Electrification of production processes is an important method of decarbonisation. The choice of location impacts both cost and emissions from use of electricity. Thus, including this aspect explicitly in supply chain network design is important to find the best trade-off.
In a previous post, we considered a supply chain for apples and showed how to balance sourcing decisions with storage to minimise greenhouse gas emissions. We now want to extend this case by the introduction of a product derived from apples, for instance a cake, where the production requires significant energy.
First, we highlight the country-specific differences between the cost of electricity and the carbon intensity of generation, as defined by the energy mix but also the fee structure, and how these play a role in the trade-off between costs and greenhouse gas emissions. Then, we show how on-site generation can be included in the decision making.
Sourcing electricity
For the production site, we can consider either of the locations suitable for the sourcing of apples, that is, Chile and the UK, but we will also include France which is roughly on the shipping route. See the extended network in the schematic figure.
To operate the production, we need to source energy in the form of electricity, which we could buy from the local grid. Both the cost of electricity, as well as its carbon intensity vary significantly between countries. Compare the figure that summarises data on the Carbon Intensity of Electricity and Business Electricity Prices for our selected countries in 2025.
The low carbon intensity of France makes it a suitable candidate for production and storage if we value lower emissions relative to the cost. On the other hand, electricity is slightly cheaper in Chile, which would be preferable from a cost perspective. Finally, production in the UK is not competitive, unless we decide to source all our apples locally and want to avoid long-distance shipping altogether.
In the context of a supply chain design study, we could navigate this trade-off by minimising a combination of total costs and emissions, or by minimising costs while enforcing an upper bound on emissions. We can include the production aspects in addition to the sourcing and shipping decisions, considering the total amounts for costs and emissions.
Distributed generation
In addition to sourcing electricity on the local grid, we can also generate on site. For example, with PV panels on the factory roof combined with batteries for short-term storage. This might not only reduce electricity-related emissions but also help in situations where the grid is congested.
We can include this decision in our supply chain model by adding a secondary production plant candidate for each location. This would include a higher fixed opening cost to cover the investment in generation and storage. On the other hand, a lower variable cost could be used for production, since the energy needs are now partially met by our own renewable generation. Emission factors are adjusted accordingly.
We have shown how electricity can be included as a production factor in supply chain network design. Similar ideas can be applied to incorporate other dimensions of the environmental footprint of production, such as freshwater usage. What other aspects would you need to cover?