The Investment Process for Capital Investments – The case ...

Faculty of Arts and Sciences, FiF-thesis 117

The Investment Process for Capital Investments

? The case of industrial energy-efficiency investments and non-energy benefits

Josefine Rasmussen

2016

Department of Management and Engineering Link?pings universitet

SE-581 83 Link?ping, Sweden

? Josefine Rasmussen, 2016 Filosofiska fakulteten, FiF-avhandling 117

ISBN: 978-91-7685-790-8 ISSN: 1401-4637

Printed by: LiU-Tryck, Link?ping

Distributed by: Link?pings universitet Department of Management and Engineering SE-581 83 Link?ping, Sweden Tel: +13-281000, fax: +13-281101

Abstract

Capital investments play a crucial role for the business of every firm. In an industrial context, energy efficiency is an important means to meet future energy needs and in the same time reduce climate impact. In this thesis, the investment process for capital investments is therefore studied by addressing the case of industrial capital investments improving energy efficiency. The thesis specifically aims to illuminate how additional benefits, i.e. non-energy benefits, are and can be acknowledged in the investment process by applying an ex-ante perspective. The thesis holds the decision-making process as unit of analysis and aims to contribute with insights on firm level. Especially in an energy-efficiency context, such a process perspective has only been scarcely applied.

The thesis is based on a literature review and two empirical studies. The literature review is the starting point of the thesis and reviews the literature on benefit concepts and investment behaviour of energy-efficiency investments. It is then followed by an explorative study in which thirteen industrial Swedish firms are interviewed on how they consider non-energy benefits. Investment motives and critical aspects for adopting energy-efficiency investments are also addressed. It also includes a questionnaire, distributed and collected during a networking event for energy-intensive firms within Swedish manufacturing industry. The second empirical study is a case study conducted at a Swedish pulp and paper firm. It aims to take a comprehensive perspective on the investment process as well as to analyse how and when non-energy benefits are acknowledged in the investment process. This case study approach enables participants at different levels in the organisation to be engaged in the study and new perspectives to be addressed.

The results indicate a general investment process passing through the phases identification, development and selection. Investment motives, information, internal coordination and external actors appear as key aspects of the investment process. Energy-efficiency investments are primarily initiated due to cost-savings motives. However, the subsequent investment process appears as consistent for all investment categories; the investment process described here is thus not specific for energy-efficiency investments only. The results instead indicate an investment process influenced by investment size; it influences the extent to which information is collected and assessed before making the decision, i.e. level of procedural rationality, as well as how the investment project is coordinated within the firm. Last, suppliers are involved in the investment process to a large extent from an early stage.

Regarding non-energy benefits, the results indicate that various benefits have been observed but far from all are acknowledged in the investment process. They are to a larger extent acknowledged for larger investments when more resources are devoted to the investment process. Quantifiable non-energy benefits improve the business case for energy-efficiency investments and non-energy benefits should thus be quantified to the extent possible. Yet, nonenergy benefits characterised by a lower level of quantifiability could still be important, such as benefits related to work environment, and should therefore be considered. However, the findings indicate a frequent use and reliance upon an investment manual, implicating a need for simplicity when addressing the additional benefits. This indicates that there should be an emphasis on a limited number of main benefits, rather than seeking to acknowledge all possible benefits.

Keywords: Investment process, investment decision making, capital investments, energy efficiency investments, non-energy benefits, industry.

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Acknowledgements

If someone would have told the undergraduate me, writing a master thesis in economics, that I would "change side" and become a PhD student in business administration, I probably would not have believed them. Today, halfway through, I am very grateful that I was given the opportunity and that I took the chance. There are several people that I want to thank for making this licentiate thesis possible.

First of all, I wish to thank my supervisors for giving me the opportunity in the first place and for all the support along the way. Mikael Ottosson and Henrik Nehler, thank you for your guidance and the encouraging discussions, always pushing me to go further. Fredrik Tell, thank you for your comments and constructive feedback at the pre-final seminar, which truly helped to improve the thesis.

Both empirical studies in this thesis have been conducted together with my research colleague Therese Nehler. Thank you for the close and good collaboration! I have really appreciated our work together, in doing fieldwork and especially in writing Paper II.

I also wish to thank Patrik Thollander. Thank you for your valuable input, comments and positive spirit.

To everyone at the participating firms who gave freely of their time being interviewed and answering the questionnaire ? thank you! In particular, I wish to express my sincere thanks to everyone at P&P for participating in the case study.

None of this would have been possible without financial support and I therefore wish to express my gratitude to the Swedish Energy Agency and the Department for Management and Engineering at Link?ping University for funding this research.

I also want to thank my colleagues at Business Administration and especially my fellow PhD students: Svjetlana, Jenny, Hugo, Linus, Christopher, Victor, David, Aliaksei, Anja, Johanna, Vivi, Mehdi and Susan. Thank you for your support and all the good discussions on seminars and courses, but mostly, thank you for all the laughs and fun talks during lunches, after works and the mandatory fika breaks!

During my time as a PhD student so far, I have belonged to the IEI Research School. This has given me the opportunity to get to know PhD students at other divisions and from other disciplines, which I have really appreciated. Thank you also for all the fruitful discussions during our workshops, seminars and courses.

However, I would not be here if it was not for my family. To my parents Gunilla and Johan, and my sisters Malin, Sofie and Julia: Thank you for your love and support. You are the best!

Finally, thank you Petter for always listening, being supportive and for your patience, especially during the last few months. Thank you for your love, for always being there and encouraging me.

Josefine Rasmussen Link?ping, March 2016

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