Combining IoT, Industry 4.0, and energy management suggests exciting future

  • By Brian Dwyer, C.Eng MIEI, Joao Bassa, MSc
  • Cover Story
Reduce costs and improve performance with intelligent design and common sense

By Brian Dwyer, C.Eng MIEI, and Joao Bassa, MSc

The Internet of Things, Industry 4.0, and energy management can be combined to make a heady cocktail that suggests an exciting future with reduced costs and improved performance. However, as is the case with any cocktail, you could be left with a severe hangover, wondering where all the promise and money went.

Disruptive technologies are emerging at an unprecedented rate. It is difficult to know which technologies offer genuine savings versus those that may be rendered obsolete before they achieve their potential. It is challenging for organizations to cut through the hype and identify those technologies that are applicable to their needs and can deliver an immediate positive return on investment.

This article examines the Internet of Things (IoT) and Industry 4.0 from the perspective of realizing energy cost and consumption savings. What options, if any, are cost effective now? How can an organization introduce the IoT and move toward Industry 4.0 without compromising its financial performance?

Say what you mean so you can mean what you say . . .

As with any newly arrived and rapidly evolving arena, terminology can become fashionable and be erroneously applied to all sorts of situations. Buzzwords can become the tool of marketers and sales people. So, it is worth taking a moment to define what exactly what we mean by the Internet of Things and Industry 4.0.

The Internet of Things

The term is becoming ubiquitous, but there are many different definitions. The research consultancy Gartner defines the IoT as "the network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment." The International Telecommunication Union describes the IoT as "a global infrastructure for the information society, enabling advanced services by interconnecting physical or virtual things."

These definitions indicate how broadly the IoT can be conceived. Any device that can collect and transmit data, as well as all of the associated communications infrastructure, could be considered part of the IoT. The potential future deployment of devices is mindboggling-50 billion devices to be connected by 2020 with an estimated 200 devices per person being possible. One way to try to grasp the scale of the Internet of Things (IoT) is to visit the website Thingful (, a search engine for the IoT.

The IoT has already established that an enormous amount of data can be generated. However, it has been estimated that only 3 percent of the generated data is analyzed, and only 15 percent is tagged and ready for analysis without manipulation. The challenge facing many service providers and potential end users is how best to use that data for decision making that realizes efficiencies and a return on investment on data collection infrastructure.

Industry 4.0

Originally coined in Germany, Industry 4.0 is a broad term that can be applied to several trends in manufacturing and automation. In the U.S., terms such as the Industrial Internet (of Things), advanced manufacturing, or digital manufacturing are used. The German Federal Ministry of Education and Research defines Industry 4.0 as "the flexibility that exists in value-creating networks is increased by the application of cyber-physical production systems [CPPS]. This enables machines and plants to adapt their behavior to changing orders and operating conditions through self-optimization and reconfiguration. . . Intelligent production systems and processes, as well as suitable engineering methods and tools, will be a key factor to successfully implement distributed and interconnected production facilities in future smart factories."

Although there is enough jargon in the above paragraph to be teased out over several articles, the central premise is that the IoT allows industrial processes to communicate with the outside world to manage themselves in response to changes in key production drivers, such as customer specifications or energy prices. The IoT is the central technology as the data generated by existing control systems is collated with other data to optimize the industrial process. That said, Industry 4.0 is broader than the IoT, encompassing technologies such as "big data" analytics, machine learning, and additive manufacturing (3-D printing).

Industry 4.0 can also mean very different things to different industries. According to a survey in Germany in 2015, only 10 percent of manufacturing companies have extensively adopted Industry 4.0 techniques, with more than half either not planning to implement any techniques or not giving it any consideration at all. In addition, Industry 4.0 may be much more important for manufacturing discrete items compared with processing bulk materials. Manufacturing can benefit from the customization of end products to individual customer needs in ways the process industry never will.

Growing pains

All these promises of efficiency and new ways of manufacturing are very exciting. But how do you tell if a technology is mature enough to deliver its promises? One method used by the consulting and market research firm Gartner is the "hype cycle" (figure 1.) Gartner uses the hype cycle to support investment decision making. The figure illustrates technologies discussed later in this article and additional "high visibility" technologies to show how the hype cycle works.

The central premise of the hype cycle is that visibility does not equate to efficacy. "Fear of missing out" can be an effective marketing tool\, but it does not lend itself to reliable investment decisions. Quite often the costs of understanding how a technology is best applied and waiting for its sufficient adoption can significantly outweigh any "first mover" advantages.

Figure 1 suggests that the IoT is in its early stages and that some critical supporting technologies, such as machine learning, need further development for it to reach its potential. Savings can be achieved from the IoT now; however, organizations need to ensure that any technology chosen has a clearly defined pathway to savings. Too many interdependent technologies are likely to disappoint.

Elements of Industry 4.0, such as enterprise-level 3-D printing, have matured enough to realize some of the envisaged benefits. However, Industry 4.0 relies heavily on the integration of systems, many of which are still relatively new. As with the IoT, effective implementation should rely on clearly identified savings. Further benefits may occur, but organizations should not rely on them to develop business cases.

