2.3 MJfuel/l0.6 MJel/l

1.4 MJfuel/l*

0.4 MJel/l0.98 MJfuel/l

0.3 MJel/lSelf assessment score 1.17 1.83 2.16 1.17 2.83Energy/environmentalguidelines

yes(in progress)

no no no yes

% of listed technologiesadopted

60 % 50% 50 % 75 % 60 %

Payback criteria 3-5 years 3 years 3 years,flexible

Flexible, upto 7 years

3-4 years,flexible up to

6 yearsQualitative assessment good average below

averagevery good very good/

good* Including fuel consumption for electricity generation in CHP plant

Some key features of the case study results are as follows:

• Organisation: Usually a technical manager is responsible for energy management in thebreweries. But typically, energy management takes less than 20 % of his time, and thereare a range of other responsibilities such as waste and water management. Production istypically organised in cost centres, including brewing, fermentation, filling and bottlecleaning, and packing. In smaller breweries, communication and decision-making ischaracterised by frequent, close and informal contacts with the top management, which areoften engineers, but also with brewers.

• Energy policy/environmental policy: Only one of the breweries (brewery E) had a formalenergy policy. At brewery A, energy guidelines were in the process of being developed.This brewery is planning to be certified under EMAS, both to demonstrate environmentalperformance and to assist in cost saving. No other brewery was or is planning to becertified under EMAS or ISO 14000. But brewery E, which also won a state environmentalaward, would quickly be ready for a certification if customers requested it.

• Energy information systems: All breweries regularly measured and controlled energyconsumption, and also compared their specific consumption figures with benchmarks. Thelargest brewery, E, has an on-line energy controlling and management system in place.Energy consumption for steam reduction, hot water, compressed air and cooling wereusually metered at the site level. Electricity consumption is metered in more detail at thelevel of cost centres, and, in some cases, even more disaggregated.

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• Accountability & incentives: Most breweries charged cost centres for energy consumption.In some cases this was based on actual measurement, but more usually it was based onestimated proxies or some fixed shares with allocation adjustments after majorinvestments. The incentive to reduce consumption is thereby diluted.

• Capital budgeting and investment criteria: No brewery had a budget dedicated toinvestments in energy efficiency. Most investments, which resulted in energy savings,were carried out for other reasons than to save energy. Energy efficiency is processintegrated and efficiency investments usually have to meet the same investment criteria asother investments. Most breweries use pay-back rates, but for breweries C and E return oninvestment is the primary criteria. For larger investments with longer life-times mostbreweries make exceptions and allow for longer pay-back rates. Due to market risks(declining market, horizontal integration, PET bottle), smaller breweries hesitate to makelong-term investments.

• Purchasing & policy integration: The technical department/staff selects the equipment,which, in larger breweries, is purchased through the purchasing department. Energyefficiency is commonly included in purchasing and maintenance requirements, althoughthere are exceptions (e.g. brewery C). Energy efficiency is usually only one of manycriteria, with product quality being the most important. Life-cycle costing is not routinelyapplied.

• Awareness & culture: Most of the interviewees were sensitive towards environmentalissues and motivated by environmental concerns, although translating the motivation intoaction seemed difficult (brewery C). The good performers (breweries A, D, and E) saw animportant link between the production of beer as a natural product and the environment.For breweries B and C this was less important. But the good performers do not use theirenvironmental performance for marketing purposes. All breweries considered energyefficiency as part of the normal business, i.e. a way to improve competitiveness. Specialawareness campaigns are the exception (D) and are usually not considered to be necessaryor useful. Exchange of information and experiences with RUE-measures is very commonwithin the sector.

• Energy services and outsourcing: Only one brewery had an energy services contract, butsome had prior contacts. For larger breweries, ESCOs are not attractive since they havesufficient in-house expertise and capital. Thus, if projects are profitable they are realisedby the company itself. Smaller breweries indicated that they may benefit from thetechnical expertise of energy service companies but they also hesitated since the contractduration is long and the market risks high. Also, energy efficiency is mainly processintegrated, and breweries are reluctant to lose control over parts of the core production (seebelow).

