Largest Global Companies Working to Mitigate Energy Risks

Michelle Remo, “Big 4″ observer
September 09, 2012 /

The largest global corporations are already tackling potential future energy cost rises through C-suite engagement and proactive energy strategies, according to a survey of US$1b-plus global companies.

The survey of 100 global company executives operating within energy intensive sectors, found 38% of respondents expect energy costs to rise by 15% or more in the next five years. Half of the survey respondents reported that energy expenditures represent 5% or more of operating costs, while a significant subset (22%) reported that 20% or more of operating costs go to energy.

In absolute terms, this translates into an annual energy spend of at least US$50 million for 42% of respondents, and more than US$100 million for 27% of respondents. For more than a third of companies (36%), the CEO is now the final decision maker on energy mix strategy, illustrating how important the issue is already regarded today.

Gil Forer, Ernst & Young’s Global Cleantech Leader, comments: “While cost reduction is cited most frequently as the primary objective of corporate energy strategies, a number of other energy-related risks are also being addressed, such as energy security, carbon reduction and price stability. Regulatory compliance, together with reputational and brand aspects, also plays a part.”

“As a result, energy efficiency measures, company self-generation of energy and integration of renewable energy into the corporate energy mix are all being implemented at increasing rates to meet these ends and are set to accelerate further over the next five years.”

Renewable energy contribution on the rise

The survey examined the use of renewable energy from two perspectives: energy generated by company-owned or controlled assets and energy purchased from outside parties.

Whether solar, wind, bio-energy or other kinds of renewable energy generation, 41% of respondents reported generating some form of renewable energy with company-owned or controlled resources; however, this represented a relatively small proportion of total company generation. In contrast, nearly half of respondents (48%) reported deriving some proportion of their purchased energy from renewable sources, with a fifth of companies reporting a contribution in excess of 20%.

Commenting on the challenge for renewable energy, Ben Warren, Ernst & Young’s Energy and Environmental Finance Group Leader says: “Pricing remains a key factor in the adoption of renewable energy. Forty-three percent of respondents said that they would be unwilling to pay a premium for renewables, highlighting the importance of achieving grid parity and developing innovative project-financing models.”

Looking forward, 67% and 59% of respondents reported that their company-owned renewable generation and renewable purchased energy levels are likely to increase over the next five years respectively. At the same time, 52% of respondents say that their use of high-carbon fossil fuels – such as oil and coal – will decrease over the next five years. From either perspective, this suggests that new companies will explore renewable generation and purchased renewable energy, and those already involved plan to invest further.

Less than half of companies currently self-generating

Many well-known global companies have already launched initiatives to generate their own energy for a variety of reasons, including reducing energy price volatility, increasing security of supply, decreasing costs and meeting carbon objectives. However, half (51%) of respondents reported no self-generation at present, with the main barriers to uptake relating to the significant payback period on investments, followed by risk considerations and internal rate of return calculations.

Forer comments: “Despite half the companies surveyed not currently having self-generation, it is important to note that 44% also believe that the levels of self-generation will increase over the next five years. The main obstacles noted in the survey suggest that the right financial models could unlock corporate investments in energy generation.”

Technology to play crucial role in energy efficiency drive

The majority (92%) of respondents identified energy cost reductions as the primary objective of energy efficiency initiatives. Forty-seven percent of respondents reported that energy demand management is one of the most important energy efficiency strategy elements, suggesting that companies are looking to take advantage smart grid technology solutions. Other technologies cited included building energy management systems (20%), energy-efficient lighting (18%) and building automation (18%).

A large number of respondents also anticipate increasing energy efficiency over the next five years – 60% expecting increased energy savings, and another 22% expecting significantly increased energy savings.

When looking at the overall energy mix strategy, Forer predicts: “Only those companies that have a comprehensive and diverse energy strategy will be able to create a competitive advantage in the new world of a more resource-efficient and low-carbon economy.”


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