Figure 1. Hype cycle of selected Internet of Things technologies (adapted from Gartner).


Beyond performance issues

Both IoT and Industry 4.0 are not without their downsides. Concerns about the security of the devices and their potential to be hijacked persist. For example, a cyberattack in October 2016, which focused on the U.S. East Coast, was blamed on IoT devices not being equipped to prevent themselves from being hijacked. Such issues are a significant barrier to the wider adoption of the IoT and Industry 4.0.

The IoT is not free either. Beside the capital cost associated with the installation of data collection devices and communications infrastructure, the International Energy Agency has estimated that by 2025 the annual standby energy consumption associated with IoT devices will be equivalent to the electricity production of Portugal.

All the above and energy efficiency

Proponents of the Internet of Things and Industry 4.0 have identified energy efficiency as a significant potential benefit. The American Council for an Energy Efficiency Economy estimated potential savings of 12 to 22 percent of all energy consumed, while the consultant McKinsey suggests 10 to 20 percent energy savings.

These are high-level estimates for potential future benefits. But what energy cost and consumption savings have existing IoT technologies achieved to date? Where is the potential, and what would be the best way to identify what is relevant to your organization now?

Looking through the lens of EN 16247:2014, efficiency opportunities can be broadly classified across building, process, and transport. Figure 2 is a summary of some deployed technologies and their efficacy for reducing energy consumption.


Figure 2. Selected IoT technologies from the perspective of EN 16247: 2014 (energy audits).


The transportation and logistics sectors have been among the first to gain cost and energy consumption savings from the IoT. Radio frequency identification (RFID), introduced in the early 2000s, is finally realizing its initial potential-giving some indication of how long it takes these technologies to mature. RFID technology is used in many road toll and weigh-in-motion systems, so vehicles do not have to come to a stop and accelerate back to cruising speed, saving fuel and increasing efficiency. Fuel savings of 4 percent have been estimated for an RFID toll collection system in comparison to a manual system.

Satellite guidance with real-time correction for traffic is a form of IoT efficiency that is almost universally recognizable. Reported savings of between 12 and 16 percent have been demonstrated in independent studies, with an additional 4 percent anticipated when optimizing for fuel consumption rather than travel time. Real-time satellite tracking and telematics of commercial vehicles save between 5 and 10 percent by ensuring the monitored drives follow safe and efficient driving techniques. These savings do not include any other productivity or fleet optimization gains.


IoT is progressing to a new type of smart building that better responds to the concerns of owners and managers about energy consumption. IoT enables operational systems that have more accurate and useful information for improving operations and saving the most energy for tenants. Focusing on heating, ventilation, and air conditioning (HVAC), lighting, and some types of electrical loads, it is reasonable to expect savings in the range of 10 to 25 percent when implementing proactive energy management programs in midsized buildings.

Residential buildings

The IoT is readily recognizable in smart utility meters, which promise to bring "time of use" billing and load shaping and which were previously reserved for large consumers, to residential customers. However, even before this promise can be realized, smart meters have been used to provide data to in-home displays, so customers can monitor energy use and receive feedback on cost. Trials conducted in various countries have demonstrated savings between 5 to 10 percent from in-home displays for residential customers.

Smart thermostats are domestic heating and cooling control systems that learn the user's pattern of behaviors to optimize energy consumption and comfort levels. Savings of approximately 4 percent in electricity and 7 percent in gas consumption have been reported from pilot studies. Additional savings are anticipated as additional connectivity (e.g., geofencing-turning climate systems on or off depending on user distance from site-and learning user patterns of occupancy) is added.

Commercial buildings

The term "commercial building" is broad and can be applied to hospitals, hotels, offices, and even public spaces. These buildings are much more energy intensive than those in the residential sector and offer greater potential for cost-effective energy savings.

The building management system (BMS) of large commercial buildings already generates significant volumes of data. However, previous generations of BMSs were not designed to use this data to optimize building energy performance.

Continuous commissioning (CCx), also known as monitoring-based commissioning (MBCx) or persistent commissioning (PCx), uses the data generated from a BMS to continuously identify potential energy-saving opportunities. Using advanced "big data" analytics, persistent commissions regularly report to the facilities manager to ensure that the elements of the site's energy-using equipment, normally HVAC equipment, are operating at optimal levels and that any deviations are investigated and acted upon.

CCx/MBCx/PCx is a well-established service in the U.S., recognized as achieving savings between 10 and 20 percent. The service is valued by energy users, as it helps to significantly reduce costs of capital and operations.

CCx/MBCx/PCx has not appeared in Gartner's hype cycle, because it was financially viable from the start at sites of sufficient size. The main advancement in the past few years is that analytics have moved to the cloud, so CCx/MBCx/PCx is viable for much smaller sites. Respectable returns on investments (less than three years) can be achieved for energy consumption of less than U.S. $0.5 million.