5.2.3 Evidence of barriers in the German brewing sector

The empirical results have been interpreted in terms of the theoretical framework for theBARRIERS project. This framework groups barriers under 12 broad headings. The barriersfound to be of particular importance in the German brewing sector are:

• Hetrogeneity• Access to capital• Hidden costs• Risk• Bounded rationality

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• Split incentives

Table 5.5 elaborates this list by identifying the particular instances where these barriersoperate and the relevant policy measures that may help overcome them.

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Table 5.5 Barriers found to be of high importance in the German brewery sector and proposed policies

General category Specific instance/comments PoliciesHeterogeneity Most RUE-measures are process

integrated and thus site specific• Not a barrier that justifies policy intervention

Lack of capital Availability of capital to small andmedium–sized breweries (oftenresult of business risk)

• ESCOs for lack of capital not due to business risk

Hidden costs Lack of time, manpower,management costs

• ESCOs;• energy audits;• consultants

Costs for gathering information,identifying savings potentials etc.

• Subsidies for audits;• targeted information programmes;• ESCOs;• networks;• best-practice seminars organised by brewing associations,• energy agency;

Loss of quality Brewers need to get involved early in project planning processRisk Business risk Not a barrier that justifies policy intervention

Technical risk associated withintegrated energy efficienttechnologies in the core productionprocess

• Subsidies for pilot and demonstration projects;• dissemination of information about pilot projects;• ESCOs

Bounded rationality Brewing beer is a complex batchprocess, optimising the system isdifficult

ESCOs; consultants; energy audits; training seminars;

Split incentives Those selecting equipment favourreliability over lower energy costs,for which they are not accountable

• Integrate energy consumption into purchasing criteria;• life-cycle costing;• Make salary of plant engineer/technical manager depend on energy

consumption;• dissemination of information about pilot projects;

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The following summarises the evidence for each of the 12 barriers. The barriers considered ofhigh importance are discussed first, followed by the remaining categories of barrier.

Barriers considered of high importance in the German brewing sector

• Heterogeneity: Although an adequate assessment of the relevance of this barrier wouldrequire detailed technological and profitability analyses, the interview results suggest thatheterogeneity is an important obstacle for some RUE-technologies. The main reason is thatenergy efficiency in the brewery sector is primarily process integrated rather than add-onas for generic energy efficiency technologies.

• Hidden costs: Hidden costs in terms of the costs for training personnel and acquiringinformation are mostly taken into account in profitability analyses. For larger breweriesthese are unlikely to be prohibitive, but for smaller breweries they may constitute animportant barrier. The overhead costs of energy management were found to be important,as indicated by the prevalence of time constraints. Likewise, transaction costs foridentifying savings potentials, finding RUE-measures, conducting profitability analyses,and tendering can be significant barriers in the context of time constraints. Loss of benefitsassociated with energy efficient technologies were very important. Doubts aboutequipment reliability for new technologies prevented the implementation of RUE-technologies in several cases, and, most importantly, product quality needs to be preservedat all costs. In sum, hidden costs appeared in a variety of forms, the most important wasthe loss of benefits, and time constraints. But the extent to which these hidden costs aresignificantly higher for RUE-measures than for standard measures remains unclear.

• Access to capital: Access to capital was a problem for two of the smaller breweries in thecase study. The other breweries were either quite large, or doing very well in a nichemarket. But in general, access to capital is likely to be a problem for many small andmedium-sized breweries in Germany. The most important underlying cause seems to bebusiness risk (see below), which make for a high risk premium on the required rate ofreturn, and on the capital market interest rate. Consequently, long-term investments arepostponed. As far as internal investment decisions, companies usually use the same criteriaas for investments in the core production process, which seems reasonable, since mostRUE-measures are process integrated. Some breweries even allow for longer pay-backtimes for RUE-measures to account for their longer economic life times.

• Risk: Business risk stemming from a declining beer market accompanied by a series ofmergers, take-overs, and closures, together with the potential market-wide introduction ofthe PET-bottle, and the liberalisation of the energy markets, have created considerableuncertainty in the sector. Business risk can therefore provide a justifiable rationale forstringent investment criteria if there is uncertainty over the company’s future. Technicalrisk for technologies in the core-production process are sometimes important barriers, buttechnical risk associated with cross-cutting, add-on technologies does not constitute animportant barrier.

