Energy mix strategy is an integral part of addressing key financial, energy security, brand, regulatory and competitive risks.
The largest global corporations are meeting the challenge of transitioning to a low-carbon and resource-efficient economy through proactive energy strategies with C-suite engagement.
To learn more about energy strategy, we surveyed executives involved in setting corporate energy strategy at 100 companies with revenues of US$1 billion or more.
Here are some survey highlights:
High energy costs: The majority (73%) of our respondents foresee their already substantial energy costs rising over the next five years. A large percentage (38%) expect that energy costs will rise by 15% or more during this period.
Formal energy strategy and implementation plan: Given such high energy costs, it is no surprise that the majority of respondents (70%) have a formal strategy and implementation plan to manage the mix of different energy sources they use.
Energy strategy objectives: A majority of respondents indicated that cost reduction through efficiency was the primary objective of the energy strategy. Energy conservation and minimization of carbon footprint followed cost reduction as other key objectives.
Most important drivers for composition of energy mix
Key implementation challenges: Respondents identified financing and capital issues related to energy projects as the most important challenges to the implementation of energy strategies:
- Financing and capital issues related to energy mix projects (47%)
- Identifying and accessing government grants and incentives (40%)
- Assessing and selecting technologies (39%)
- Measuring or tracking progress in meeting energy mix strategy objectives (37%)
C-suite input and oversight: For more than one-third of respondents (36%), the CEO makes the final decisions on energy mix strategy. For another 40%, energy mix strategy is decided by the COO, CFO, GM or board chairman.
Key barriers — return and risk concerns: Survey respondents reported that they had opted not to invest in self-generation capacity, survey respondents highlight financial return and risk concerns. The leading reason given is the payback period is too long for such investments, followed by risk considerations and internal rate of return calculations. This suggests that adoption could come even faster with financing innovations and the increasing cost-competitiveness of renewables.
Primary reasons for not investing in self-generation
Energy efficiency: Given current energy spending and anticipated increases, reducing energy costs remains the nearly universal primary objective of energy efficiency initiatives. Respondents deploy a variety of technologies to achieve their energy efficiency objectives, including energy demand management (47%), building energy management systems (20%), energy-efficient lighting (18%) and building automation (18%).
Top energy efficiency objectives
Use of renewable energy: Whether solar, wind, bio-energy or other kinds of renewables, 41% of respondents report generating some form of renewable energy with company-owned or controlled resources.
Renewables as a percentage of company energy generation
Energy audit issues: Survey respondents reported that the key issues revealed in their companies’ latest energy audit included:
- Need to develop a structured approach to meeting energy targets
- A greater focus on implementation of energy conservation programs
- Better understanding of energy usage profile
- Improvement in monitoring and tracking energy metrics
- Understanding of the opportunity to increase the self-generated and renewable energy Understanding of technology to optimize efficiency and replace low-performing equipment
- Need for energy security in terms of both supply and cost
- Funding and access to capital
Energy mix strategy addresses key business risks
Energy mix strategy is an integral part of address key financial, energy security, brand, regulatory and competitive risks.
- Energy spend is becoming a growing share of operational costs as fossil fuel-based energy prices increase and price fluctuations in traditional energy sources impact the bottom line.
- The Fukushima disaster in Japan and Middle East political turmoil highlight energy availability risks.
- Increased consumer focus on sustainability is changing how industry leadership is being defined.
- Long-term carbon penalties and license to operate risks arise as governments focus on energy efficiency and environmental objectives.
- The new reality of resource-constrained, low-carbon economy changes the basis of competitive advantage.
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