The energy-demand opportunity: How companies can thrive in the energy transition

All told, actions that organizations take to manage their energy demand will help them create commercial value, achieve environmental and social benefits, and boost resilience to risks such as supply disruptions. In this article, we’ll show how organizations can realize these benefits and build competitive advantage with four complementary approaches to demand-side energy action: optimizing their demand through energy-efficiency measures and more flexible usage, pursuing energy independence, maximizing interactions with the market, and electrifying operations.

How an Australian industrial park created value by changing its approach to energy demand

To understand how companies can create value by managing their energy demand, consider the example of Moorebank Logistics Park (MLP), Australia’s largest intermodal freight facility. Like other large industrial organizations with significant energy demand and ambitious carbon-neutrality goals, MLP and many of its tenants are seeking to reduce the Scope 2 carbon emissions that result from their use of purchased electricity. The facility’s ownership consortium also recognized that such efforts would have to be balanced with tenants’ need for economical, reliable electric power. In response, the consortium partnered with renewables fund Solar Bay not only to install and operate Australia’s largest rooftop solar installation at the precinct but also to use technology to manage energy demand in an efficient, cost-effective way.

Under the partnership, Solar Bay will install 60 megawatts of behind-the-meter rooftop solar along with 150 megawatt-hours of batteries for energy storage, which will serve tenants across the facility by way of a localized electricity network, or microgrid. This integrated system will be capable of delivering all the energy that the park uses during daylight hours, equivalent to 44% of overall energy needs. The rest of the facility’s power will come from an off-site wind farm, giving tenants enough renewable energy to meet the full needs of their electrified operations. The switch to renewables is expected to prevent some 67,200 metric tons of carbon emissions per year, significantly reducing the Scope 2 footprint of MLP’s tenants.

The partnership also involves the use of technology such as efficient heating and air-conditioning, lighting and control systems, and extensive submetering and monitoring systems, to optimize the generation, storage, and use of energy across the logistics park. This approach extends to MLP’s interaction with the grid. Significant portions of MLP’s total energy demand (or load) are flexible enough that they can be shifted to times of the day when power is cheaper or when the grid is under less strain. By adjusting those loads in line with the changing price and supply of power from Australia’s grid, MLP can optimize consumption of power generated on-site. It will also provide what are known as grid-support services, which help to balance the supply and demand of power and ensure that electricity flows properly through the network.

Aggregating the energy demand of tenants across the facility and coordinating its management allows MLP to maximize the commercial benefits of its grid interactions, while improving grid performance for others on the network. And as the project expands, MLP intends to offer tenants additional services such as fast charging for electric trucks and hydrogen generation and supply.

Optimizing energy demand with new efficiency measures and shifts in usage patterns

When organizations reduce their energy consumption, they lower costs, cut carbon emissions, and build resilience against such difficulties as price spikes or supply shortages. One simple way to save energy is to install digital devices and systems that monitor and control usage in small appliances such as air conditioners and water heaters. Because these basic interventions can yield energy savings of up to 40% for little or no cost, almost every organization stands to benefit from them.² The key to their effectiveness is to roll them out at scale (rather than piecemeal or only in some facilities or locations), increasing the amount of energy saved.

Businesses with energy-intensive buildings and equipment or with flexibility in usage, such as industrial manufacturers or retail shopping centers, are well positioned to obtain further benefits by adopting more sophisticated approaches. For example, organizations can use sensors to detect the presence of people or changes in temperature, so they can dial their lighting and heating up or down as necessary, taking into account factors such as costs and energy availability. With data from networked smart devices, organizations can forecast their energy needs and find opportunities to apply the approaches described next in this section, such as installing on-site renewables and storage.

Demand optimization techniques came together successfully for one European industrial manufacturer. When managers performed an assessment of the organization’s on-site energy demand, they found multiple opportunities to improve energy efficiency, including upgrading to more efficient electric motors, repairing leaks in compressed air systems, and optimizing lighting control software. These changes enabled the organization to reduce its energy consumption by 10%, its annual energy spending by €2 million, and its yearly CO₂ emissions by 3,000 metric tons.

Pursuing energy independence with on-site renewable power and storage

Reducing their reliance on grid power offers organizations another way to avoid such risks as surging prices, power outages, and service interruptions. It also helps them save money, because purchasing fewer kilowatt-hours from the grid results in lower network charges. In Australia, the US, and the UK, these charges account for 20 to 40% of the typical energy bill. ^{3, 4, 5}  In some jurisdictions, pursuing energy independence will also help organizations minimize their environmental levies and taxes, such as those applied under the EU’s Carbon Border Adjustment Mechanism (CBAM) and Emissions Trading System (ETS). The action that unlocks these benefits is installing on-site, or “behind-the-meter,” renewable energy generation and storage equipment.