• Bounded rationality: Since brewing beer is a complex batch process, optimising theenergy services appropriately requires more know-how than in the other case study sectors.Thus, in the presence of time constraints and lack of manpower, bounded rationality islikely to be a barrier, in particular in smaller breweries. However, it is difficult to assessthe relative importance of bounded rationality vis-à-vis other factors.

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• Split incentives: Theoretically split incentives arise from the fact that cost centres are notaccountable for energy costs, which cannot be measured adequately. But individuals havelittle impact on energy consumption and efficiency improvements are mainly driven bytechnology. Another form of split incentives, which is related to technology selection, maybe more relevant. The technical manager/plant engineers, who are selecting the equipment,are primarily interested in equipment reliability, while energy performance is secondary.Thus, when in doubt, they will chose a proven technology over a new, more energyefficient technology. But for most technologies, this trade-off is not significant.

Barriers considered of less importance in the German brewing sector

• Imperfect information: Information on current energy use is satisfactory, electricity ismeasured often at the level of individual equipment, but data on energy consumption forcooling and compressed air is usually only available at the site level. Also correctlymeasuring steam is a problem. Thus, it may be difficult to correctly assess energy savingswith respect to cooling, steam and compressed air. All breweries regularly measure andcontrol energy consumption, and compare their specific energy consumption figures withsector benchmarks. For process-integrated RUE-measures energy savings are hard tocalculate because the reference case is not clear. Awareness of energy use amongst staff,and information about energy efficiency opportunities appears to be good, but could beimproved, in particular in smaller breweries. Where carried out, energy audits provedhelpful in gathering information on process specific energy savings opportunities andmeasures.

• Adverse selection: There was little evidence gathered during the interviews on this point.Only a minority of breweries encountered problems gathering information about theenergy performance of equipment.

• Principal-agent relationships: There was no evidence in the case studies that excessivelystringent investment criteria were required for RUE-investments, or that criteria were morestringent than for other investment (see risk). Indeed, in some cases RUE-measures wereallowed less stringent criteria. If investment criteria are strict, then business risk is likely tobe the reason, rather than high monitoring or control costs.

• Form of information, credibility and trust: Lack of generic information about RUE-measures does not appear to be a major barrier in the brewery sector, but there is a lack ofsite-specific information in some cases. The most trusted sources are colleagues from thesame company, from other breweries, networks and regional brewing associations. Withinthe sector, sharing information even on specific production processes is very common. Apossible explanation for this is that the beer market is very regional, and sharinginformation with breweries from outside a region does not hurt one’s own business. Thereis some evidence that ESCOs and consultants lack trust and credibility.

• Values and organisational culture: Although most breweries stress the close link betweenproducing a natural product and environmental performance are the establishment ofenvironmental policies have only rarely triggered investment in RUE. Instead energyefficiency is considered part of normal business and a way to improve competitiveness.Awareness campaigns and certified environmental management systems are considered bysmaller breweries as being too expensive. Since efficiency is improved through process-integrated innovations, the general attitude towards innovations per se may be at least asimportant for energy efficiency as environmental values.

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• Power and status: There is no evidence that energy management suffers from a low status.Since the top management usually contains an engineer, and since improving energyefficiency is a very technical matter, the top management has sympathy and support forRUE, as long as quality of the product is not negatively affected.

5.2.4 The role of energy service companies in the German brewing sector

This section is based on the interviews conducted in the brewery case studies and onadditional interviews carried out with four energy service companies (ESCOs) in Germany.The main reasons for why ESCOs may help to improve energy efficiency in the brewerysector in Germany include:

• ESCOs generally accept longer payback times than breweries.• ESCOs may be in a better position to assess and carry the technical risks associated with

new technologies.• Especially in smaller breweries, ESCOs may help overcome the barriers lack of capital,

lack of know-how and lack of manpower.

But there are also barriers to contract energy management and ESCOs in the German brewerysector:

• Larger breweries generally have sufficient know-how and manpower to operate the energyequipment and sufficient capital to finance new investments.

