Energy in crisis: some commercial realities

Energy supplies are fundamental to the functioning of any advanced economy, so blackouts such as that which occurred on a large scale in the UK earlier this month are bound to be big news. However, they should be no surprise.

First, it is important to note that the UK is not alone in facing major challenges in its energy supplies. Inadequate investment, the wrong investment, major policy shifts, failure to control demand – all of these are factors which, in varying combinations, have put energy supply into a state of crisis in multiple countries.

The response 

On such a critical and politically sensitive topic there is of course no easy answer. Experts such as Lord Redesdale, CEO of the UK’s Energy Management Association, has been warning about collapsing and inadequate infrastructure for at least a decade. And even if anyone had been listening, the time it takes to bring new supplies on stream would mean that investment in infrastructure is only ever part of the solution.

Today, the commercial considerations are further clouded by extensive debates over the environment and sustainability. Which energy sources do we really want to support? How much energy do we really want to produce? Impact assessments take many forms and are subject to multiple viewpoints. For example, wind farms may be ‘clean’, but they are often unwelcome due to their other environmental effects – and, as incidents and reviews such as those in Australia and Germany show, may not be a reliable or cost effective solution. Another question relates to the move from centralized grids to distributed energy. This is rather like the technology transition when businesses moved from mainframes to distributed computing; it raises big questions over the scale and timing of investment shifts and also is accompanied by new sources of supply and new entrants to the market (e.g. the move by Shell to become an electricity provider).

Demand management is another critical issue. The commercial challenge is not just about increasing supply, but also (perhaps more importantly) raising efficiency and reducing demand. That requires not only greater awareness on the part of users, but also commercial incentives for producers. There is some progress in this area, particularly around effective control and monitoring systems and potential advances in the Internet of Things. Perhaps we will also see faster progress in improved contracting models, such as shared benefit or shared savings agreements that accelerate deployment of advanced technologies. Meaningful consumer education is also an important topic, since ‘consumer concern’ has not translated into ‘consumer self-control’.

And then there is politics 

Given the sensitivities around energy costs and reliability, it is inevitably an area for extensive political debate. Whether or not it directly controls the industry, government has a big role. It sets policies, it often regulates prices, it influences the nature and extent of competition. Factors such as these keep energy at the forefront of debate and always leave lingering questions over whether there can ever be such a thing as open, meaningful competition. From a truly commercial perspective, doesn’t a competitive market actually result in massive duplication of effort and resources, multiplying stakeholders and leading to inefficient allocation of funding and investment?

i am no expert on energy supply, but it is clearly an area that demands the highest level of commercial expertise and assessment – and therefore a field where IACCM is becoming increasingly active.