Energy management strategy: Insulating against risk
Lessons in strategic energy planning
Does this sound familiar?
In some far off nameless other country business has experienced more than a decade of stable and predictable electricity prices - due in part to coal plants burning an inexpensive fuel source.
This is about to change. Many large, base load power plants will be retired over the next ten years due to regulatory requirements, or because they are old and inefficient. During this time, electricity demand is this country is expected to increase by nearly 20 per cent, while domestic generation capacity is expected to grow by only 8 per cent.
Adding to this potential supply and demand imbalance is the fact that the plant shutdowns - and price increases - will take place unevenly across the country. For those in business there are new questions:
- Do we have operations in states where prices are expected to increase more than they will in other states?
- Will our organisation be able to secure the energy it needs to run the business at a reasonable price in order to produce products and generate revenue to plan?
- If the price we can expect to pay for a kilowatt of electricity is going to rise - since many of the energy producing facilities scheduled to retire will be replaced by more expensive facilities - what can we do to insulate our organisation when an increasing proportion of our revenue will be spent on energy?
- Finally, what can we do to insulate our organisation from potential risk exposure driven by increased energy price volatility (since many of the new generation plants will be peaking plants)?
This article draws from the context and future outlook of the far off other country named America. Its focus is to describe means by which organisations can help offset the effect of future energy price increases by adopting a holistic, enterprise-wide strategy that treats energy as a manageable asset.