• The Germany beer market is currently in a state of transition, characterised bystagnating/declining output, continuing horizontal concentration, mergers and theintroduction of the PET-bottle. Therefore, both breweries and ESCOs have reasons toavoid the long-term contractual arrangements which are typical for CEM.

• Similarly, falling electricity prices and increased uncertainty in liberalised energy marketsdissuade companies from entering into long-term contracts.

• Breweries fear to lose control over the core production process. For example, the supply ofsteam – a typical CEM project - is a vital process for breweries, which they are reluctant tooutsource.

• Potential advantages from economies of scale and customer bundling on the side of theESCOs are limited due to the complexity of the production process – in particular fordemand side options.

• Complex production processes require high co-ordination costs for both parties involved.These transaction costs are particularly a problem for demand-side measures.

• ESCOs suffer from a lack of credibility and trust.• Savings potentials identified by ESCOs reflect poorly on those in charge of energy

management in the brewery.• ESCOs do not know the needs of the energy users as well as those within the brewery.

5.2.5 Policy implications

Some key policy initiatives at the organisational, sector and national levels are highlightedbelow.

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Organisational levelPolicy recommendations at the organisational level include the following:

• Integrating energy efficiency objectives into investment projects and routine maintenance,and conducting profitability analyses.

• Benchmarking that accounts for different sizes, output types and packaging will help inassessing performance and gaining top-management attention and support.

• Since improving energy efficiency is often the result of process-integrated innovations inthe core production processes, it is important to consider the entire system and to co-ordinate efforts between those affected. Top-management, consultants, equipmentinstallers, technical and energy management and brewers need to be informed early in theprocess and involved during the planning and the realisation of the project.

• Environmental management systems can help poor performers, but the costs may beprohibitive for smaller breweries.

• For smaller companies, or those lacking technical know-how, manpower, and time,companies could have an on-site energy audit to identify efficiency opportunities, useconsultants for technical advise or use ESCOs to pass on financial and technical risk.

• In larger companies, it may be possible to link the plant engineer’s or the technicalmanager’s salary to energy consumption or energy costs.

• When buying new equipment, maximum energy consumption figures, that have to beguaranteed by the supplier, could become part of the tender or even the contract.

Brewery sector levelPolicy recommendations at the sector level include the following:

• Sector networks: External actors may play an important role in getting (particular small)companies to consider RUE- measures.. Contacts and links to other breweries at the levelof the brewers or the technical managers, and networks are effective measures to gather,share and diffuse information about RUE-measures. Regional and national brewingassociations (and their environmental experts/consultants) could support those networks,and organise seminars on specific, well-targeted energy-related topics (best-practiceseminars). These networks are particularly valuable for the diffusion of positive examples,which reduce the perceived technical risk of particular technologies.

• Regional networks: Regional associations for smaller and medium sized companies couldprovide companies with specific information about where to get relevant information andconsulting services for RUE-measures, about financial assistance for energy audits and forinvestments in RUE, or about successful pilot projects.

• Demonstration projects: To reduce the technical risk associated with new process-integrated technologies, brewing and/or engineering associations could support thefinancing of pilot and demonstration projects and disseminate the experiences to theirmembers and in trade journals.

• Voluntary agreements may not work for the entire sector because the large number ofbreweries would create high transaction costs. But the two dozen large breweries, whichserve almost ¾ of the German market, could develop a voluntary agreement. This wouldraise awareness at the top management level, and help to realise the no-regret potential.

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National levelThe effectiveness of the measures at the organisational and at the sectoral level will beenhanced if they are embedded in a broad based and long term oriented national climatepolicy. This could include:

• Energy pricing: Increasing the price of energy will render RUE-measures more cost-effective and raise awareness at the top management level. Such price policies include thecontinuation of the ecological tax reform in Germany. Increasing tax rates on fuels andelectricity also reduce the financial risk associated with investments in energy efficiencyand allow for long term planning.

• Regulations: Other policies at the national level include the continuous tightening ofenvironmental standards on emissions. For example, tightening standards have causedmany breweries to re-use the heat from condensing fumes, and thus save energy.

• CHP: Introducing mandatory feed-in tariffs for electricity generated by CHP-plants willrender co-generation more profitable. Such feed in tariffs have recently been introduced formunicipally owned CHP-plants, but not for industrial CHP-plants.

