Companies need to plan ahead like never before because the current energy crisis and the necessary energy turnaround involve high risks, delegates heard at Real Asset Media’s Infrastructure Outlook 2023 – Investing in New Energy briefing, which took place online yesterday on the REALX.Global platform.
“Security of supply and high costs are a real issue now, as challenges and uncertainties continue to increase,” said Folker Trepte, Partner, PwC Germany.
Energy prices have fallen back but are still at a high level and inflation continues to bite. As well as the issue of costs, companies must also deal with energy efficiency.
“Optimisation is not just about reducing use but also using energy better and choosing different times,” said Trepte. “A scenario analysis is necessary for strategic orientation and long-term planning and companies need a framework for hedging and managing electricity price risks.”
There is a growing awareness among companies that they need to plan ahead, as long as four years before delivery, determining their demand profile and closely monitoring the hedge effectiveness required.
The other noticeable development has been an increased willingness to explore possible sourcing options for renewable electricity.
“Many companies have embarked on strategies to achieve carbon neutrality by 2030 or to significantly reduce carbon emissions,” said Trepte. “They are also aware that reputational risks materialise if they fail to deliver on their carbon-neutral agenda. Power supply is a major lever in this regard.”
The upshot is that there will be a significant increase in demand for renewable energy. Companies will try to secure the supply of green electricity at competitive prices, have access to technology to ensure maximum decarbonisation of production processes, and access to skills that will enable their energy independence in the future.
One way of doing it is through strategic cooperation or joint ventures with project developers, operators or renewable energy companies.
“There are several strategic options for achieving the target, but substantial investments are required,” said Trepte.
Investing in a brownfield project involves the acquisition of existing assets or shares in projects. Investing in a greenfield project involves the acquisition of rights to build a plant. Another option is acquiring project developers or operators or renewable energy companies.
All these strategies are highly capital-intensive and not all companies are prepared to make that investment.
“It is still the case that many companies want to invest in their core business and not in energy generation,” said Trepte, “but they must think of their competitiveness over the long term, not just in Europe but also against Asian or US companies.”