Networked public lighting: Lighting technology has experienced a revolution in recent years as LEDs replace traditional light sources. Although the move from sodium and mercury vapor lamps to LED has been the source of major savings, the nature of public lighting makes additional connectivity and control more financially attractive. Providing minimal light levels in unoccupied areas as well as communicating maintenance information brings savings to system operators that are not available to residential customers. An independent global trial of LED technology in 12 of the world's largest cities found that while LEDs can generate energy savings of 50 percent, these savings reached more than 80 percent when LED lighting was coupled with smart controls.


Traditional industrial energy management focuses on the efficient provision and use of process energy needs, such as heating, cooling, compressed air, and electricity. The IoT has a wealth of new data streams to support energy management measures. Process industries may be slower to adopt some of these technologies than the consumer market due to a greater familiarity with the use of sensors and automation. A key driver for the digital transformation for the process industries is maintaining global competitiveness and technological advances, therefore forcing the alignment of production and wider business processes through the tools that offer new possibilities for business models.

Monitoring-led preventative maintenance, condition-based maintenance, and predictive maintenance

To increase reliability and efficiency, and to gain other operating benefits, such as reduced maintenance and improved safety, many refineries and process plants are turning to the IoT. Technologies, such as acoustic monitoring of steam traps, condition monitoring of pumps, and heat exchanger performance, all wirelessly connected to supervisory control and data acquisition and analytics systems, provide cost-effective installation and paybacks of less than six months.

"Calculations show the difference in operating costs associated with equipment reliability and energy efficiency between a well-run refinery and an average one is about $12.3 million per year for a typical 250,000 barrel-per-day facility. Assuming about 60 percent of refineries are not operating as well as they could, the overall worldwide financial impact runs to billions of dollars annually," says Deanna Johnson of Emerson Process Management.

Set point control

A new generation of software tools for energy efficiency allows two ways of energy plant management: open loop, where the optimal set points are indicated to the operators to manually set the optimization variables; or closed loop, where the set points are sent directly to each optimizable variable. These implementations can typically achieve energy-cost reductions from 3 to 8 percent for the open-loop model, and 6 to 15 percent for closed-loop applications.

Industry 4.0

While improved energy efficiency is always welcome, it is rarely the main driver of Industry 4.0 deployments. However, energy savings have been reported by those organizations that have attempted to make Industry 4.0 a reality. For example, Daimler in Germany has reported a 30 percent improvement in energy efficiency for its robot systems that use Industry 4.0 techniques. Another example is Canadian Forest Products, which reported a 15 percent reduction in energy consumption by using real-time alerts for energy consumption outside of anticipated norms.

Making the IoT your own

The digital world delivers more actionable data than ever before. Replacing gut feeling with real-time and comprehensive data leads to better decision making. Whether this is about projects to fund, plant utilization, or sales accounts to focus on, data will be available to evaluate and select.

To gain the benefit of the IoT, though, you need to have an in-depth understanding of your processes. Which parameters are critical to the energy and productivity performance of your processes? This may seem obvious, but in our experience, many organizations have a poor understanding of the relationship of energy use to operational settings. Those who have deployed the IoT and Industry 4.0 say that the digitization of the manufacturing processes allowed them to better understand the actual energy demand of their machines.

Conducting energy audits to international standards, such as ISO 5002 or EN 16247, can provide the necessary baseline data relating energy use to production. It also provides a road map to appropriate future instrumentation. What was previously very expensive and difficult to measure may no longer be. It may not be difficult to retrofit smart meters and controllers to remote equipment.

Interpretation of data flows is a critical aspect. Information overload is an issue across all industrial sectors. When alarms are sounded, an appropriate set of options must be available to operators to gain potential savings. Impressive looking dashboards are only useful if they lead to appropriate actions. However, identifying these sets of appropriate actions is quite often excluded from data acquisition and reporting projects. Reporting often focuses on middle and senior management needs, rather than on the operators who ultimately decide if savings will be realized or not.

Finally, a comprehensive "whole of business" capital expenditure process should be used to transform sales promises into realistic business cases for the efficacy of technologies for your organization. Energy savings alone are unlikely to justify the expenditure on IoT and Industry 4.0. However, improved productivity, reduced downtime, and improved product quality can all contribute.

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About The Authors

Brian Dwyer, C.Eng MIEI is principal consultant – industrial, Energenz Socio Fundador – Instituto BioGesta, Argentina, with 20 years of experience in energy and resource (water and waste) efficiency. He has worked with governments and the private sector in Europe, Asia Pacific, and the Americas in the fast-moving consumer goods, resources, automotive, and commercial building sectors.

Joao Bassa, MSc, senior consultant – MAHAM Serviços de Engenharia Consultiva, Brazil, has 40 years of international industrial experience in automation and process controls. He is a professor at Mauá Technology Institute, a member of the InTechEditorial Advisory Board, and ISA district 4 (Brazil) Standards & Practices chairman.