• Pilot projects: The government could provide additional funding for pilot projects forprocess-integrated energy-saving innovations, and government / federal states could extendprogrammes for energy audits and the implementation of certified environmentalmanagement schemes for small and medium-sized breweries.

• Energy agency: The federal energy agency, which has just been founded, could initiateand co-ordinate information programmes, education programmes, best-practiceprogrammes, pilot projects, support networks, etc. with respect to RUE measures in thebrewery sector.

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5.3 BARRIERS TO ENERGY EFFICIENCY IN THE IRISH BREWING SECTOR

5.3.1 Characterising the Irish brewery sector

The brewing industry in Ireland sold 12.58 million hectolitres (or 1,258 million litres) of beerin 1998, worth £960 million. The industry is very highly concentrated in a small number ofcompanies. Three companies – Guinness Ireland, Murphy Brewery Ireland and Beamish &Crawford – account for virtually all of the industry’s production. Guinness is by far thelargest of these, and operates five breweries in Ireland while the other two companies haveone brewery each. All three of the companies are part of larger, externally-ownedmultinational enterprises.

The industry has a relatively strong competitive position in international trade, since itsexports are several times greater than imports of beer. Its production has grown relativelyquickly in the 1990s.

Brewing is a relatively energy-intensive industry. In the mid-1990s, its expenditure on fueland power amounted to 6.6% of its spending on all industrial inputs, compared to a figure ofjust 2.4% for all Irish manufacturing. The principal energy source used by the industry is gas,followed by electricity. The industry’s energy-intensity, in relation to its volume ofproduction, has been declining since the mid-1980s.

There are a number of government policy measures that have sought to promote energyefficiency in Irish industry, including the brewing industry. These include a grant scheme forenergy audits, a scheme to support investment in energy efficiency, an energy self-audit andstatement of energy accounts scheme, information programmes on best practice, and ascheme to promote fuel saving in boilers.

5.3.2 Case studies of energy management in the Irish brewing sector

Case studies were undertaken in five Irish breweries. These five account for a large majorityof production in the industry. They are quite diverse in terms of size, although they do notinclude any very small breweries. They also vary considerably in terms of age, productionmix and other characteristics that would have implications for energy requirements or energyintensity. All five have introduced systems to recover and use their own CO2 by-productfrom the fermentation process.

The case study breweries vary considerably in the degree to which formal and systematicenergy policies are in place, but all have some form of energy policy. They are well aware oftheir own performance on energy use and they have targets for use of energy. In recent years,they have been required to obtain IPC (integrated pollution control) licenses from theEnvironmental Protection Agency.

All of the five have some type of formal energy management with some formal delegation ofresponsibility for energy consumption. There is some variation in this, but energymanagement is typically designated as a substantial part of the responsibility of a managerwho also has other responsibilities. Since the five breweries are part of larger enterprises,their expenditure on investment in energy efficiency is subject to criteria set by a higher level.

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Also as a result of being part of larger enterprises, they can benefit appreciably fromexchanges of information with their parent and sister companies, and from co-operation ontechnical matters including energy efficiency. Overall, energy management is taken quiteseriously, most obviously because energy is a significant cost for breweries, but also becauseenvironmental issues can have implications for corporate image.

All five breweries record their energy consumption regularly, and all apply monitoring andtargeting schemes for energy use. In general, if adverse trends occur in aspects of energyconsumption, these are investigated as they arise. However, the breweries do not havearrangements for charging energy costs to individual subdivisions. Nor do they havefinancial incentives for subdivisions or staff to use energy more efficiently, apart frompersonal financial incentives (in some cases) for the managers with most responsibility forenergy management.

The energy efficiency performance of the case study breweries looks relatively good bycomparison with benchmarks available from the UK. They have achieved significantreductions in energy consumption per hectolitre over time, and they generally regardthemselves as being above-average performers on energy efficiency. They have implementedor at least considered substantial numbers of energy-saving measures. Nevertheless, most ofthem agree that there is still a considerable range of energy efficiency measures that could beimplemented that would yield paybacks of less than five years. The reason most often givenfor not implementing such measures is because the investments that they make are subject topayback criteria that are more demanding than five years.

