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Issue on supply chain of renewable energy
Energy Conversion and Management 76 (2013) 774–780
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Energy Conversion and Management journal homepage: www.elsevier.com/locate/enconman
Issue on supply chain of renewable energy Federica Cucchiella ⇑, Idiano D’Adamo Department of Industrial and Information Engineering and Economics, University of L’Aquila, Via Giovanni Gronchi 18, Zona Industriale Pile, 67100 Aquila, Italy
a r t i c l e
i n f o
Article history: Received 7 May 2013 Accepted 12 July 2013
Keywords: Life Cycle Analysis Literature review Metrics Renewable energy Supply chain management Sustainability Triple bottom line
a b s t r a c t Actually, one of the most relevant debates, among both citizens that government, is related to energy and environmental issue. The development of renewable energy usage is due to several factors such as the political strategic decisions and geographical situation. Indeed the high development of renewable energies requires challenges from a supply chain point of view. In this paper, a thorough survey of the extant literature on the topic of supply chain (SC) and renewable energy (RE) has been conducted. English papers published on international peer-reviewed journals from 2003 to 2013 have been considered. Sustainable Supply Chain Management (SSCM) resolves the duality between environmental, economic and social aspects. Sustainable manufacturing practices play an essential role in promoting renewable energy development and commercialization; this will require significant changes to the industry’s traditional Supply Chain Management and business model. The aim of the paper is investigate literature insights useful to increase the performance and overcome barriers to the RE supply chain development. Like many typical supply chains, also supply chain related to RE includes elements such as: physical, information, and financial flows. The present research is useful to individualize characteristics of a RE supply chain. Moreover, the research is useful improve the performance of RE supply chain in some aspects like: better control supply chain costs to make renewable energy more affordable; manage supply chain to address weakened demand in the near term, and increase flexibility to handle anticipated rapid growth in the next 3–5 years; In so doing the present research has practical implications that make the results interesting for decision maker about optimal design of a system operating from one renewable energy sources. Moreover, the results are interesting for researchers since are individualized many sectors where it is necessary to proceed with additional research investigations. Ó 2013 Elsevier Ltd. All rights reserved.
1. Introduction In recent years several strategies has been implemented in different European Union (EU) countries to increase the share of electricity generation from renewable energy sources. The change in the makeup and structure of the power sector is determined by three key drivers: ageing infrastructure, security of supply and climate change. The EU heads of State and Government aims to contrast climate change and increase the EU’s energy security while strengthening its competitiveness through 20–20–20 targets [1,2]. A simplified market model is defined by Schellekens et al. [3]: Government policy, Investment & Finance, Market structure and Infrastructure & Planning are enabling areas; R&D, supply chains, Generation Capacity, Grid Capacity and Demand are delivery areas. ⇑ Corresponding author. E-mail addresses: [email protected] (F. Cucchiella), idiano.dadamo @univaq.it (I. D’Adamo). 0196-8904/$ - see front matter Ó 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.enconman.2013.07.081
In this paper the role of the supply chain is in focus. The field of Supply Chain Management (SCM) spans multiple interdisciplinary areas: business, industrial psychology, economics, operations research and organizational science [4]. So the interest in SCM related technologies continues to garner interest from a variety of research disciplines; in particular operations management, logistics and information systems [5]. Operations, purchasing and supply chain managers have seen the integration of environmental, economic and social issues; accordingly they have increased interest in SSCM [6,7]. The importance of supply chain in the renewable energy sector attracts the attention of both public and private actors. The first are concerned to respect the Protocol of Kyoto and to define the policy of subsidy, like green certificate trading and feed in tariffs. They want to stimulate technical progress so that RE technologies will be able to compete with other technologies. The second to gain the economic opportunities. They want help improve climate but
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Nomenclatures CO2 CFP CLSCM d EIN EOUT EOUT,GLB
carbon dioxide carbon footprint Closed-Loop Supply Chain Management degradation rate embodied energy of the system energy output of the system total energy output of the system during all of the life cycle EPBT Energy Payback Time EROI Energy Return on Investment ESCM Environmental Supply Chain Management F interest expenditures GHG/kW h Greenhouse Gas per kilowatthour GHGEM emission of life cycle photovoltaic electricity production GHGS GHG produced by the local power plant for the power generated by PV GHGSV,GLB annual GHG produced by the local power plant* GPBT Greenhouse Gas Payback Time GROI Greenhouse Gas Return on Investment
require, also, that the return on investment is greater than the opportunity cost of capital. This research builds on the body of theory building in SSCM and the article is organized in the following way: in Section 2 it begins with the definition of review scope and the conceptualization of research topic. That is followed by an analysis of the current literature (Section 3); it has been conducted with a specific focus on the year of publication, the nature and perspective of the articles, the interaction between several countries and type of RE used. In Section 4 the research’s results and implications are explored. In Section 5 are presented the results of the literature review on models adopted for supply chain analysis. Finally, limitations and future research opportunities are identified (Section 6).
2. A classification and conceptualization of the topic RE and SC have a central role in social and economic development at all scales, from families and communities at regional and national levels [2,8–10]. RE is a resource that is naturally regenerated over a short time scale and derived directly from the sun (such as thermal, photochemical, and photoelectric), indirectly from the sun (such as wind, hydropower, and photosynthetic energy stored in biomass), or from other natural movements and mechanisms of the environment (such as geothermal and tidal energy). RE does not include energy resources derived from fossil fuels, waste products from fossil sources or waste products from inorganic sources’’ [11]. Total investment in RE reached $257 billion in 2011, up from $220 billion in 2010. Recent estimates indicate that about 5 million people worldwide work either directly or indirectly in the RE industries: 22% in the European Union and 50% in bioenergy-sector [12]. Total contribution production from renewable energy sources, for all 27 European Union Member States, amounts to 639 TWh in 2010, with respect to 5 years before, this amount represents an increase of the overall renewable share of 33%. Looking at the overall estimated production from renewable energy sources, the growth rate will be of 41% from 2010 to 2015 and 35% from 2015 to 2020 [13].
