Friday, February 24, 2012

How are businesses building the risk of energy security into future business planning?

Plugging the Energy Gap” the December 2011 policy document from the London Assembly Environment Committee, indicates that delays or cancellations to energy development projects could result in energy demand outstripping supply by as early as 2015.  Without new projects coming on-line, demand will exceed supply by 2020.

Many old nuclear power stations are due to be decommissioned by 2020 (7.1 GW) and most coal-fuelled (carbon intensive) power stations (12 GW) are due to be shut down between 2012 and 2016.  A new nuclear power station takes 10 years to build, (excluding planning), so even if a project were started now, they wouldn’t make the 2020 deadline.

The anticipated investment required in infrastructure, to deliver low carbon electricity by energy companies is around £200bn – more than twice the investment made over the last decade.  If energy generators choose not to make investments, taxes such as the Carbon Price Floor (as a result of generating companies continuing to use carbon-intensive fuel) will still impact their bottom line. 

The implications for the consumer are clear, with increasing energy prices as investment costs are passed on, (one Guardian article suggests rises in domestic energy bills of between 23% and 52%), power outages or mains voltage reductions, particularly at peak times.

So what is it that organisations are doing to manage the future risk of energy security? 

Andrew Winston @GreenAdvantage highlights Walmart’s commitment to 100% renewable energy and how they use a longer term view on payback (i.e. helping the solar market get to scale, thereby lowering future costs).  Immediate benefits include the experience and knowledge gained by their managers of optimising new power sources alongside the immediate cost benefits.

However the Siemens’ Green League Report suggests that 70% of the 600 companies in their study view cost reduction as the primary reason to tackle energy management.  This would suggest that the implications of the impending energy gap are not on the radar of a large majority of organisations.  Does this represent a lack of knowledge or awareness and/or a lack of the long-term view taken by the likes of Walmart?

A recent UN-backed study by GlobeScan and SustainAbility supports the view that the critical barrier to businesses’ transition to Sustainabilty is Financial short-termism.  51% of corporate respondents cited a low awareness of the business imperative.

So whilst many B-to-C companies are driving initiatives to reduce their CO2 emissions; (and those within their supply chain); management of the business risk of future energy security does not appear to have an owner.   Where should this responsibility sit?  Pepsico and other leading organisations believe ownership for driving a sustainable business should sit in the Boardroom.  More on the role of leadership next time…

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