Investment in energy efficiency in the case study breweries is usually subject to the samepayback criteria as other types of investment. These payback criteria are typically about threeyears, and in some cases this has been tightening in recent times. Payback criteria are used asa method to select among diverse investment opportunities, given constraints on investmentbudgets. To some extent, the use of tight payback criteria is also a means of allowing for therisk that projects will not be as successful as expected. In addition, the use of tight paybackcriteria seems to be partly a reflection of some uncertainty about the future, given thepossibility of mergers, acquisitions, sales or closures of breweries. Such a climate ofuncertainty would tend to reinforce any preference for using short payback criteria.

The brewing companies generally do take account of energy efficiency considerations whenpurchasing equipment and consider that there is no great difficulty in obtaining informationon the energy performance of equipment.

The case study breweries generally have an organisational culture that is reasonablyconducive to energy management, and they experience pressures from both outside and insidetheir companies to improve energy and environmental performance.

Most of the breweries make no use of contract energy management, although in some cases itis possible that there may be future changes in this regard. In one brewery, however, there isa CHP plant on-site that is operated by an outside contractor.

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5.3.3 Evidence of barriers in the Irish brewing sector

Our study examined the importance of a range of potential barriers to energy efficiency, basedon the theoretical framework for the BARRIERS project. Table 5.6 lists all of these possiblebarriers and attempts to summarise their importance in the Irish brewing industry. As far aspossible, the importance of each potential barrier is rated in one of four categories, from “nota barrier” through “low” and “medium” to “high”.

It is important to note that the possible barriers to energy efficiency listed in Table 5.6 are notentirely separate and independent. For example, “access to capital” is listed as one potentialbarrier, but in practice the constraint on access to capital in the brewing companies occurs inthe form of stringent payback criteria. At the same time, both business “risk” and monitoringdifficulties in “principal-agent” relationships could manifest themselves in tight paybackcriteria. Hence there is more than one possible reason for stringent paybacks. A secondexample is that demands on management time can be considered as a “hidden cost”, but at thesame time, demands on management time would encourage the development on routines thatneglect energy efficiency. This, in turn, would be exacerbated by “bounded rationality”.

Here we classify the single most important barrier in the Irish brewing industry as access tocapital. As indicated above, business risk and principal-agent relationships contribute to this.

Demands on management time and bounded rationality are also related. These are rated asbeing of low to medium importance, but may be more significant for smaller firms.

Five of the barriers are rated as “not a barrier”, meaning that they appear to have virtually noimportance in the Irish brewing industry. Finally, the remaining potential barriers are allconsidered to be of generally low importance - namely imperfect information and adverseselection, as well as heterogeneity, other forms of hidden cost, and split incentives(specifically lack of devolved accountability).

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Table 5.6 The importance of barriers to energy efficiency in the Irish brewing sector

Potential Barrier to EnergyEfficiency

Importance as a Barrier to Energy Efficiency

Heterogeneity Low. Occurs infrequently.Hidden costs:-

Demands on managementtime

Other hidden costs

Low to medium for larger firms; can cause delays. Possibly highfor smaller firms.

Low.

Access to capital High. The single most important barrierRisk:- Business/market risk

Technical risk

Medium. Contributes to access to capital barrier.

Low in most cases. Medium for new technologies. Contributesto access to capital barrier.

Imperfect information Low for nearly all firms.Split incentives Low, for devolved accountability. Not a barrier in other

respects.Adverse selection Low.Principal-agent Probably low to medium. Contributes to access to capital

barrier.Bounded rationality Probably low to medium.Form of information Not a barrier.Credibility and trust Not a barrier.Inertia Not a barrier.Values and organisational culture Not a barrier.Status of energy management Not a barrier.

Some of the barriers, particularly heterogeneity and “other” hidden costs (i.e. apart fromdemands on management time), would reflect no real market or organisational failure. Thus,if companies do not implement an energy efficiency measure because of such hidden costs orheterogeneity, they may well be behaving quite reasonably and there may be no good causefor policy intervention. To a lesser extent also, it might perhaps be the case that the real risksfaced by some companies justify their tight payback criteria and the consequent constraints onaccess to capital, or that the costs of management time justify non-implementation of somepotential energy efficiency measures. However, it is far from clear that companies generallyand systematically allocate optimal amounts of management time and especially capital toenergy efficiency.