GSCM I IBSAL LCA LCC LCOE M O PB r RE S SC SCM SCOPE SSCM T t
Green Supply Chain Management initial investment integrated biomass supply analysis and logistics Life Cycle Analysis Life Cycle Costing livelized cost of electricity Maintenance cost operation cost payback discount rate renewable energy yearly rated energy output supply chain Supply Chain Management supply chain optimization and planning for the environment sustainable Supply Chain Management life of the project Year
The Green economy is a new model of economic development in contrast to the current ‘‘black’’ economic model based on fossil fuels; it includes not only green energy, but also energy conservation for efficient energy use [14]. This economic model include several sectors as construction, transportation, sustainable energy, green manufacturing, reforestation, conservation and preservation activities, waste and water management. The global market may reach $2.74 trillion in 2020, increasing 100 percent over 2006 [15]. Renewable energy sources with other factors can increase health equity, reduce poverty and build societies that live within environmental limits [16,17]. The development challenges are complex, but largely fall into five categories: project economics, technical constraints, supply chain capacity, social effects, namely to amenity and aesthetics, and environmental impacts [2,18]. ‘‘The supply chain encompasses all activities associated with the flow and transformation of goods from raw materials stage (extraction), through to the end user, as well as the associated information flows. Material and information flow both up and down the supply chain. Supply Chain Management is the integration of these activities through improved supply chain relationships to achieve a sustainable competitive advantage’’ [19]. The firms aim to increase the effectiveness of the whole chain, by applying SCM principles. In fact improvements include: shortening lead times, flexibility, significantly lower total inventory and better customer orientation [20]. The literature was unable to unify around a generally accepted definition of Green Supply Chain Management (GSCM) [2,21]; however GSCM is often used interchangeably with the term Environmental Supply Chain Management (ESCM) [22,23]. A paper conceptualize a structural model of natural resource based GSCM, and its relationship, with an indication of cause and effect, to relevant performance measures and drivers [2]. ESCM considers how SCM can be viewed in the context of the environment; the SSCM properly expands its scope also to social and ethical issues [2,24]. Firms can achieve excellence in global supply chain performance through close connections and relationships with other parts in the chain [25]. Sustainability resolves the conflict between economic prosperity, environmental quality and social equity famously known as three dimensions (Triple Bottom Line, Fig. 1) [26]. In its broadest sense, Triple Bottom Line captures the spectrum of values that organizations must embrace to stay in
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5
4
15
10
9
Social
13 7
5
4
EQUITABLE
BEARABLE Sustainable
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fig. 2. Historical series of papers published.
Environment
Economic VIABLE
Fig. 1. Triple bottom line.
business as these issues are becoming increasingly important [27]. In this way it generates a competitive business advantage [28,29]. SSCM, understood as the integration of Supply Chain Management and environmental, social and economic issues, has received increasing interest in research and in corporations [6,7]. The incentives have encouraged the development of renewable energy, but Wee et al. suggest that are necessary actions on the generation and utilization of RE, as the improvement of distribution networks and the development of advanced storage technology. These two aspects are the major tasks in the RE supply chain [30–32]. Also the transition from local to global level requires the evaluation of other aspects as the quantity of energy required to be imported/exported and the locations of the plants [33,34]. These aspects are highlighted by [35] for which the SCM can focus on: Clean energy products and technologies developed in collaboration with suppliers. Partnering with suppliers to create energy efficient products for consumers. Product design and conservation of inputs such as energy and water. Due to recent trends in environmental legislation, closed-loop systems are becoming increasingly important not only for countries and regions, but also for firms that have to fulfill product responsibilities [36]. Therefore, SCM has to be extended to Closed-Loop Supply Chain Management (CLSCM [37]). 3. Research methodology and framework of analysis In a systematic review of the literature current findings are discussed in relation to a particular research question. After a deeply research, in order to select documents to be analyzed, are been evaluated all scientific papers, selected by web-based tool Google™ Scholar, Web of Science and Science Direct that include the most popular engines of academic search [38]. Are been evaluated all scientific works, published between 2003 and 2013 (only January), provided by advanced search finding on the exact phrase ‘‘renewable energy and supply chain’’ in all parts of the articles and by their combination in title, abstract and keywords of papers. In Fig. 2 the result of the search process in terms of number of papers published for year is displayed. The considerable number of total papers (no. 104) reveals the considerable attention devoted to topic in the last years. The papers are hosted on a total number of 47 scientific journals, 13 proceedings of scientific conferences and 9 scientific reports. The trend shows increasing attention to the topic, evidenced by the value of 2012 and the initial value of 2013. These analysis was
focused on the geographical expression of the interest on the base of the country where the institution of the first author is based (Fig. 3). USA are the major contributor with 27 papers (26%) followed by European Nation (59%) like United Kingdom (no 14), Germany (no 7), Italy and Greece (no 5). Asian scholars seem to be less involved in this field of study (12%), although China attracted $52 of global investment during 2011, making it the leader for the third year in a row [39]. The selected papers are focused on various aspects of renewable energy and supply chain. The papers can analyzed according different point of view [20,40,41]: nature of methodology qualitative (61%) and/or quantitative (20%) – Fig. 4. Within the first category are relevant case studies (75%), while within the second category are relevant mathematics (39%) and hybrid combined models (37%); several different perspectives from which the topic of has been approached (methodological 19%, environmental 14%, political 13%, technological 13%, economic 12%) – Fig. 5. For this reason scientific journals hosting papers on this problem refer to various research fields and scientific areas. Despite the number of journals publishing papers on the RE and SC, it is possible to individuate a subset of journals which host the most significant number of contributions. Fig. 6 shows the top six class of contributors which account for 88 papers (85% of the total number), these were defined by the name of journal. Finally the research methodology concludes with the classification of papers by type of renewable source used (Fig. 7). It is important to note that the views of 74% of papers looking at specific RE, particularly bioenergy (45%) wind and solar photovoltaic (each 6%). In particular focusing on specific aspects of supply chain shows that only 15% of paper analyzes them: logistics and design (no. 16). It is therefore now possible to analyze the models and after defining main characteristics.
4. Literature review metrics used in supply chains’ analysis In this section are been presented the quantitative indexes that only in recent years, are been individualized for evaluate the efficiency of a supply chain. In the next section a literature review
Other World Netherlands Hungary Other Asia China Italy Greece Germany UK
Other Europe USA
4 5 5 6 6 6 6 7 14 18 27 Fig. 3. Papers published for country.
