5 Energy Trends That Will Impact Your Business In 2013
BMO Harris Contributor, BMOHarrisBank
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(Image credit: Getty Images via @daylife)
If CEOs aren’t focused like a laser beam on energy trends —and on figuring out how those trends might affect their corporate bottom lines — they should be. Truth be told, more and more executives are locked in on the energy market and are promising to leverage that market to improve sustainability at their firms.
The data supporting that notion comes from Accenture and the UN Global Compact’s 2010 survey, “A New Era of Sustainability.” According to the report, 93% of the 766 CEOs surveyed say that energy sustainability is either “important” or “very important.”
The depth of that enthusiasm largely depends on the industries of those CEOs and their firms. The study noted that 100% of CEOs in the automotive and consumer sectors view sustainability as “critical” to their success. But only 68% of CEOs in the banking industry, and just 22% of CEOs from the communications sector, view energy sustainability as critical.
That’s hardly a shock. Auto companies and consumer goods firms have to spend larger percentages of their budgets on transportation and fuel than do banks or a technology services providers.
Going into 2013, CEOs of all stripes face a challenging energy market in which costs are rising, and leading energy providers are just as likely to call North Dakota home as they are Dubai or coastal Norway. What are those challenges and how do they rank when it comes to companies’ future energy budgets? Let’s take a look.
Pricing. According to Ernst & Young‘s global annual cleantech report of September 2012, 42% of C-level executives surveyed said their companies spent at least $50 million in energy costs annually, with 27% saying they spent more than $100 million.
Those high prices are triggering a broader re-evaluation process among CEOs going into 2013, said study researchers.
“While cost reduction is cited most frequently as the primary objective of corporate energy strategies, a number of other energy-related risks are also being addressed, such as energy security, carbon reduction and price stability. Regulatory compliance, together with reputational and brand aspects, also plays a part,” noted Gil Forer, the leader of Ernst & Young’s Global Cleantech Center.
Veering toward Renewables. The Ernst & Young study reported that a clear majority of CEOs –- 59% — say their renewable energy purchases will rise over the next five years. To fight back against higher energy prices, those CEOs intend to explore cheaper renewable energy. Right now, only 11% of CEOs in the Ernst & Young survey said that renewable energy comprised more than 5% of their company’s energy budget. But most chief executives estimated that figure would increase over the next several years.
Company-Generated Energy Will Rise. 51% of CEOs in the Ernst & Young study said company-owned renewable energy resources would increase, and 16% claimed that it would “significantly increase.” This from the study: “Company self-generation of energy and integration of renewables into the energy supply have been implemented at significant rates to meet these ends, with these practices set to accelerate over the next five years.”
Commercial Buildings Going Green. More buildings, manufacturing plants and office complexes in the U.S. are going “green,” or at least heading that way.
Clean Edge, a Portland, Oregon-based clean technology advisory firm, reported that 20% of the annual energy consumption in the U.S. is linked to commercial buildings. The firm also says that the federal government is offering big financial incentives to companies to “retrofit” their buildings and make them more energy efficient. The goal is to cut U.S commercial building energy output by 20% by 2020.
Natural Gas Over Oil. With demand for oil slowing across the globe, especially in emerging market countries like China and India, oil prices should rise significantly in 2013. But huge stores of natural gas, especially a burgeoning shale gas supply in the U.S., make natural gas a cheaper and more abundant option.
Expect CEOs to steer energy budget resources away from pricey oil and toward inexpensive natural gas. That’s especially true given the U.S. Energy Information Administration’s recent forecast showing demand for natural gas will rise by about 5% 2012, an output that will reach historic highs.
Typically, natural gas is about 10 times less expensive than crude oil. But these days, it’s trading 35 times cheaper than oil. While that ratio may not be sustainable, high natural gas inventories should keep prices down for 2013. Companies like Waste Management and Cummins have already announced they’re switching from oil to natural gas in their transportation budgets. It shouldn’t be long before other companies, big and small, do the same.
No doubt, U.S. chief executives are increasingly seeing a changing energy industry landscape. They are marshaling resources and establishing battle plans to leverage new opportunities in sustainable energy over the long haul, and cheaper energy alternatives (like natural gas) over the short term.
That’s the picture heading into 2013. Now let’s see if CEOs will adapt to a dynamic energy marketplace.
