By James McClelland , Global Marketing Director, SAP Utilities & Energy Industry
Many people point the finger at the energy and utilities industry with regard to carbon emissions, but in comparison to other industries, the utilities sector is actually leading when it comes to adopting sustainable practices.
According to a recent survey by SAP and Oxford Economics, energy and utilities executives are more likely than those in other industries to have made sustainability-related changes to their operations.
On top of that, almost half of the energy and utilities respondents (47%) have committed to a net zero carbon goal, which is more than any other industry in the survey of more than 1,000 respondents worldwide.
Sustainability in Utilities: 3 Driving Factors for Change
Three key factors are accelerating the drive toward sustainability for the energy and utilities sectors:
- Increasing government regulations: Government clean air acts are mandating the industry to reduce carbon emissions and meet sustainability targets.
- Increasing consumer and shareholder demand: Consumers and shareholders are more eco-invested and continue to put pressure on companies to focus on sustainable practices and renewable energy sources such as wind, solar, thermal, tidal, and others.
- Decreasing cost of renewable energy: As more renewable energy installations are developed, the cost of generating renewable energy goes down.
The Balancing Act: Balancing the Bottom Line with the Green Line
Government regulations and compliance requirements must be fulfilled throughout the lifecycle of a utility such as a substation, a power plant, a wind farm, a solar array, or a gas pipeline.
Energy providers must meet these requirements while also dealing with often contradictory pressures to reduce costs, increase innovation and sustainability, and meet changing consumer demands – all while dealing with increased system complexity. In the survey, 50% of energy and utilities executives said increased process complexity is an obstacle to meeting sustainability goals.
As energy and utilities companies transform to accommodate competing objectives, they must find ways to balance the bottom line with the green line in these areas:
Use of technology: The survey shows that energy and utilities companies are more advanced than other respondents in their use of technology, with 55% using Big Data (versus only 30% for other industries), and 49% using cloud technology (versus 36% for all industries).
While digitalizing systems and automating processes effectively streamlines practices and monitors energy use, it also creates more complexity and less security. Each component that is added to the network – such as a smart meter or an asset sensor – introduces a new entry point for potential cyber security risks.
Emergence of Prosumers: As more people and businesses install solar arrays or wind turbines, they become both producers and consumers (‘prosumers’) of energy. This is creating a massive global shift for the utilities industry. While prosumers increase the amount of renewable energy available on the grid, they also increase complexity in monitoring and managing the flow of energy, and create more complexity in the billing process.
Balancing the bidirectional flow of energy: With traditional power grids, energy flows one way – from the power plant to users. Now, there is a bidirectional flow of energy because of the increasing number of prosumers. The growing number of companies and households both consuming and producing renewable energy creates multiple entry and exit points on the grid, which takes careful monitoring to balance the bidirectional flow of power.
How the Utilities Industry is Building a Sustainable Future
The utilities industry is at a critical tipping point toward sustainable practices because of two key factors. Renewable energy is becoming cheaper and consumers are demanding cleaner energy.
Combined, these forces are changing the industry forever. Here’s how:
First, having more renewable energy sources reduces ongoing operating costs and actually increases demand for green energy. As more wind turbines, solar arrays, and other renewable energy installations are built, they generate a larger proportion of energy on the grid.
When utilities companies have enough renewable energy sources connected, then they can offer consumers a choice of using traditional or renewable energy on their utility bills. As more eco-invested consumers choose green power, it increases the demand for renewable energy sources. For example, the UK recently recorded its greenest day ever with regard to electricity usage with its carbon pollution levels the lowest ever recorded for the power grid.
Second, the ongoing cost to operate renewable energy installations is becoming lower than traditional power plants.
Once the initial cost of a renewable energy installation is covered, the cost to continue operating it is fairly low because the raw source materials needed to generate power – sun, wind, or water – are basically free.
As renewable energy becomes less expensive to generate, it increasingly becomes the source of choice for a growing number of utility companies because it addresses all three of the driving forces listed above: it satisfies government regulations, consumer demand, and the cost of doing business.
A recent SAP report estimates that by 2025, the cost of energy from solar power, wind power, and energy storage will be competitive with traditional power-generation technologies in more geographies of the world.
Expanding Sustainability to the Supply Chain
In the survey, 64% of respondents from the energy and utilities industry said that suppliers are extensions of their own organizations, and 66% said a sustainable supply chain is a competitive differentiator.
There are a few actions utilities companies can take to deliver a sustainable supply chain:
- Create a long-term strategy that considers sustainability in every process from start to finish.
- Source materials ethically and ensure labor standards and fair humanitarian practices are in place throughout the supply chain.
- Implement sustainable design and engineering practices.
- Use logistics processes that optimize loads to reduce emissions and carbon footprint.
- Operate assets and equipment in an energy-efficient manner that is safe for the environment and the workforce.
A Sustainable Future is Good for Business
Perhaps as a result of increased regulatory scrutiny, the energy and utilities industry is already ahead of other industries when it comes to sustainable practices. As the cost of using renewable energy continues to fall, sustainable choices will bring a bright new future for the energy and utilities industry.
Learn more about balancing the bottom line with the green line in the SAP and Oxford Economics energy and utilities fact sheet, The Sustainable Supply Chain Paradox.