lead-Peter-Garforth

Manage uncertainty in the energy industry through collaboration and shared risk

Sept. 2, 2020
Peter Garforth says pooling energy resources with neighbors can help share the burden and the reward.

By any measure, managing uncertainty is the new certainty. This is as true for energy as for anything else. History teaches that effective management of extreme uncertainty is based on basic principles. The most effective is to share the risks arising from these uncertainties through effective collaboration with others facing the same conundrum. Risks shared are risks mitigated.

About the Author: Peter Garforth

The corporate energy manager’s list of uncertainties is long, often contradictory, with the potential to render a plant, or even an entire business, non-competitive. As the world adapts to the global pandemic, a basic question will be how much energy the business will need going forward due to changing market demand and uncertain economic recovery.

Uncertainty of policy around climate change remains unchanged, most obviously in the impacts on the price of utilities and fuels. Climate change in the form of extreme weather creates supply and site reliability uncertainties. The list should probably also include uncertainties over the viability of technology and services during changing market demand, supply change disruptions, and global trade disputes.

Utilities are on the other side of all these uncertainties. Decisions about their future create yet another layer of risks for the end user.

All these discussions are colored by the politics of the day. This adds the obvious challenge that the personal views of key decision makers must also be factored into the uncertainty equation.

By their nature, investments in energy efficiency, local energy supply, and conversion tend to be long-term. They are based on relatively stable future operating and policy assumptions, the exact opposite of today’s outlook. The most obvious reaction is to “wait and see” – to defer investments in energy infrastructure, sign short-term utility contracts, and focus on low-hanging efficiency opportunities. This sets the stage to be blind-sided by future disruptions.

In many cases, there may be another approach to consider. Many facilities are co-located with substantial energy consuming neighbors on industrial and commercial parks. These create opportunities for energy collaboration between neighbors.

What might this cooperation look like? Each facility will have specific energy and other utility needs. These will typically be some mix of heating, cooling, process steam, power, natural gas, water, wastewater, and even compressed air.

Depending on the business, some facilities will have predictable use profiles, and others will vary greatly. Some will have major efficiency opportunities requiring sustained investment, others will have large amounts of waste heat from process, chillers, or compressors.  On the environmental side, some will have challenging corporate climate targets that exceed local regulations, and all will need to be prepared for possible swings in local regulation.

If all these differing supply, efficiency, and environmental needs can be pooled, many benefits can flow. Higher plant utilization results in improved return on assets. Integrating power and various thermal services further increases plant utilization. Including compressed air services facilitates recovery and delivery of compressor heat. Heat recovered from one collaborating facility can be pooled for wider reuse.

A local supply portfolio from a range of clean and renewable sources combined with the local power, grid, and water networks can be flexible to the changing needs of facilities on the park.

The first collaborative step is for the energy managers of the companies in the park to quantify the shared benefits and risk management potential. If these make compelling business sense, the next step is to create and invest in the cooperative legal entity to offer shared services.

Facing the same uncertainties, traditional utilities are increasingly shifting their focus to flexible, more distributed business models and are highly likely to be willing partners and even investors.

One thing the global pandemic has shown is that massive changes can happen quickly, and unprecedented uncertainties call for new answers.

Energy Expert

This article is part of our monthly Energy Expert column. Read more from Peter Garforth.

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