Plugged in: Why electrification belongs in board strategy

What does electrification look like?

Electrification means replacing technologies that directly use fossil fuels with those powered by electricity. For organisations, that might mean electric vehicles replacing petrol or diesel fleets, heat pumps replacing gas heating, or electric motors and boilers replacing fuel-powered industrial equipment. 

It can also involve solar PV, batteries and controls that allow organisations to better manage when electricity is consumed. 

That changes both costs and risks. Exposure shifts away from global oil and gas markets towards electricity markets. The IEA finds that greater efficiency can also reduce the amount of energy needed to do the same work, strengthening the economic case for electrification. 

Start with demand

An organisation’s first move does not necessarily need to be buying new equipment. 

A useful starting point is understanding how much energy it uses, in what form and when. Management can then look for opportunities to avoid energy use that adds no value, reduces demand through efficiency, and shifts electricity use to cheaper or more readily available periods. 

The AICD’s Energy governance: A system in transition sets out information boards can use to assess their organisation’s energy position. It illustrates the approach through fictional food manufacturer Hird Food Manufacturing. 

Its hypothetical energy review finds that staggering the start-up of refrigeration and mixing equipment could save around $30,000 a year without capital investment. Moving production outside the 3pm–7pm peak pricing window could save another $45,000–$80,000 annually, while demand response could provide $35,000–$60,000 a year. 

The review then considers solar and battery storage, electricity contracting and staged electrification of the company’s diesel fleet. At scale, the combined measures are estimated to deliver annual benefits of about $500,000. 

The figures are illustrative, but the process is instructive. The fictional board commissions a structured review, tests assumptions about energy demand and resilience, considers contracting and fuel security risks, and establishes a framework for staged investment. 

This process can also be used to identify no-regrets measures: actions that reduce costs or exposure regardless of what happens to oil prices, climate policy or international negotiations. 

The cost of standing still

For some Australian organisations, liquid fuels are an obvious place to look. 

Diesel remains important to freight, mining, agriculture, construction and backup generation. The AICD energy primer suggests boards consider asking management for “a position on liquid fuel dependency” and whether there is a plan for exposure to diesel and transport fuel supply disruption. 

Under the IEA’s high electrification scenario, the world would use 18 million fewer barrels of oil a day by 2035 than it otherwise would, mainly through greater uptake of electric vehicles. 

But moving away from liquid fuels creates other considerations. Electricity demand is also rising because of air conditioning, data centres, advanced manufacturing and electric vehicles. Organisations considering electrification need to think about whether grid connections, generation, storage and appropriate electricity contracts will be available when needed. 

“Think about what your electrification pathway is when you look at how much electricity you actually need,” Amandine Denis-Ryan, CEO Australia at the Institute for Energy Economics and Financial Analysis, told the AICD forum. “Then plan for uncertainty.” 

Electrification also brings its own risks. The IEA identifies concentrated supply chains for key technologies and critical minerals, cyber security threats, and natural disasters and climate hazards affecting electricity systems. Rapid electrification will require investment in generation, grids and more flexible power systems. 

Emissions remain important too, of course. Globally, they are still rising. So while energy security, resilience or cost may drive electrification, reducing emissions remains an important objective, particularly in transport, buildings and industry, which together account for more than half of global energy-related carbon dioxide emissions. 

Staggered start

For boards, electrification does not mean replacing every fossil fuel-powered asset immediately. 

It means understanding where the organisation is exposed, which assets are approaching replacement, where electrification already makes economic sense and which investments could reduce costs or strengthen resilience across different scenarios. 

Whatever is agreed at COP31, and however the current conflicts and energy shocks unfold, those questions are already relevant.