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Papers published
Quantitative
21
104
Mix (includes both)
Mathematics Hybrid combined models Artificial intelligence Statistics
16 15 7 3
777
20
Qualitative
Case studies Framework Focus groups
63
62 15 6
Fig. 4. Papers published for nature of methodology.
Economic Technological Political Environmental
12 14 14 15
Methodological Mix (includes several perspectives)
20 29
Fig. 5. Papers published for research perspectives.
Management
6
Technologic
6
Environment
9
Chemistry
13
Renewable
20
Energy
34
Fig. 6. Top six class of contributors for publications.
Raw Materials Hydrogen Solar PV Wind Framework Energy Bioenergy
4 4 6 6 8
supply chain planning is frequently proposed. The incongruence between incentives of the firms involved in the supply chain and overall supply chain objectives, a decentralized solution can be more effective [43]. A methodology used in SSCM is the Life Cycle Analysis (LCA) which represents an important tool for the decision maker to establish the investment strategy. It is characterized by two important components: LCA and Life Cycle Costing (LCC). In particular, LCA considers the total amount of CO2 and other greenhouse gases emitted during life cycle of a process, leading the possibility to define the benefits arising from the use of renewable. LCC defines if the return on investment is greater than the opportunity cost of capital [23,44,45]. The traditional separation of LCA from economic analysis has limited the influence and relevance of LCA for decision making [46]. Life Cycle Analysis represents an important methodology for a complete assessment of the product impacts. Furthermore, it leads to avoid that the interventions are finalized only to shift the problem from a stage to another or from one environmental compartment to another. Therefore, the renewable energy sources could play an important role in the sustainability of energy systems although at the present their contribution is marginal in countries energy balances. The use of appropriate metrics for determining the goodness of an energy system is a critical phase of decision making. Metrics used in previous comparisons of energy technology are several:
27 45
Fig. 7. Papers published for type of renewable energy used.
of the models, also based on these quantitative indexes, is presented. The creation of energy scenarios involves three steps [42]: (1) determining the activities in the target society that involves energy of one or another form; (2) determining the available energy resources in the society in question; (3) matching demand and supply under consideration of the energy forms needed; signaling unused surpluses that may be exported from the society in consideration, or deficits that have to be imported. The supply chain can achieve improvements both in terms of efficiency and effectiveness, in fact has been found to impact up to 25% of manufacturing costs [19]. In literature and in commercial Supply Chain Management systems, a centralized approach to
Energy Payback Time (EPBT) is the time in which the energy input during the system life-cycle is compensated by electricity generated by the system [27,44].
EPBT ¼
EIN EOUT
ð1Þ
where EIN is the embodied energy of the system; EOUT is the annual energy output of the system. Energy Return on Investment (EROI) measures how much energy is gained after accounting for the energy required to produce a unit of the energy in question [44,47].
EROI ¼
EOUT;GLB EIN
ð2Þ
where EOUT,GLB is the total energy output of the system during all of the life cycle. Greenhouse Gas per kilowatthour (GHG/kW h) is the total amount of CO2 equivalent emitted over the full life cycle of a system divided the total kW h output by the system [44,48].
GHG=kWh ¼
GHGEM EOUT;GLB
ð3Þ
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where GHGEM is the emissions of the technology determined through LCA. Greenhouse Gas Payback Time (GPBT) is the time in which the GHG emissions during the system life-cycle are compensated by GHG saved by alternative installation [44,49].
GPBT ¼
GHGEM GHGSV
ð4Þ
where the GHGS is the annual emissions saved by the power generated by the renewable system and not by fossil fuels. Greenhouse Gas Return on Investment (GROI) indicates the GHG emissions saved for every unit of GHG emitted [44,50].
GROI ¼
GHGSV;GLB GHGEM
ð5Þ
where GHGSV,GLB is the total emissions saved by installing new electricity capacity. Payback (PB) analysis determines the Break-Even Point when an investment cost and the carbon footprint (CFP) from the construction will generate a positive return [44,51].
PBCFP ¼
CCFP CFP CFP
ð6Þ
PBcost ¼
CC FS þ CT
ð7Þ
where PBCFP is the CFP payback; PBcost is the cost payback; CCFP is the construction CFP; CFP is the total amount of CO2 and other greenhouse gases emitted during life cycle of a process; CFP* is the CFP of the new road; CC is the cost of new road construction; FS is the cost saving from fuel due to the shorter distance; and CT is carbon tax for the diesel. Levelized Cost of Electricity (LCOE) is the net present value of total life cycle costs of the project divided by the quantity of energy produced over the system life [52,53].
PT LCOE ¼
t¼0 ðI t
PT
þ M t þ F t Þ=ð1 þ rÞt
t¼0 St ð1
t
dÞ =ð1 þ rÞt
ð8Þ
where T is the life of the project; t is the year; I is the initial investment; M is the maintenance cost; O is the operation cost; F is the
Fig. 8. Models of supply chain’s analysis.
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interest expenditures; r is the discount rate; S is the yearly rated energy output; and d is degradation rate. On the application of quantitative indexes and RE, it is to underline that some analyses are presented on sustainability of a photovoltaic residential system [23,44], specifically: EPBT, EROI, GHG/kW h, GPBT and GROI are the metrics used for environmental and energy assessments; Analysis Cost-Benefit, Net Present Value, Internal Rate of Return and Payback Period are the indicators used for financial, social and economic results. The use of appropriate metrics for determining the goodness of an energy system is a critical phase of decision making. So if the aim is to assess the sustainability that energy recovery could produce by diverting waste from landfills [2,54–56]: Mathematic Model, Multi-Criteria Analysis and Cost Analysis are used for the localization of plants and for the choice between a centralized or decentralized solution. Analysis Cost-Benefit, Net Present Value, Internal Rate of Return, Payback Period, Waste Valorization, CO2 Emissions Avoided are the indicators used for financial, social, economic and environmental results. An increasing attention around renewable energies and supply chain, is verified by the analysis conducted in solar photovoltaic, biomass, hydrogen, bioethanol and wind sector.
