The creation of the ‘Energy Cluster’ in Flanders (Belgium) is the latest proof that the Energy Transition is real – and that it means business. Lots of business even.
For years we have treated renewable energy, increasing efficiency and reducing carbon emissions as lofty societal goals to be pursued mostly through public policy and actions of dedicated NGOs. The number of semi-voluntary energy labels and obligatory reporting requirements, skyrocketed. For many of us in the industry, obtaining an ISO50001 or joining an Energy Covenant was one of the first times the topic appeared on management committees and even in board rooms. Most of the time it was seen, however, as a factor complicating the bottom line and somewhat of a distraction from the core business.
But the times, they are a-changing. Technology has driven down the cost of generating, using and storing renewable energy; geopolitics are making conventional sources less predictable and reliable; liberalised energy markets have put a lot of control in the hands of consumers; and an aging energy distribution system is doing the rest. The shift towards local production, flexible consumption and a more sustainable, decentralised system has accelerated at an unexpected pace. The cost-benefit balance of sustainable energy has changed entirely and the business world has taken notice. In all likelihood 2016 will be remembered as the pivotal year in which ‘energy’ started to become part and parcel of standard management practices – not just an element of the cost structure, but also a major factor contributing to the financial performance of the company. Investing in generation capacity, providing grid support or optimizing the contract portfolio now often make as much sense as investing in core production capacity.
The consequences of the shift are tremendous. The balance of power in the energy sector is moving away from suppliers and towards consumers. This is most visible in industrial environments – where some of the largest energy users can be found. The spread towards somewhat smaller users, however, has begun and will shake the sector to its core. It translates directly into increased pricing power and better margins. It should come as no surprise that systematic energy management – permanently steering and optimizing all aspects of the firm’s energy production and consumption – is therefore no longer restricted to the supermajors of the business world and is taking hold among somewhat smaller consumers as well. There are few signs more obvious that the Energy Transition is firmly embedded in business now as well.
One challenge for those medium-sized consumers – of which there are more than 2000 just in Belgium -, is to reach the scale that is so crucial in everything related to energy. Size does matter, as it opens up direct access to energy markets or schemes for grid support. It confers increased negotiating power with suppliers. Most significantly, it provides juicy cases for investment with attractive returns.
The key is to band together. Expect collaboration across the confines of individual sites and companies to skyrocket over the years to come. This will range from loose groupings exchanging best practices over benchmarking to address major gaps to joint purchasing and shared investments. Truly successful and sustainable collaborations are the ones that bring undisputed and permanent benefits tot their members. They need to be underpinned with objective data and monitored for their effectiveness, so they can keep on adapting to changing conditions.
Liberalisation and local production have brought major changes to the energy landscape and it has already changed beyond recognition. But you ain’t seen nothing yet. Collaboration among empowered consumers is the real game changer. All companies, solutions and initiatives supporting this are crucial in the years to come.