Riding the energy shockwave

Thursday, 01 September 2022

Skipp Williamson & Julian McCarthy MAICD
MD & Chair, Partners in Performance

    The turbulence of price spikes and volatility in the east coast energy market exposes organisations across multiple sectors to significant risk. Skipp Williamson and Julian McCarthy MAICD outline mitigation strategies for directors.

     Energy volatility and uncertainty significantly complicate risk oversight for boards. The rapidly evolving conditions place energy transition squarely and urgently on the board agenda, central to its obligation to oversee risk management and ensure company strategies and objectives are aligned with the new reality.

    So what do boards need to do to oversee and guide their company’s response? There are near- and longer- term strategies that warrant immediate attention.

    1. Near-term, “no regrets” actions

    These offer immediate dividends.

    • Establish full clarity of energy sources, uses and future projections.
    • Rigorously manage electricity demand and consumption behaviours, including (where possible) shifting energy usage outside peaks to capture tariff savings.
    • Create a prioritised pipeline of energy efficiency initiatives across all operations — buildings, infrastructure, production processes, transportation, supply chains.
    • Measure, track and report energy productivity improvement and emissions reduction.

    2. Accelerate journey to renewable energy

    Having secured those short-term moves, the next priority is to lock in renewable energy, preferably on your sites and on your side of the meter. This is less costly and mitigates dependence on the vagaries of the grid. Rapid improvement in the economics of renewable energy have made this approach economically attractive, and will continue to do so. If you don’t have a renewable energy roadmap, you need to develop one with urgency.

    Don’t make the mistake of waiting for the grid to go green. Increasingly, the improving economics of renewable energy enable direct investment that is NPV-positive (net present value). In the meantime, ever-increasing pressure from stakeholders mandates clarity of intention and visible action to make the transition.

    For companies with land, buildings and space — including rooftops — the technology exists to develop self-reliance for the bulk of your electricity needs.

    For medium-large electricity users, green funding may be available through multiple government grant programs for energy efficiency projects, or a growing array of additional sources, including green and sustainability-linked loans, green bonds, grants, incentives, awards and innovative financing instruments. (Your industry association can be a good starting point to identify green funding sources.)

    3. Embed new capabilities

    There will be winners and losers in the energy transition journey. It would be a mistake to minimise the challenge as an extension of business as usual, or as a capital project to be managed like any other project. The real opportunity is not just to mitigate the immediate effects of energy price inflation, but to embrace energy transition as a catalyst for creating new capabilities and a new level of organisational resilience.

    Execute and electrify

    Getting there requires a new level of focus on executional excellence and continued electrification of a company’s entire business system.

    There is surging demand for renewable energy equipment and materials, including solar panels, wind turbines, batteries and even basic materials such as copper and lithium. This requires creative, agile sourcing, partnerships with OEMs (original equipment manufacturers) to secure supply, and ability to move at speed. Executional excellence will be at a premium, and the relationships, skills and need for speed are different than in most conventional capital projects.

    In particular, companies with a transportation fleet need to thoroughly assess the economics of conversion to electric vehicles, including a critical review of current fleet replacement schedules. If the fleet is large enough, there is also opportunity for further value capture by establishing a virtual power plant, trading electric power utilising the fleet battery capacity as a collective storage facility.

    Capture the full benefits

    Set up your organisation to capture the full benefits of energy transition. Delegating energy transition to your capital projects division or to the engineering function risks lengthy delays and missing the real opportunity.

    Driving such fundamental change requires attention from the top of the company, dedicated organisational resources, and performance management “wiring” — including KPIs, measurement and tracking systems, and accountability.

    Time is of the essence as the risk of energy-based disruption is not going away soon. Companies need to reduce fossil fuel dependence (electricity and fuel), and there are substantial economic and competitive benefits in moving ahead quickly.

    Skipp Williamson is MD and Julian McCarthy MAICD is lead director of the energy transition practice at global consultancy Partners in Performance.

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