5. Literature review models of supply chains’ analysis The increasing attention around renewable energies and supply chain, is verified by the analysis conducted in solar photovoltaic, biomass, hydrogen, bioethanol and wind sector. In Fig. 8 are summarized characteristic, limit and results of these analysis. Supply Chain Optimization and Planning for the Environment (SCOPE) [49] is a flexible tool, well suited to define the trade-off environmental between supplier location and transportation. However, the same authors [57] propose improvement in both environmental (e.g. including acidification potential) and economic perspective (including costs in SCOPE). They define that GROI and EROI are useful for analysis of new energy systems if greenhouse gases or energy balances, respectively, are the concern. The model proposed by Lam et al. [58,59] is flexible with the aim to integrate other type of renewable sources into the energy supply chain and to minimize the system carbon footprint. Payback analysis goes to a more detailed level than GROI and EROI. However, also in this paper environmental impacts are not split. Rajkumar et al. [60] develop a dynamic model (Integrated biomass supply analysis and logistics-IBSAL) to quantify resource allocations for biomass supply and transport operations. They evaluate the production cost and GHG emissions produced by switchgrass delivery to a biorefinery. Kim et al. [61] analyze the design problem of the hydrogen supply chain consisting of various activities such as production, storage and transportation through a stochastic model. They examine the total network costs of various configurations of a hydrogen supply chain in an uncertain environment for hydrogen demand. Dunnett et al. [62] value, instead, the trade-off between biomass supply and ethanol demand, but performance indicators are not offered. The framework is flexible and can thus accommodate a range of processing tasks, logistical modes, by-product markets and impacting policy constraints.
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Blanco [63] looks into the supply chain constraints into that affect the wind energy sector; in fact, the booming demand for this RE is not accompanied by an adequate supply. The author proposes a range of current generation costs of wind energy investments. The paper has also assessed the roles and tendencies of its individual cost components, the usefulness of learning curves as a tool to predict the long-term cost reduction potential of this industry and the role of public policies. The learning curves do not capture expected behavioral and structural changes of the industry and they do not separate the influence of external variables from the internal factors. 6. Conclusion The analysis of the papers highlighted that the topic is timely, relevant and multidisciplinary; the percentage of several perspectives (methodological, environmental, political, technological and economic) is the same. There is a limited use of quantitative methodologies and these are essential for the correct choice of energy policies; the link between renewable energy and supply chain should be carefully analyzed. Future studies are needed to demonstrate the strategic role of supply chain in the renewable sector through real application with quantitative methodology. The conclusions of the paper are concentrated on the supply chain of renewable energy in terms of environment and profitability and it proposes the methodology of Life Cycle Analysis to give a quantitative and complete assessment of the products of renewable resources taking account of both public benefits and personal investment cost. The potential of renewable energy is significant and many actions could be implemented. From an economic perspective foster the competitive market and the research in this sector, by technological side promote the network of distribution, the advanced storage and the energy efficiency, by environmental vision develop production processes with a low carbon footprint and encourage the reuse, the recycling and the energy recovery of all elements and finally by social point of view promote the participation of citizens and create new job opportunities. In conclusion, the benefit of implementing a sustainable supply chain is that we can improve the profitability of our company and help the environment. Green can not only be profitable, but the right thing to do. References [1] European Commission. What is the EU doing on climate change? available at. [2] Shi VG, Koh SCL, Baldwin J, Cucchiella F. Natural resource based green supply chain management. Supply Chain Manage 2012;17:54–67. [3] G. Schellekens, A. Battaglini, A. Patt, J. Lilliestam, J. McDonnell. 100% renewable electricity, a roadmap to 2050 for Europe and North Africa. PwC, UK, 2010. [4] Handfield RB, Bechtel C. Trust, power, dependence, and economics: can SCM research borrow paradigms? Int J Integr Supply Manage 2004;1:3–32. [5] Boone CA, Drake JR, Bohler JA, Craighead CW. Supply chain management technology: a review of empirical literature and research agenda. Int J Integr Supply Manage 2007;3:105–24. [6] Seuring S, Muller M. From a literature review to a conceptual framework for sustainable supply chain management. J Cleaner Prod 2008;16:1699–710. [7] Carter C, Rogers DS. A framework of sustainable supply chain management: moving toward new theory. Int J Phys Distrib Logist Manage 2008;38:360–87. [8] Gereffi G, Lee J. Why the world suddenly cares about global supply chains. J Supply Chain Manage 2012;48:24–32. [9] Cucchiella F, D’Adamo I, Gastaldi M. Modeling optimal investments with portfolio analysis in electricity markets. Energy Educ Sci Technol Part A: Energy Sci Res 2012;30:673–92. [10] Cucchiella F, Koh L. Green supply chain: how do carbon management and sustainable development create competitive advantage for the supply chain. Supply Chain Manage 2012;17. [11] Johansson TB, Kelly H, Reddy AKN, Williams RH. Renewable energy: sources for fuels and electricity. Washington (DC): Island Press; 1993.