An organization’s potential to generate energy on-site depends largely on its facilities’ location and physical characteristics, as well as what weather patterns prevail—particularly, how much sunshine and wind there is. Potential is also contingent on how much space the organization has available. Those with significant real estate holdings normally have better prospects, because they have more room for solar arrays, wind turbines, or battery installations.

But that does not mean that other organizations are locked out. They might be able to install solar panels on rooftops, in some instances. They can also look to reduce exposure to energy costs embedded in the prices of goods and services they buy—for example, by providing access to low-cost renewables in exchange for better commercial outcomes, such as supply guarantees or discounts on goods or services. IKEA, for one, provided some of its suppliers with power purchase agreements and other mechanisms to help them buy renewable electricity from the grid. The company also offered them direct financing for on-site renewables.⁶

Another approach to installing on-site renewables and storage is to enter into commercial agreements with energy providers that can supply capital and support rollout. As mentioned above, the MLP ownership consortium partnered with an energy provider to co-fund installation of solar panels and batteries.

Where renewable power generation is practical, there are many precedents for its implementation. Nearly 60% of the members of the RE100 global corporate renewable energy initiative now produce renewable electricity for their own consumption, most using solar.⁷ Through on-site renewable electricity and thermal energy generation, one European food manufacturer reduced its Scope 1 and 2 emissions by 68% (from a 2015 baseline). Contracts to purchase renewable energy helped the organization realize further improvements in environmental performance and stay on track to achieve a 100% reduction in operational emissions by 2030.

Maximizing market interactions through energy trading, demand response, and product sales

Organizations that participate in markets for energy and energy-related products and services can both reduce costs and generate revenue. Timing their purchases and sales of electricity, for example, lets them take advantage of changes in the price of grid power. Organizations can also develop and sell energy-related products such as EACs and carbon credits. And they can offer energy retailers the right to remotely discharge batteries during peak demand periods or earn income for moderating energy consumption to support grid stability.

To pursue these activities, organizations must put foundational capabilities in place. For example, they must operate their own renewable energy assets to issue EACs, and they need optimization tools to orchestrate their energy loads (that is, the energy consumption across a portfolio of facilities and equipment) in response to changing prices.

For these reasons, participation in energy markets is likely to work best for organizations such as retail chains, commercial offices, and data centers, which have high volumes of controllable energy assets and the ability to tailor their energy usage to daily fluctuations in costs. Organizations with lower levels of energy demand, or less flexible energy demand, may find fewer opportunities to adjust their energy usage as prices change. These organizations might consider partnering with others to aggregate energy demand and collectively engage in the market.

Organizations that do develop the capabilities to engage in energy and energy-related markets can realize substantial gains. One aluminum manufacturer based in Australia earned as much as AU$19.2 million per year over a four-year period after enrolling in the Australian Reliability and Emergency Reserve Trader (RERT) program. The arrangement allowed the organization to collect fees from the Australian Energy Market Operator in exchange for ramping down its smelter when the electricity load on the grid peaked, helping prevent interruptions and outages.

Electrifying operations to boost efficiency and mitigate emissions

The fourth approach to demand-side action involves replacing fossil fuel–powered assets, including vehicles, with electric alternatives. Running equipment on electricity, particularly renewable electricity, is a direct way to lessen carbon emissions. It can also enable the other three demand-side approaches by positioning organizations more strongly as prosumers in an increasingly electrified energy system. And electrification creates financial benefits, because electric equipment tends to be more efficient than conventional equipment. Electric heat pumps are three to five times as efficient as natural gas boilers, and all-electric vehicles are 4.4 times as efficient as gasoline combustion engine vehicles.^{8, 9} A further financial consideration: early adopters may find opportunities for green incentives or subsidies to help pay for electrification.

Of course, electrification does boost an organization’s demand for electricity, which can then expose it to price volatility caused by macroeconomic events, periods of peak demand, or low renewables generation. This accentuates the importance of optimizing energy demand and costs or installing on-site renewables, as described above, while also electrifying operations.

Numerous organizations around the world have realized multiple benefits from switching to electrified technologies. One UK-based utility, for example, aims to decarbonize its fleet of vans and heavy-goods vehicles by converting to electric vehicles and alternative-fuels vehicles, thereby creating the potential to reduce fleet emissions more than 90% by 2030. The phased rollout targeted by the organization is expected to result in a 50% reduction of its transport emissions by 2027.