The global shift to green energy appears to be picking up steam due to an unlikely prospect: war. Russia’s invasion of Ukraine has triggered an energy shock, leaving countries grappling with soaring oil and gas prices amid rising inflation and supply chain disruptions
Across Asia, volatile power prices have fuelled the need for greater energy security with regional governments accelerating their move to greener fuels.
In June 2022, Singapore commenced the first multilateral cross-border electricity trade involving four Asean countries. The Lao PDR-Thailand-Malaysia-Singapore Power Integration Project marks a historic milestone that will see the country importing up to 100 megawatts of renewable hydropower from Laos — the first renewable energy import into Singapore. In South Korea, plans are underway to transform the nation into a hydrogen-based economy.
Over in Europe, geopolitics are powering the energy switch. The European Union pledged to cut its gas supply from Russia by at least two-thirds by end-2022 and outlined a plan to diversify gas supplies, speed up the rollout of renewable gases and replace gas in heating and power generation, with the aim of becoming independent from Russian fossil fuels before 2030.
With seismic changes in the pipeline for the power and utilities (P&U) sector, businesses will need to cope with growing risks and an uncertain future. In the first edition of Plugged In, a power and utilities magazine by KPMG, we highlight challenges faced by P&U providers in an ever evolving, disrupted global energy market and share strategies to build a more resilient and robust renewable energy future.
Geopolitical/supply chain risks: rewriting the global energy map
Supply chain disruptions caused by the Ukraine war have made it harder for public and utilities providers to seek out immediate renewable energy sources. With fewer energy alternatives to choose from, countries in an early green transition phase will face tough choices.
ACTION
Define key risks to your organisation’s footprint by monitoring events, planning scenarios and considering different election results, security developments and national ideological trends. If possible, explore risk-proofing supply chains by duplicating them across like-minded regional and ideological blocs to limit exposure to geopolitical uncertainty.
Cyber risk: growing threats across a vast attack surface
Cyber risks pose a clear and present danger to the energy sector, with hacking, ransomware and malware threatening to undermine public and utilities providers. From remotely disconnecting grids to customer information theft, the potential disruptions from cyber incidents can cause extensive, long-term damage.
ACTION
Define key risks to your organisation’s footprint by monitoring events, planning scenarios and considering different election results, security developments and national ideological trends. If possible, explore risk-proofing supply chains by duplicating them across like-minded regional and ideological blocs to limit exposure to geopolitical uncertainty.
Distribution risk: meeting evolving customer demands
The democratisation of energy has shifted the power of control from public and utilities providers to consumers. With greater options to choose who they want energy from and how, energy providers must ensure they balance energy supplies from the many providers to ensure reliance and efficiency.
ACTION
It’s vital to build resilience into the grid through more effective scenario planning to predict demand and plan accordingly to avoid outages. Public and utilities companies should work closely with other grid stakeholders and build redundancy into the system so that one failure doesn’t bring down an entire network.
Climate change risk: maintaining assets
The growing effect of climate change is testing the limits of energy assets. From severe floods to freezing weather, public and utilities providers are facing greater disruptions to services now more than ever. This has triggered a growing insurance risk, pushing up premiums and impacting profit margins.
ACTION
Tools to help achieve greater resilience include risk models to detect the most at-risk infrastructure, visual and aerial inspections, vegetation management, monitoring cameras, satellite technology, and separating the grid into smaller sections to minimise damage. Public and utilities companies should invest in assets to help ensure they’re robust enough to cope with modern-day pressures.
Talent risk: appealing to a new generation of workers
To ensure business continuity, companies will need to balance creating a purpose-driven and inclusive work environment for new talent, while also retaining the expertise of the legacy workforce. This means equipping new talent with the right skills and technical know-how in emerging technologies to future-proof the industry.
ACTION
Attempts should be made to improve the industry’s attractiveness to new candidates and retain existing workers, moving away from hierarchical structures and encouraging innovation. Hybrid working can help with these efforts, to create the kind of flexibility that workers of all generations are looking for. As the digital revolution gathers pace, cultural and organisational change will be necessary to create an environment that encourages innovation in decarbonisation and distribution.
The essentials to energy security
Rising geopolitical implications of the global energy transition will require governments and public and utilities providers to hit the gas on agile, cutting-edge solutions. Here is a quick checklist of issues that stakeholders can address to determine their preparedness.
1
Prepare a plan to manage activist investors and other stakeholders who increasingly tap into environmental, social and governance (ESG) issues to generate conversations.
2
Review your organisation’s crisis playbook. Does it include all potential scenarios and is it updated regularly?
3
Review your organisation’s commodity risk management philosophy. Prepare for how short- and long-term changes in the pricing environment could impact customer and shareholder sentiment and government involvement.
4
Understand how proposed legislation and government actions could affect your company. For example, does your organisation have the flexibility to shift gears quickly to take advantage of opportunities as political agendas change?
5
Focus on relationship building. Continue or increase efforts to build relationships with all relevant stakeholders, including consumer groups, governments, regulators and society. Also consider industry and cross-industry cooperation efforts to proactively shape reasonable regulation with governments.
6
Get your supply chains in order. Review your current setup and determine how you can reduce disruption and improve resilience.
7
Analyse your organisation’s cyber defence protection. The risk of a cyber breach is perhaps the most underestimated above-ground risk in the P&U sector. It cuts across political and geographical risks, and any company, regardless of size, is a potential target. You are vulnerable to a cyber security breach no matter where you operate.
