With the increasing concerns about climate change and the globalization of the energy market, management needs to be more aware of the interacting drivers of energy availability, cost and environmental regulation. I recently had the good fortune to be on the road in Germany, Denmark and China, and want to share some very personal observations about each.
Germany has been a quiet innovator in the energy sector for more than 100 years. This runs from the early days when Siemens, along with GE, defined the world’s electricity system, to formulating transport fuels and gas from coal during World War II, to the past 50 years of systematically improving the efficiency of cars, trains, buildings, industrial processes and urban energy systems. National energy productivity is about twice that of North America. More recently, the focus on supply risk and greenhouse gas reduction has fostered new industries in bio-fuels, wind energy, solar, bio-mass and waste-to-energy technologies.
I met with representatives of a leading German municipal utility that supplies heating, cooling, electricity, gas and tailored industrial energy services to its home city, and has successfully expanded its business to support cities and industries around the world, including to the United States and Canada. The thing I notice most in Germany is the integrated view of energy as a single chain from the primary fuel all the way to the final process. This breaks down traditional utility/industry relationships, encourages large-scale heat recovery, and stimulates creative contractual and value-sharing structures. As primary energy prices rise in North America, this higher degree of teaming across the meter will become inevitable.
Moving on to Copenhagen, I am always struck by the integration of the energy system. Multiple fuels (municipal waste, wind, solar, coal, wood, oil, gas) provide traditional gas and electricity services, along with large-scale heating and newer cooling services, to some of the most efficient buildings anywhere.
As a result, the skies are blue, the carbon footprint of the city is among the lowest in the world, energy costs in the economy are reasonable, and energy price and risk are spread across a wide range of fuels and efficiency. The Danes are now at the point of debating the value of further demand efficiency — their homes and buildings are about twice as efficient as those in the United States’ — and are beginning to see the upstream potential in gaining efficiency and reducing carbon as more attractive use of investments.
At the annual Pointcarbon Carbon Market Insights Conference, the largest gathering of specialists in the greenhouse-gas trading market, more than 1,600 participants attended erudite presentations on the intricacies of the various climate-related emissions credits, differing national markets and legislation.
They also peered into crystal balls as the possible market effects of California legislation, the U.S. Northeast, China and India. In this group, the debate about climate change is over. Their challenge is finding business opportunities within the emerging cap-and-trade markets. This solidifying reality is increasingly affecting how companies measure, manage and report greenhouse gas emissions. Management is well advised to clarify its approach and be flexible to deal with a changing future.
The flight to China was a transition between the mature economies and infrastructure of Europe and the booming industrialization Asia. Landing in Shanghai, it’s hard not to admire the way that some balance has been achieved between explosive growth and developing acceptable long-term infrastructure. There are huge challenges as energy costs increase and China adds electricity capacity at the rate of “one U.K. per year.” However, the introduction of some of the most stringent vehicle and building standards, along with major investments in efficient transportation, are signs that the community is rising to the challenges.
While in China, I visited a city, many flight-hours from the boom towns of the coast, that is suffering severe pollution caused by widespread use of coal for heating and industry. I was struck, not only by the challenge, but by the willingness of the leadership to tackle it with an integrated approach that radically reduced demand though efficiency, and extended and upgraded a citywide energy system. To achieve these urban benefits requires a much tighter dialogue among industry, commerce, developers, energy suppliers and city leadership. The energy challenges of North American cities are beginning to drive his kind of integration. Management might want to see how it can be a driver of tighter integration and benefit from the economic and other advantages it can bring.
This was a long trip with very different energy perspectives. It was an overwhelming confirmation that the world is tackling the challenge of energy productivity, reliability and climate change in many creative and effective ways. These changes fundamentally affect the strategic role of energy management in many companies.
Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at [email protected].