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[38] Webster J, Watson RT. Analyzing the past to prepare for the future: writing a literature review. MIS Quarterly 2002;26:xiii–xxiii. [39] REN 21. Renewables 2011 Global Status Report. available at. [40] Bruno G, Esposito E, Genovese A, Passaro R. AHP based methodologies for supplier selection: a critical review. In: Proceedings of the international symposium on the analytic hierarchy process 2011, Sorrento, Naples; 2011. [41] Ha SH, Krishnan R. A hybrid approach to supplier selection for the maintenance of a competitive supply chain. Expert Syst Appl 2008;34:1303–11. [42] Sørensen B. A sustainable energy future: construction of demand and renewable energy supply scenarios. Int J Energy Res 2008;32:436–70. [43] Pibernik R, Sucky E. Centralised and decentralised supply chain planning. Int J Integr Supply Manage 2005;2:6–27. [44] Cucchiella F, D’adamo I. Estimation of the energetic and environmental impacts of a roof-mounted building-integrated photovoltaic systems. Renew Sustain Energy Rev 2012;16:5245–59. [45] Hervani AA, Helms MM, Sarkis J. Performance measurement for green supply chain management. Benchmarking: An Int J 2005;12:330–53. [46] Norris GA. Integrating life cycle cost analysis and LCA the international journal of life cycle assessment 2008;6:118–20. [47] Kaufmann R, Cleveland CJ. Environmental science. Boston: McGraw Hill; 2007. [48] Fthenakis V, Alsema E. Photovoltaics energy payback times, greenhouse gas emissions and external costs. Prog Photovoltaics Res Appl 2006;14:275–80. [49] Reich-Weiser C, Fletcher T, Dornfeld D, Horne S. Development of the supply chain optimization and planning for the environment (SCOPE) Tool – applied to solar energy. In: IEEE international symposium on electronics and the environment, San Francisco; 2008. [50] Reich-Weiser C, Dornfeld D, Horne S. Greenhouse gas return on investment: a new metric for energy technologies. In: 15th international CIRP conference on life cycle engineering, Australia; 2008. [51] Klemeš JJ, Stehlíkb P, Worrell E. Waste treatment to improve recycling and minimise environmental impact Resources. Conserv Recycl 2010;54:267–70. [52] Branker K, Pathak MJM, Pearce JM. A review of solar photovoltaic levelized cost of electricity. Renew Sustain Energy Rev 2011;15:4470–82. [53] Fischer B, Pigneri A. Potential for electrification from biomass gasification in Vanuatu. Energy 2011;36:1640–51. [54] Cucchiella F, D’Adamo I, Gastaldi M. A multi-objective optimization strategy for energy plants in Italy. Sci Total Environ 2013;443:955–64. [55] Cucchiella F, D’Adamo I, Gastaldi M. Municipal waste management and energy recovery in an Italian region. Waste Manage Res 2012;30:1290–8. [56] Cucchiella F, D’Adamo I, Gastaldi M, Lenny S,C. A photovoltaic system in a residential building: Environmental and economic optimization analysis, SCMIS 2010 - Proceedings of 2010 8th International Conference on Supply Chain Management and Information Systems: Logistics Systems and Engineering, Article number 5681782, Hong Kong; China; 6-8 October 2010. [57] Reich-Weiser C, Fletcher T, Dornfeld D, Horne S. Development of the supply chain optimization and planning for the environment (SCOPE) Tool - Applied to Solar Energy 2008. [58] Lam HL, Varbanov P, Klemes J. Minimising carbon footprint of regional biomass supply chains. Resour Conserv Recycl 2010;54:303–9. [59] Lam HL, Varbanov PS, Klemeš JJ. Optimisation of regional energy supply chains utilising renewables: P-graph approach. Comput Chem Eng 2010;34:782–92. [60] Koh SCL, Gunasekaran A, Rajkumar D. ERPII: The involvement, benefits and impediments of collaborative information sharing. International Journal of Production Economics 2008;113:245–68. [61] Kim J, Lee Y, Moon I. Optimization of a hydrogen supply chain under demand uncertainty. Int J Hydrog Energy 2008;33:4715–29. [62] Dunnett AJ, Adjiman CS, Shah N. A spatially explicit whole-system model of the lignocellulosic bioethanol supply chain: an assessment of decentralised processing potential. Biotechnol Biofuels 2008;1. [63] Blanco MI. The economics of wind energy. Renew Sustain Energy Rev 2009;13:1372–82.
Contents lists available at ScienceDirect
Energy Conversion and Management journal homepage: www.elsevier.com/locate/enconman
Issue on supply chain of renewable energy Federica Cucchiella ⇑, Idiano D’Adamo Department of Industrial and Information Engineering and Economics, University of L’Aquila, Via Giovanni Gronchi 18, Zona Industriale Pile, 67100 Aquila, Italy
a r t i c l e
i n f o
Article history: Received 7 May 2013 Accepted 12 July 2013
Keywords: Life Cycle Analysis Literature review Metrics Renewable energy Supply chain management Sustainability Triple bottom line
a b s t r a c t Actually, one of the most relevant debates, among both citizens that government, is related to energy and environmental issue. The development of renewable energy usage is due to several factors such as the political strategic decisions and geographical situation. Indeed the high development of renewable energies requires challenges from a supply chain point of view. In this paper, a thorough survey of the extant literature on the topic of supply chain (SC) and renewable energy (RE) has been conducted. English papers published on international peer-reviewed journals from 2003 to 2013 have been considered. Sustainable Supply Chain Management (SSCM) resolves the duality between environmental, economic and social aspects. Sustainable manufacturing practices play an essential role in promoting renewable energy development and commercialization; this will require significant changes to the industry’s traditional Supply Chain Management and business model. The aim of the paper is investigate literature insights useful to increase the performance and overcome barriers to the RE supply chain development. Like many typical supply chains, also supply chain related to RE includes elements such as: physical, information, and financial flows. The present research is useful to individualize characteristics of a RE supply chain. Moreover, the research is useful improve the performance of RE supply chain in some aspects like: better control supply chain costs to make renewable energy more affordable; manage supply chain to address weakened demand in the near term, and increase flexibility to handle anticipated rapid growth in the next 3–5 years; In so doing the present research has practical implications that make the results interesting for decision maker about optimal design of a system operating from one renewable energy sources. Moreover, the results are interesting for researchers since are individualized many sectors where it is necessary to proceed with additional research investigations. Ó 2013 Elsevier Ltd. All rights reserved.
