From How IKEA plans to take its buildings energy-neutral

Delft, Netherlands — IKEA’s announcement last week of its bold plans to pursue energy independence by 2020 didn’t happen overnight.

The Swedish home furnishing giant designed its strategy after several years of painstaking data collection, intensive energy audits and energy needs assessments, and an aggressive construction plan already in motion to own and operate solar and wind power systems throughout its global operations.

Unlike Walmart crowing about plans for energy neutrality, IKEA Group was willing to set a timetable after calculating how long executives there believed it would take to reach their goals.

And although there is much transparency in IKEA’s plans for achieving energy neutrality, executives there admit the plan doesn’t extend to the entire company footprint to include its total supply chain.

Indeed, the program began as a value-driven decision to be a corporate leader ahead of the curve in sustainability, according to Steve Howard, IKEA’s chief sustainability officer.

“We really need to tackle global warming,” Howard says. “We want to take a stand for renewable energy, and we can do that most effectively by investing directly in it. Then we can meet our energy needs from our own renewable energy assets.”

Establishing a convincing business case for energy independence gave IKEA’s top brass the confidence to move the project forward, he says. “It’s highly likely that our energy demand will increase and more countries around the world are heading to carbon pricing. If you have your own energy production, you cut off that risk completely.”

IKEA owns the land where its stores are located, and controlling its own future energy supply is in keeping with that ownership philosophy, says Howard. What’s more, IKEA intends to continue growing at a rapid pace. The company expects to double in size by 2020, with plans for stores in India and elsewhere.

The business case was further strengthened after IKEA conducted extensive energy audits at its U.S. operations in 2008 and 2009 with Sieben Energy Associates. Implementing energy efficiency measures to reduce overall power usage was an essential part of IKEA’s strategy for energy neutrality, but audits seeking those savings went way beyond the typical assignments, recalls Craig Sieben, president of the Chicago-based consultancy.

“They had every evaluation include a comprehensive assessment of renewable resources they could use to offset their reliance on the energy grid,” says Sieben. “That’s not typically what companies ask for in an energy audit. Now they’re taking on a stretch goal for the next seven years that’s very ambitious and I think they have a high probability of success based on their history and demonstrated commitment.”

So far, the retailer has installed 342,000 photovoltaic panels on 81 IKEA Group buildings worldwide that generates 43 MW of power. About 40 percent of IKEA’s solar power investment is concentrated in the U.S. alone, with solar panels on top of 34 of its 38 stores and distribution centers there.  Says Howard: “We look at each rooftop as a power station in the waiting.”

The furniture retailer will continue installing more PV systems in the U.S., especially since prices are still at record lows, notes Howard.

The cost of solar panels have fallen about 50 percent since early 2011, and sun is plentiful there too, says Tom Kimbis, vice president at the Solar Energy Industries Association (SEIA), a Washington, D.C.-based trade group. Most utilities in the U.S. are embracing solar, but Kimbis cautions IKEA could run into some resistance from utilities in the Southeast where operators haven’t been as progressive compared to other parts of the country.

IKEA ranked fourth among U.S. companies for generating solar power in a survey published this fall by SEIA. Walmart came out on top, while Costco Wholesale and Kohl’s Department Stores, ranked second and third, respectively.

IKEA has no near-term plans to invest in wind farms in the U.S. because the policy environment is too risky and there aren’t good incentives to draw them in that direction, says Howard. Meanwhile, the furniture giant has concentrated its wind farm construction in Europe. IKEA built its first wind turbines in Europe a few years ago to test it out and now owns 126 turbines in Sweden, Poland, France, Germany and the U.K.

It will take several years before IKEA is energy neutral at each of its stores, but it will be totally energy independent in Scandinavia when the second of its wind turbines under construction in Sweden is soon completed. In fact, the furniture retailer could end up over-producing more energy than it needs in some areas and possibly push excess energy back onto the power grid in Northern Europe, says Howard.

The company uses a lot of power. In 2011, the IKEA Group consumed 3600 GW of total energy. Close to 2000 GW of that total was electricity consumption.

For now, the game plan for energy independence is to move forward primarily with solar and wind power. The company may explore some creative uses of biomasses. Already, it uses waste wood for biomass heat and power in some of its own factories, and diverts food waste to anaerobic digesters, says Howard.

However, “We made the decision that we won’t be chasing anything that comes from food crops,” he says. “We have some caution over the use of food crops for biofuels due to the very direct competition it can set up with food versus fuel issues — these are likely to intensify over the next few years.”

While IKEA’s grand announcement about its pursuit for energy neutrality has grabbed headlines, Howard concedes total energy neutrality is a more difficult forecast to make if you include the company’s entire supply chain. Only about 20-25 percent of its energy consumption from its total footprint is derived from its own factories, stores and distribution centers, says Howard. The rest of its energy use comes from independent suppliers and their factories, which is harder to control from corporate headquarters, he admits. The furniture giant has more than 1,000 suppliers in about 50 countries.

“We said explicitly in our strategy that it’s more complex to include suppliers in our plan,” says Howard. “We don’t own the factories and we can’t coerce suppliers. There’s an opportunity for them and we expect many suppliers will come along with us on the road to energy independence, but we have far from fully worked that out.”

Howard notes they’ll make decisions about what to demand of its suppliers by next summer when its current fiscal year ends.

In the meantime, IKEA already has been working with some suppliers to make energy improvements. The retailer deployed 70 energy efficiency auditors to textile mills in Southeast Asia and already has achieved 20-30 percent reductions in energy use, says Howard. One goal has been to pinpoint its most energy intensive suppliers and focus on gaining energy reductions there. He adds the company has agreed to commit some of its own funds to finance some energy efficiency improvements, and possibly invest in renewables with long-term suppliers.

“About 20 percent of our supply chain is from China and while they have very modern factories, some have really good opportunities for upgrading with energy efficiencies,” he notes.

IKEA is putting financial muscle behind its expansive strategy toward energy independence. The furniture giant earmarked 1.5 billion euros (close to $2 billion) between 2010 and 2015 on that effort. Some of those funds will be spent on energy efficiency activities, with a goal of reducing overall energy consumption by 20 percent.

Howard isn’t pinning down a firm investment amount beyond 2015 until the company has more data to conclude what it will need to achieve those goals. IKEA will make another five-year financial commitment by 2014 or so when it has better insight about what kinds of projects will require further financing.

If the current course continues as planned, Howard is confident IKEA will get to 70 percent renewable by 2015 and 100 percent by 2020.

Even though IKEA isn’t publicly-traded and answerable to short-term investors, it still has a supervisory board that demands top performance from the furniture retailer. Eco-minded leaders there can’t just stretch toward sustainability dreams in a vacuum.

“You need to be in a secure financial position to pursue this kind of project,” Howard says. “We see investing in renewable energy as one of those long-term relationships, just like investing in our customers.”

Long-range plans with such lofty goals as the ones set by IKEA also means  employing the discipline of keeping your eye on the ball for a long time with a super-steady gaze, cautions Sieben.

“The toughest part, in our experience working with large corporations on leadership energy initiatives, is to maintain the focus and dedicate the resources — both people and money — to achieve that goal, and be both creative and relentless in their pursuit of a decade-long process.”

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