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Why energy has become a business imperative for US companies

Our Energy Advantage Report provides analysis on how businesses are using energy. In this piece, Stephen Prince adds his own experience of our customer's changing roles and attitudes.

Stephen Prince, Head of Centrica Business Solutions, North America, provides his insights on the energy industry, how it’s changing, and what that means for businesses.

We recently published an extensive piece of research on the impact investing in energy can have on business results. If you haven’t seen it yet, take a look—it’s a great read and provides practical tips on how you can turn energy from a cost to an advantage.

Surveying over 1,000 companies across the globe, we found that attitudes to energy are changing. One in three organizations are already thinking about how energy can contribute to business growth, drive deeper efficiencies and reduce risk. And those that have invested in advanced distributed energy solutions—which range from smart lighting to cogeneration and onsite renewables—are already seeing a wide range of benefits.

Reading through the research again got me thinking about how this picture compares to what I’m seeing and hearing when I talk to our customers in the US. For many companies here, energy hasn’t been high on the corporate agenda. Energy has tended to be inexpensive compared to in other parts of the world, and supply has been relatively secure.

But in the conversations we’re now having with major organizations across the US, we’re seeing a shift in attitudes due to rising utility distribution prices and increased energy supply issues, therefore the interest in distributed energy is growing. There are a wide range of reasons for that—from managing costs better to providing greater resilience. The energy leaders are investing in energy to gain a competitive advantage.

Getting back control over costs

For many companies, the original impetus for investing in distributed energy solutions is to manage costs. Take the situation in California—one of the largest economies in the world. Here, regulations are shutting down traditional power production. The state is moving to renewables in the form of solar and wind. But the immediate effect of that is higher distribution costs, as distribution companies seek to fund the new infrastructure required.

Businesses I’ve talked with complain they can’t control their bill—even if commodity charges were zero, they’d still face a big bill for delivering the power and balancing the grid. That’s why many large industrials and manufacturers are now engaging with us to help them understand how they can decouple themselves from these costs by producing their own energy.

The most advanced energy leaders are 6.7x as likely as their peers to be operating a sustainable business model

We’re helping businesses in the region introduce distributed energy solutions that will enable them to become internal energy consumers. And we’re helping them develop and execute on a vision of energy that could ultimately see them become energy suppliers themselves. Our research found that vision and execution are key to becoming an energy leader and achieving a competitive advantage.

We’re already seeing that happen with large land owners in the California farming belt. They’re recognizing the value of energy and remodelling their entire business models around it. By putting solar plus storage on their property, they can become power generators. And, when there are irrigation issues, that can be a more attractive proposition than growing crops.

Achieving greater resilience

Our research found that many organizations are moving beyond a view of energy as purely a cost of doing business. This resonates with what I’m hearing from our customers. Many of the organizations I’m engaged with aren’t just thinking about energy in terms of the cost of supply. For them, having a secure and reliable supply is vital to the viability of their business. And they’re often ready to pay more if it means reducing the likelihood of power outages or quality issues. Almost a third of respondents to our survey that are using, or at least considering advanced energy solutions, said: “We meet our environmental/regulator targets, but we also want a reliable energy supply no matter what.”

Take a major business based in Texas. It has been suffering severe disruptions to its power supply on a regular basis, which is costing millions of dollars each time they occur. With no choice over energy provider, it’s now looking to create a micro grid of its own incorporating solar, storage and standby. It’s not looking to recoup any costs by producing for others—it wants greater resiliency of its own supply.

71% of organizations agree that the cost of being energy resilient is less than the cost of a power failure

It’s a similar story for a group of major pharma companies with operations in Puerto Rico. They’ve suffered huge disruption due to Hurricane Maria. They’re now looking to create their own micro grid to improve the resilience of their supply. They see it as something that’s a necessity—otherwise their businesses will fail.

Resilience is a key driver for our healthcare customers too. Again, it has been natural disasters that have highlighted to them the importance of a reliable energy supply. They’ve found that survival rates are poor for patients in a critical condition who are transferred to different hospitals. They need to keep vital medical equipment running. A backup generator that keeps the lights on isn’t enough—they need complete energy independence in the event of a storm. That’s becoming legislation in Florida following Hurricane Irma.

Gaining a competitive advantage

Today, achieving energy resilience and managing costs are two major imperatives for businesses. But few have developed a longer-term vision for how they can use their energy investments to drive business growth and deliver competitive advantage. Our research found that just one in 12 of those using advanced solutions see energy as an asset that can generate additional revenue and competitive advantage.

We’re helping to change that through our conversations with customers. Just think, a retail business that can survive a hurricane and stay open when everyone else, including the government, is offline is going to see a huge boost to its brand. Customers spend with businesses they trust. Our research shows that investing in energy can deliver a competitive advantage. We created a model that sets out four stages of energy leadership. The most advanced companies—those that have a formal strategy and are executing it—outperform their peers on many business measures, including financial performance, efficiency, compliance, sustainability and brand position.

The most advanced energy leaders are 2.5x as likely as their peers to be achieving strong financial performance

Currently, just 8% of organizations fall into the “most advanced” category. Most—over three quarters—fall into our “least advanced” and “fairly advanced” categories, with the rest classified as “very advanced.” Most businesses we’re talking with today understand the importance of energy to their business—typically because of an immediate issue with cost and resilience. But they don’t know what solutions they should be investing in. And they don’t have a longer-term vision of how they can turn energy to their advantage; how they can convert energy from a cost into a revenue stream.

Revealingly, while nearly three quarters of companies say they have an energy strategy, these are rarely comprehensive. For example, almost two thirds think having back-up sources in the event of a power outage is very important—but less than one in five have targets, actions or budgets for this linked to their plans.

At Centrica Business Solutions, we understand the ever-changing regulatory environment across the US and the solutions that are best suited to our customers’ different needs. That means we can help our customers achieve their immediate goals. But we don’t rest there. We’re also helping them create and execute energy strategies that are helping them join the most advanced energy leaders. For some, that means providing advice and supporting implementation. For others, we’re de-risking the decisions they have to make. We’re helping them to stabilize supply and secure competitive advantage through financing and ownership. We’re managing their energy infrastructure for them so that they can focus on their core business.

If you’d like to find out more about how Centrica Business Solutions can help you become an energy leader, please reach out to my team.

Check out the Centrica Energy Advantage Report to discover more on how quickly attitudes to energy are changing, and for practical tips on how you can accelerate your energy agenda and get your business on board.

You can also discover how your energy initiatives compare to similar organizations in your industry with our easy-to-use self-assessment tool.