1. Introduction In recent years several strategies has been implemented in different European Union (EU) countries to increase the share of electricity generation from renewable energy sources. The change in the makeup and structure of the power sector is determined by three key drivers: ageing infrastructure, security of supply and climate change. The EU heads of State and Government aims to contrast climate change and increase the EU’s energy security while strengthening its competitiveness through 20–20–20 targets [1,2]. A simplified market model is defined by Schellekens et al. [3]: Government policy, Investment & Finance, Market structure and Infrastructure & Planning are enabling areas; R&D, supply chains, Generation Capacity, Grid Capacity and Demand are delivery areas. ⇑ Corresponding author. E-mail addresses: [email protected] (F. Cucchiella), idiano.dadamo @univaq.it (I. D’Adamo). 0196-8904/$ - see front matter Ó 2013 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.enconman.2013.07.081
In this paper the role of the supply chain is in focus. The field of Supply Chain Management (SCM) spans multiple interdisciplinary areas: business, industrial psychology, economics, operations research and organizational science [4]. So the interest in SCM related technologies continues to garner interest from a variety of research disciplines; in particular operations management, logistics and information systems [5]. Operations, purchasing and supply chain managers have seen the integration of environmental, economic and social issues; accordingly they have increased interest in SSCM [6,7]. The importance of supply chain in the renewable energy sector attracts the attention of both public and private actors. The first are concerned to respect the Protocol of Kyoto and to define the policy of subsidy, like green certificate trading and feed in tariffs. They want to stimulate technical progress so that RE technologies will be able to compete with other technologies. The second to gain the economic opportunities. They want help improve climate but
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Nomenclatures CO2 CFP CLSCM d EIN EOUT EOUT,GLB
carbon dioxide carbon footprint Closed-Loop Supply Chain Management degradation rate embodied energy of the system energy output of the system total energy output of the system during all of the life cycle EPBT Energy Payback Time EROI Energy Return on Investment ESCM Environmental Supply Chain Management F interest expenditures GHG/kW h Greenhouse Gas per kilowatthour GHGEM emission of life cycle photovoltaic electricity production GHGS GHG produced by the local power plant for the power generated by PV GHGSV,GLB annual GHG produced by the local power plant* GPBT Greenhouse Gas Payback Time GROI Greenhouse Gas Return on Investment
require, also, that the return on investment is greater than the opportunity cost of capital. This research builds on the body of theory building in SSCM and the article is organized in the following way: in Section 2 it begins with the definition of review scope and the conceptualization of research topic. That is followed by an analysis of the current literature (Section 3); it has been conducted with a specific focus on the year of publication, the nature and perspective of the articles, the interaction between several countries and type of RE used. In Section 4 the research’s results and implications are explored. In Section 5 are presented the results of the literature review on models adopted for supply chain analysis. Finally, limitations and future research opportunities are identified (Section 6).
2. A classification and conceptualization of the topic RE and SC have a central role in social and economic development at all scales, from families and communities at regional and national levels [2,8–10]. RE is a resource that is naturally regenerated over a short time scale and derived directly from the sun (such as thermal, photochemical, and photoelectric), indirectly from the sun (such as wind, hydropower, and photosynthetic energy stored in biomass), or from other natural movements and mechanisms of the environment (such as geothermal and tidal energy). RE does not include energy resources derived from fossil fuels, waste products from fossil sources or waste products from inorganic sources’’ [11]. Total investment in RE reached $257 billion in 2011, up from $220 billion in 2010. Recent estimates indicate that about 5 million people worldwide work either directly or indirectly in the RE industries: 22% in the European Union and 50% in bioenergy-sector [12]. Total contribution production from renewable energy sources, for all 27 European Union Member States, amounts to 639 TWh in 2010, with respect to 5 years before, this amount represents an increase of the overall renewable share of 33%. Looking at the overall estimated production from renewable energy sources, the growth rate will be of 41% from 2010 to 2015 and 35% from 2015 to 2020 [13].
GSCM I IBSAL LCA LCC LCOE M O PB r RE S SC SCM SCOPE SSCM T t
Green Supply Chain Management initial investment integrated biomass supply analysis and logistics Life Cycle Analysis Life Cycle Costing livelized cost of electricity Maintenance cost operation cost payback discount rate renewable energy yearly rated energy output supply chain Supply Chain Management supply chain optimization and planning for the environment sustainable Supply Chain Management life of the project Year
The Green economy is a new model of economic development in contrast to the current ‘‘black’’ economic model based on fossil fuels; it includes not only green energy, but also energy conservation for efficient energy use [14]. This economic model include several sectors as construction, transportation, sustainable energy, green manufacturing, reforestation, conservation and preservation activities, waste and water management. The global market may reach $2.74 trillion in 2020, increasing 100 percent over 2006 [15]. Renewable energy sources with other factors can increase health equity, reduce poverty and build societies that live within environmental limits [16,17]. The development challenges are complex, but largely fall into five categories: project economics, technical constraints, supply chain capacity, social effects, namely to amenity and aesthetics, and environmental impacts [2,18]. ‘‘The supply chain encompasses all activities associated with the flow and transformation of goods from raw materials stage (extraction), through to the end user, as well as the associated information flows. Material and information flow both up and down the supply chain. Supply Chain Management is the integration of these activities through improved supply chain relationships to achieve a sustainable competitive advantage’’ [19]. The firms aim to increase the effectiveness of the whole chain, by applying SCM principles. In fact improvements include: shortening lead times, flexibility, significantly lower total inventory and better customer orientation [20]. The literature was unable to unify around a generally accepted definition of Green Supply Chain Management (GSCM) [2,21]; however GSCM is often used interchangeably with the term Environmental Supply Chain Management (ESCM) [22,23]. A paper conceptualize a structural model of natural resource based GSCM, and its relationship, with an indication of cause and effect, to relevant performance measures and drivers [2]. ESCM considers how SCM can be viewed in the context of the environment; the SSCM properly expands its scope also to social and ethical issues [2,24]. Firms can achieve excellence in global supply chain performance through close connections and relationships with other parts in the chain [25]. Sustainability resolves the conflict between economic prosperity, environmental quality and social equity famously known as three dimensions (Triple Bottom Line, Fig. 1) [26]. In its broadest sense, Triple Bottom Line captures the spectrum of values that organizations must embrace to stay in
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5
4
15
10
9
Social
13 7
5
4
EQUITABLE
BEARABLE Sustainable
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Fig. 2. Historical series of papers published.
