Building Energy Resilience

On 28 March 2023, the Board Leadership Center welcomed Francois Boisseleau, Sergio Molinari, Jean-Pierre (Pirre) Wuytack, Karen Beullens, Kobe Geryl and Daniël Pairon for a discussion on energy efficiency, decarbonization, and defining an energy strategy to build energy resilience. This article summarizes the key takeaways for boards.

Today’s energy market landscape is being shaped by many characteristics. Geopolitics plays a pivotal role as disruptive events - most notably the war in Ukraine - have increased the uncertainty of energy supply and macro-economic uncertainty, which in turn have put pressure on prices and resulted in increased price volatility. For more on geopolitics, read: Top Risks 2023: The Bottom Line for Business.

Water is a key resource for power plants and water scarcity directly threatens the security of supply, which again put pressure on prices. Last summer’s draught impacted the EU’s hydropower availability (largely in the Nordics and West Balkans), halted coal deliveries on key German water routes and impacted the ability to cool nuclear plants in France. For more on the trends driving the current energy market, read: Energy resilience: Boardroom Questions

• Decarbonization: A company’s choices in energy supply and demand are typically very powerful levers for decarbonization. Aside from meeting stakeholder demand for a push towards decarbonization, it can also be a way to contribute to the community, limit global warming, minimize risks, valorize climate-related opportunities, and safeguard a company’s brand image. Decarbonization should be an integral part of a company’s sustainability strategy.
• Security of supply: At the same time, a company needs to guarantee a stable supply to meet its energy consumption needs, both today and in the future. To do so, they need to understand their current and future energy demand. Where can efficiencies be gained to decrease demand? When do they need energy, and where (which countries, what sites, etc.)? Do they need to be connected to a grid to guarantee security of supply? Is intermittency of energy supply a risk and how can it be managed? What mix of (alternative) energy sources will be used to meet the remaining demand (after efficiencies) – green power, gas, nuclear, low-carbon fuels, hydrogen, etc.?
• Cost impacts/structure: Decisions also need to be made in terms of how the investments will be made and the respective cost impacts. Will the company invest in windmills or solar panels themselves (CAPEX) or opt for longer-term contracting, e.g. through corporate Power Purchase Agreements (cPPAs) (OPEX)? What financing options and incentives are available in the country(ies) or region(s) the company operates in? What will bring the highest return-on-investment?

“Without data you’re flying blind.” – François Boisseleau, Chief Economist at Engie

Data and digitalization are key levers for energy efficiency. By using data analysis companies can identify inefficiencies in their energy consumption – for example, heating one side of an office floor while cooling another, or heating a building at the weekend when most employees work during the week. Capturing the data and identifying the issue is step 1. Companies can then use technology to optimize their processes based on those findings – for example, using software to optimize a building’s heating, ventilation, and air conditioning (HVAC) based on capacity.

The use of digital twins allows companies to digitally simulate offshore platform operations, virtualize processing facilities, monitor operations, and optimize maintenance schedules. A digital twin could be a straightforward visualization technique – like a graph or a chart – or a highly immersive visualization environment (HIVE) where operators can view, monitor, and remotely control an asset or process. For example, in an industry where production needs to be quick (e.g. vaccines), digital twins can be used to see where the production process can be sped up. For more on digital twins, read: Get more from your twin.

Artificial Intelligence (AI) is another powerful tool, which can be used to optimize maintenance planning or match production with capacity. Using AI to track different data sources for activities to spot which ones increase energy consumption (e.g., when filters are dirty) can be useful in detecting energy efficiency gains.

Similarly on the consumer-side, consumers who review their energy consumption at multiple points throughout the year, or even further, those who use submeters to monitor their usage at the appliance-level, are more empowered to make real-time changes to reduce their consumption than those who only review an annual statement or who don’t review their consumption at all.

How do you start? Do you need to “go big or go home”? Data is available everywhere – from the fire detectors to the number of employees “badging in” at the office. It’s a question of capturing and using it, and it’s possible to start small. No matter where you start though, it’s also important to consider the importance of cyber-security when connecting data. 

“The electricity price has to be de-coupled from the gas price – due to its high volatility and uncertainty – and a new price mechanism has to be convened.” – Pirre Wuytack, Board Member at Vandersanden Group and Member of CEOs4Climate

While there have been calls for this in the market, the European Commission’s proposal^[1] on 14 March 2023 does not fundamentally modify the price forming on the day-ahead wholesale market. So high gas prices will still be able to trigger high electricity prices on the day-ahead electricity market. However, we also need all available assets to ensure there will be sufficient electricity, including the gas-fired plants.

As we move forward though, one thing is clear:

“It’s important to co-create and work together.” – Pirre Wuytack, Board Member at Vandersanden Group and Member of CEOs4Climate

It’s not solely up to the big energy players to decarbonize the economy. Each organization has a role to play. Collaboration is key but it takes time and can be complex. All players need to be in alignment to ensure a project can move ahead.

Working together and creating ecosystems – based on experience and solutions – is necessary to enable change.

KPMG’s Board Leadership Center (BLC) offers non-executive and executive board members – and those working closely with them – a place within a community of board-level peers. Through an array of insights, perspectives and events – including topical seminars and more technical Board Academy sessions – the BLC promotes continuous education around the critical issues driving board agendas.