Navigating through a rapidly transforming Energy Landscape

At a time when the energy segment is witnessing a record plunge due to the ongoing Covid-19 pandemic, renewables among other sources of energy generation were the ones to mark a steady growth. While it gives hope to the world working towards a low emissions economy, the sustainability aspect of it remains debatable. Looking at the trend, coal, natural gas and oil reported a drop in their demand by 7-8% this year. However, buoyed by supportive policies and maturing technologies, renewables continued its growth trajectory, led by solar.   

World’s Energy Supply Mix – The current scenario

A recent article by the World Economic Forum, although shows the real scenario of Energy Transition over four decades. It highlights that there has been a little or no change in the Energy Mix of the world in 47 years. The report gives a contrary view to the mounting focus and growing demand for Renewable Energy across segments. Unfortunately, even with the drop-in prices, new policies and rampant digitisation, renewables still account for a minimal share in the Energy Mix.

On the other hand, a report by Visual Capitalist gives us a sneak-peak into how the future may look over the next 20 years. Taking a cue from the journey so far and given the current trends, it predicts the Energy trajectory by 2040. According to the report, while renewables will continue to grow at a steady pace, natural gas and oil will maintain a larger share in the energy mix.

The World’s Projected Energy Mix, 2018-2040 by Visual Capitalist

The two reports explicitly bring forth the need for a more stringent and concerted effort to achieve cleaner energy goals. Clearly, Energy Mix of the world depicts a worrisome picture, even with the growing demand for green sources of generation.

Countries are transitioning rapidly towards a balanced energy supply mix.

Realising the pressing need, countries have already begun their transition on a war footing. There are commitments and a series of actions happening towards being Net Zero. The top-performing countries in the ‘Low Carbon Economy Index 2019 by PWC’ include Germany, Mexico, France, Italy, and Saudi Arabia.

The U.K is the first major economy committed to reaching net-zero emissions by 2050. The country recorded 47% of renewable share in the first quarter of 2020. Another noted report was from The U.S. Energy Information Administration (EIA). It mentioned that renewables produced almost a fifth (i.e., 19.6%) more electricity than coal through July 2020. The country’s Renewable energy sources also generated 6.7% more electricity than nuclear power whose output fell 1.7% during the same seven-month period. 

These highlights indicate the fast-paced energy transition happening across the world. In addition to stringent commitments towards a green economy, a string of policy changes, digital innovation and pricing factors are giving the required boost to the countries. 

Businesses and Large industries steering the clean energy transitions.

A country’s commitment to cleaner sources of energy generation depends on how local businesses and industries are working towards it. Since 2014, nearly 100 large global corporates have committed to having a 100% shift to renewable generation through a partnership with The Climate Group. It accounts for roughly two corporations a month joining the effort in making renewable energy mainstream. Non-traditional renewable players, such as institutional investors and oil and gas majors, are investing significant sums to play their parts in the global race to green energy.

How is it happening?   

  1. Energy is now a commodity, and Energy management a core business strategy.
    It needs C-suite level involvement and planning. An energy strategy is hard to implement without definitive engagement from the CXOs and a clear governance structure. It requires a core team of senior leaders with a clear understanding of goals, financial positions and budgets.
  2. Competitive advantage – The move towards clean energy is not just limited to climate concerns anymore. A balanced energy mix determines an enterprises’ mission, vision, and values. Carbon emissions now have a direct impact on the cost structure, profile, and resilience of an organisation. It also impacts the brand value with customers, employees, communities, and investors.
  3. Policies and Regulations Power Purchase Agreements (PPAs), tax breaks, environmental regulations, drop-in renewable prices, rise in coal prices are together giving the much-needed push to the corporates in the energy transformation journey.
  4. Small and Medium Businesses set to push the agenda – It has been particularly challenging for small- and medium-sized enterprises so far. These organisations don’t consume enough energy to negotiate large, lowest-cost energy contracts or PPAs. However, findings of a Deloitte study highlights that many of these companies are ready to join the move. They are looking for ways to invest in wind, solar, energy storage, micro-grids, and other advanced renewable energy technologies.

Role of category managers in the journey to a balanced Energy Mix

Commercial energy contracts can be arduous due to the highly volatile energy prices. In this context, the role of energy procurement managers has become ever-more crucial. They are responsible for effectively building the energy mix while being the knowledge-powerhouse. They are the pillars during times of significant uncertainty.

For effective functioning, the energy procurement teams need to introduce a wide range of strategies in collaboration with CXOs and other functions of the organisation. They need to work consistently towards strategic sourcing while improving the management of spend, suppliers and contracts.

Digitisation is a a key enabler for achieving climate goals and track carbon emissions for each company division and production line.

A three-step approach for the Energy Procurement Managers to have a balanced energy mix:

Understanding the Business Need – While a move towards green energy is evident, there is an array of other influencing factors. These include cost-effectiveness, carbon reductions, energy price certainty or hedging, building resilience. It could also be for brand reputation amongst investors, extending consumers and employees. The first step is to prioritise as per the business need.

Identifying the right mix – This is a crucial step in analysing the Energy requirements of your organisation. Digitisation facilitate a better understanding of the consumption pattern, and to create the right strategy for procurement and distribution.

Identify the source of supply – Finally, it is about finding the right energy provider or a supplier for the different energy sources through market analysis.

Conclusion

We need to rapidly move towards a New World of Energy that is more decarbonised and more digitised. It requires concerted efforts with sweeping changes, starting from the supply chain to procurement, marketing and even corporate culture. The transition calls for a whole new integrated energy strategy that can navigate companies effectively. For the New Energy Landscape, the responsibility lies with every country, public-private organisations, and with each one of us.