Environment
Economic VIABLE
Fig. 1. Triple bottom line.
business as these issues are becoming increasingly important [27]. In this way it generates a competitive business advantage [28,29]. SSCM, understood as the integration of Supply Chain Management and environmental, social and economic issues, has received increasing interest in research and in corporations [6,7]. The incentives have encouraged the development of renewable energy, but Wee et al. suggest that are necessary actions on the generation and utilization of RE, as the improvement of distribution networks and the development of advanced storage technology. These two aspects are the major tasks in the RE supply chain [30–32]. Also the transition from local to global level requires the evaluation of other aspects as the quantity of energy required to be imported/exported and the locations of the plants [33,34]. These aspects are highlighted by [35] for which the SCM can focus on: Clean energy products and technologies developed in collaboration with suppliers. Partnering with suppliers to create energy efficient products for consumers. Product design and conservation of inputs such as energy and water. Due to recent trends in environmental legislation, closed-loop systems are becoming increasingly important not only for countries and regions, but also for firms that have to fulfill product responsibilities [36]. Therefore, SCM has to be extended to Closed-Loop Supply Chain Management (CLSCM [37]). 3. Research methodology and framework of analysis In a systematic review of the literature current findings are discussed in relation to a particular research question. After a deeply research, in order to select documents to be analyzed, are been evaluated all scientific papers, selected by web-based tool Google™ Scholar, Web of Science and Science Direct that include the most popular engines of academic search [38]. Are been evaluated all scientific works, published between 2003 and 2013 (only January), provided by advanced search finding on the exact phrase ‘‘renewable energy and supply chain’’ in all parts of the articles and by their combination in title, abstract and keywords of papers. In Fig. 2 the result of the search process in terms of number of papers published for year is displayed. The considerable number of total papers (no. 104) reveals the considerable attention devoted to topic in the last years. The papers are hosted on a total number of 47 scientific journals, 13 proceedings of scientific conferences and 9 scientific reports. The trend shows increasing attention to the topic, evidenced by the value of 2012 and the initial value of 2013. These analysis was
focused on the geographical expression of the interest on the base of the country where the institution of the first author is based (Fig. 3). USA are the major contributor with 27 papers (26%) followed by European Nation (59%) like United Kingdom (no 14), Germany (no 7), Italy and Greece (no 5). Asian scholars seem to be less involved in this field of study (12%), although China attracted $52 of global investment during 2011, making it the leader for the third year in a row [39]. The selected papers are focused on various aspects of renewable energy and supply chain. The papers can analyzed according different point of view [20,40,41]: nature of methodology qualitative (61%) and/or quantitative (20%) – Fig. 4. Within the first category are relevant case studies (75%), while within the second category are relevant mathematics (39%) and hybrid combined models (37%); several different perspectives from which the topic of has been approached (methodological 19%, environmental 14%, political 13%, technological 13%, economic 12%) – Fig. 5. For this reason scientific journals hosting papers on this problem refer to various research fields and scientific areas. Despite the number of journals publishing papers on the RE and SC, it is possible to individuate a subset of journals which host the most significant number of contributions. Fig. 6 shows the top six class of contributors which account for 88 papers (85% of the total number), these were defined by the name of journal. Finally the research methodology concludes with the classification of papers by type of renewable source used (Fig. 7). It is important to note that the views of 74% of papers looking at specific RE, particularly bioenergy (45%) wind and solar photovoltaic (each 6%). In particular focusing on specific aspects of supply chain shows that only 15% of paper analyzes them: logistics and design (no. 16). It is therefore now possible to analyze the models and after defining main characteristics.
4. Literature review metrics used in supply chains’ analysis In this section are been presented the quantitative indexes that only in recent years, are been individualized for evaluate the efficiency of a supply chain. In the next section a literature review
Other World Netherlands Hungary Other Asia China Italy Greece Germany UK
Other Europe USA
4 5 5 6 6 6 6 7 14 18 27 Fig. 3. Papers published for country.
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Papers published
Quantitative
21
104
Mix (includes both)
Mathematics Hybrid combined models Artificial intelligence Statistics
16 15 7 3
777
20
Qualitative
Case studies Framework Focus groups
63
62 15 6
Fig. 4. Papers published for nature of methodology.
Economic Technological Political Environmental
12 14 14 15
Methodological Mix (includes several perspectives)
20 29
Fig. 5. Papers published for research perspectives.
Management
6
Technologic
6
Environment
9
Chemistry
13
Renewable
20
Energy
34
Fig. 6. Top six class of contributors for publications.
Raw Materials Hydrogen Solar PV Wind Framework Energy Bioenergy
4 4 6 6 8
supply chain planning is frequently proposed. The incongruence between incentives of the firms involved in the supply chain and overall supply chain objectives, a decentralized solution can be more effective [43]. A methodology used in SSCM is the Life Cycle Analysis (LCA) which represents an important tool for the decision maker to establish the investment strategy. It is characterized by two important components: LCA and Life Cycle Costing (LCC). In particular, LCA considers the total amount of CO2 and other greenhouse gases emitted during life cycle of a process, leading the possibility to define the benefits arising from the use of renewable. LCC defines if the return on investment is greater than the opportunity cost of capital [23,44,45]. The traditional separation of LCA from economic analysis has limited the influence and relevance of LCA for decision making [46]. Life Cycle Analysis represents an important methodology for a complete assessment of the product impacts. Furthermore, it leads to avoid that the interventions are finalized only to shift the problem from a stage to another or from one environmental compartment to another. Therefore, the renewable energy sources could play an important role in the sustainability of energy systems although at the present their contribution is marginal in countries energy balances. The use of appropriate metrics for determining the goodness of an energy system is a critical phase of decision making. Metrics used in previous comparisons of energy technology are several:
27 45
Fig. 7. Papers published for type of renewable energy used.
of the models, also based on these quantitative indexes, is presented. The creation of energy scenarios involves three steps [42]: (1) determining the activities in the target society that involves energy of one or another form; (2) determining the available energy resources in the society in question; (3) matching demand and supply under consideration of the energy forms needed; signaling unused surpluses that may be exported from the society in consideration, or deficits that have to be imported. The supply chain can achieve improvements both in terms of efficiency and effectiveness, in fact has been found to impact up to 25% of manufacturing costs [19]. In literature and in commercial Supply Chain Management systems, a centralized approach to
Energy Payback Time (EPBT) is the time in which the energy input during the system life-cycle is compensated by electricity generated by the system [27,44].
EPBT ¼
EIN EOUT
ð1Þ
where EIN is the embodied energy of the system; EOUT is the annual energy output of the system. Energy Return on Investment (EROI) measures how much energy is gained after accounting for the energy required to produce a unit of the energy in question [44,47].
EROI ¼
EOUT;GLB EIN
ð2Þ
where EOUT,GLB is the total energy output of the system during all of the life cycle. Greenhouse Gas per kilowatthour (GHG/kW h) is the total amount of CO2 equivalent emitted over the full life cycle of a system divided the total kW h output by the system [44,48].