5.3.4 Policy implications

The empirical research indicates that the Irish breweries do tend to give quite seriousattention to energy management and they are not easily deterred by minor barriers frommaking improvements in energy efficiency. In considering possible policy responses, we focusparticularly on possible measures that would aim to overcome those barriers to energy efficiencythat are found to be most important in our study.

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Company levelAs regards internal company policies for brewing firms, our study suggests that there arethree main issues for brewing companies to consider:

• Investment criteria: Companies need to consider whether the payback criteria that theyapply to investments in energy efficiency are too stringent. Would it not be in theirinterests to take a longer-term view or to be less averse to risk, and to apply somewhat lessstringent criteria? This could still be consistent with positive financial returns for thecompany.

• Management time: Companies could also consider whether they are giving sufficientmanagement time to energy efficiency issues. Would it be in their interests to allocatemore management time to this area if that would result in worthwhile savings from greaterenergy efficiency?

• Accountability: Finally, companies could review the situation relating to incentives and thedevolution of accountability for energy consumption within the firm. Would it be in theirinterests to have more formal systems of devolved accountability, so as to improve theincentive for subdivisions or staff to minimise energy use?

Brewing sector levelThe issues that arise for government policy are generally not unique to the brewing industry.The issue of greatest significance for the brewing sector is the IPPC Directive.

Breweries in Ireland are among the industries that are already required to have IPC integratedpollution control (IPC) licenses. This licensing system aims to prevent, eliminate or reducepollution from licensed activities. It is now about to be updated to meet the requirements ofthe EU Directive concerning Integrated Pollution Prevention and Control (IPPC). The centralrequirement of IPPC is that operators of industrial processes use the Best AvailableTechniques (BAT) to control polluting releases to all three environmental media (air, landand water) But unlike previous regulations, IPCC also requires that licensed activities shoulduse energy efficiently. Energy efficiency forms one of the general obligations on operators(Article 3), and represents one of the considerations to be taken into account whendetermining BAT (Annex IV). The exact interpretation of the energy efficiency requirementsis open to some debate (Smith & Sorrell, 2000). But it is clear that IPPC has the potential topush for significant improvements in energy efficiency in brewing and other targetedindustries. The outcome will depend on the specific licensing conditions that are introducedfor individual sites.

National-level measuresThe primary issues to be addressed by national policy are strict payback criteria, access tocapital, and limitations on management time. These types of barriers could occur in manydifferent sectors. With regard to strict criteria, there are three possible approaches:

• Energy pricing: One approach would be to influence the payback calculations so as tofavour greater energy efficiency, by means of higher taxes on energy inputs. This wouldcause the financial benefits for companies from reducing consumption of energy to beincreased.

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• Grants: Another approach would be again to influence the payback calculations so as tofavour greater energy efficiency, but to do so by means of greater financial assistancetowards the cost of investing in energy efficiency.

• Regulations: A third approach would be to over-ride companies’ payback criteria byimposing regulations, for example concerning energy efficiency standards or measures.The IPC licensing system may provide a means of doing this.

The relative merits of the various approaches mentioned above depend on administrativefeasibility, political acceptability, and issues concerning who is expected to bear the financialcost. The case studies do not in themselves provide guidance on identifying the bestapproach.

Table 5.7 The most important barriers in the Irish brewing sector and possible policyresponses.

Barrier to Energy Efficiency Policy ResponseHidden costs – primarily demandson management time

• Targeted information programmes,• Energy audits.• Companies could review allocation of management time.

Access to capital – arising mainlyfrom tight payback criteriaemployed by companies

IPPC licensing is due to be introduced.Energy taxes, subsidies for energy efficiency investmentCompanies could review their payback criteria.

Risk – business/market risk andtechnical risk

Measures suggested for “access to capital” are relevant here,since risk contributes to the access to capital barrier.

Principal-agent Measures suggested for “access to capital” are relevant here,since this contributes to the access to capital barrier.

Bounded rationality Measures suggested for “hidden costs” are relevant here.