GHG=kWh ¼
GHGEM EOUT;GLB
ð3Þ
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where GHGEM is the emissions of the technology determined through LCA. Greenhouse Gas Payback Time (GPBT) is the time in which the GHG emissions during the system life-cycle are compensated by GHG saved by alternative installation [44,49].
GPBT ¼
GHGEM GHGSV
ð4Þ
where the GHGS is the annual emissions saved by the power generated by the renewable system and not by fossil fuels. Greenhouse Gas Return on Investment (GROI) indicates the GHG emissions saved for every unit of GHG emitted [44,50].
GROI ¼
GHGSV;GLB GHGEM
ð5Þ
where GHGSV,GLB is the total emissions saved by installing new electricity capacity. Payback (PB) analysis determines the Break-Even Point when an investment cost and the carbon footprint (CFP) from the construction will generate a positive return [44,51].
PBCFP ¼
CCFP CFP CFP
ð6Þ
PBcost ¼
CC FS þ CT
ð7Þ
where PBCFP is the CFP payback; PBcost is the cost payback; CCFP is the construction CFP; CFP is the total amount of CO2 and other greenhouse gases emitted during life cycle of a process; CFP* is the CFP of the new road; CC is the cost of new road construction; FS is the cost saving from fuel due to the shorter distance; and CT is carbon tax for the diesel. Levelized Cost of Electricity (LCOE) is the net present value of total life cycle costs of the project divided by the quantity of energy produced over the system life [52,53].
PT LCOE ¼
t¼0 ðI t
PT
þ M t þ F t Þ=ð1 þ rÞt
t¼0 St ð1
t
dÞ =ð1 þ rÞt
ð8Þ
where T is the life of the project; t is the year; I is the initial investment; M is the maintenance cost; O is the operation cost; F is the
Fig. 8. Models of supply chain’s analysis.
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interest expenditures; r is the discount rate; S is the yearly rated energy output; and d is degradation rate. On the application of quantitative indexes and RE, it is to underline that some analyses are presented on sustainability of a photovoltaic residential system [23,44], specifically: EPBT, EROI, GHG/kW h, GPBT and GROI are the metrics used for environmental and energy assessments; Analysis Cost-Benefit, Net Present Value, Internal Rate of Return and Payback Period are the indicators used for financial, social and economic results. The use of appropriate metrics for determining the goodness of an energy system is a critical phase of decision making. So if the aim is to assess the sustainability that energy recovery could produce by diverting waste from landfills [2,54–56]: Mathematic Model, Multi-Criteria Analysis and Cost Analysis are used for the localization of plants and for the choice between a centralized or decentralized solution. Analysis Cost-Benefit, Net Present Value, Internal Rate of Return, Payback Period, Waste Valorization, CO2 Emissions Avoided are the indicators used for financial, social, economic and environmental results. An increasing attention around renewable energies and supply chain, is verified by the analysis conducted in solar photovoltaic, biomass, hydrogen, bioethanol and wind sector.
5. Literature review models of supply chains’ analysis The increasing attention around renewable energies and supply chain, is verified by the analysis conducted in solar photovoltaic, biomass, hydrogen, bioethanol and wind sector. In Fig. 8 are summarized characteristic, limit and results of these analysis. Supply Chain Optimization and Planning for the Environment (SCOPE) [49] is a flexible tool, well suited to define the trade-off environmental between supplier location and transportation. However, the same authors [57] propose improvement in both environmental (e.g. including acidification potential) and economic perspective (including costs in SCOPE). They define that GROI and EROI are useful for analysis of new energy systems if greenhouse gases or energy balances, respectively, are the concern. The model proposed by Lam et al. [58,59] is flexible with the aim to integrate other type of renewable sources into the energy supply chain and to minimize the system carbon footprint. Payback analysis goes to a more detailed level than GROI and EROI. However, also in this paper environmental impacts are not split. Rajkumar et al. [60] develop a dynamic model (Integrated biomass supply analysis and logistics-IBSAL) to quantify resource allocations for biomass supply and transport operations. They evaluate the production cost and GHG emissions produced by switchgrass delivery to a biorefinery. Kim et al. [61] analyze the design problem of the hydrogen supply chain consisting of various activities such as production, storage and transportation through a stochastic model. They examine the total network costs of various configurations of a hydrogen supply chain in an uncertain environment for hydrogen demand. Dunnett et al. [62] value, instead, the trade-off between biomass supply and ethanol demand, but performance indicators are not offered. The framework is flexible and can thus accommodate a range of processing tasks, logistical modes, by-product markets and impacting policy constraints.
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Blanco [63] looks into the supply chain constraints into that affect the wind energy sector; in fact, the booming demand for this RE is not accompanied by an adequate supply. The author proposes a range of current generation costs of wind energy investments. The paper has also assessed the roles and tendencies of its individual cost components, the usefulness of learning curves as a tool to predict the long-term cost reduction potential of this industry and the role of public policies. The learning curves do not capture expected behavioral and structural changes of the industry and they do not separate the influence of external variables from the internal factors. 6. Conclusion The analysis of the papers highlighted that the topic is timely, relevant and multidisciplinary; the percentage of several perspectives (methodological, environmental, political, technological and economic) is the same. There is a limited use of quantitative methodologies and these are essential for the correct choice of energy policies; the link between renewable energy and supply chain should be carefully analyzed. Future studies are needed to demonstrate the strategic role of supply chain in the renewable sector through real application with quantitative methodology. The conclusions of the paper are concentrated on the supply chain of renewable energy in terms of environment and profitability and it proposes the methodology of Life Cycle Analysis to give a quantitative and complete assessment of the products of renewable resources taking account of both public benefits and personal investment cost. The potential of renewable energy is significant and many actions could be implemented. From an economic perspective foster the competitive market and the research in this sector, by technological side promote the network of distribution, the advanced storage and the energy efficiency, by environmental vision develop production processes with a low carbon footprint and encourage the reuse, the recycling and the energy recovery of all elements and finally by social point of view promote the participation of citizens and create new job opportunities. In conclusion, the benefit of implementing a sustainable supply chain is that we can improve the profitability of our company and help the environment. Green can not only be profitable, but the right thing to do. References [1] European Commission. What is the EU doing on climate change? available at
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