Managing Energy Crises Will Be a New Source of Competitive Advantage for Industrial Firms

What the International Energy Agency (IEA) calls the "largest supply disruption in the history of the global oil market" was prompted by the price of Brent crude reaching US$126 per barrel, alongside wholesale gas prices surpassing €60/Megawatt-Hour (MWh), and shortages of helium and jet fuel becoming scarce. This all occurred in a matter of weeks and has meant that factories, warehouses, data centers, and office buildings must alter their operations and consider new ways of managing their energy needs.

Firms operating in some countries are less impacted when renewable energy, such as solar in the case of Spain and nuclear power in the case of France, account for a high share of the energy generation mix, while others such as Italy and Germany are more greatly impacted because of their reliance on imported gas. Energy sovereignty is increasingly a government priority. (For more information on the energy landscape in different counties please refer to ABI Research’s Smart Energy Metadata market data (MD-SEMD-101)).

So, what is the short-term impact? Those that have arranged long-term fixed contracts are okay for now, whereas those with contracts expiring shortly will be at the mercy of the prevailing prices over the course of the year. The impact is already having an effect on operating costs for manufacturers both big and small with chemical and steel manufacturers passing on the costs to their customers, but smaller manufacturers such as Dunoon Mugs shedding 20% of their workforce as a result of a sixfold increase in energy costs. Manufacturers are looking to save energy costs by performing processes overnight or during weekends. But the longer-term impact of rising energy costs will be reduced Capital Expenditure (CAPEX) due to the unpredictable operating environment and the need to manage Operational Expenditure (OPEX) to stay in business.

While rising energy costs are not as acute for warehouse operators, with many supporting their energy needs with solar panels on their roofs, those with Electric Vehicles (EVs) will be optimizing the time of day when they charge the vehicles. In addition, the rising fuel costs will impact Third-Party Logistics (3PL) providers. Both warehouses and office buildings are likely to experience rising costs for maintenance tasks performed at their properties due to suppliers’ passing on their rising fuel prices. And retailers are experiencing higher prices for heating, cooling, and lighting their stores. The price to cool data centers will be a headache for operators, too. Increasing energy costs were referenced as a reason for the announcement on April 9 that OpenAI is pausing its investment in a data center in the United Kingdom. 

There are actions that firms can take in the short, medium, and long terms to manage their energy needs. In the short term, an energy audit can establish a baseline of what contributes to the energy bills and identify waste. Firms can look to postpone energy-intensive tasks to cheaper time periods or change their operations, such as offices mandating work from home days. Facility managers will increasingly invest in energy management systems (ABI Research forecasts that the market for energy management systems will grow from US$36.77 billion in 2025 to US$98.43 billion by 2035), Heating, Ventilation, and Air Conditioning (HVAC) systems that improve energy efficiency (see ABI Research’s HVAC Systems & Hardware in Commercial Buildings market data MD-HVACBC-103), and lighting sensors to reduce lighting levels in unoccupied meeting rooms (see ABI Research’s Commercial Network Lighting market data MD-SLCBC-103 ). Digital twins will become an important tool for assimilating the energy-related data and supporting projects to optimize the facility’s energy needs.

Rising energy costs will encourage manufacturers to monitor the energy usage of their equipment. It will also drive more autonomous operations. Suppliers that include ABB, Emerson, Schneider Electric, Siemens, and Rockwell Automation are well placed to support the efforts of manufacturers and industrial firms to increase their energy efficiency. Increased automation at a Pilsner Urquell facility reduced the need for humans working inside the facility, enabling the firm to minimize the heating and lighting in the facility.

Industrial firms will increasingly look to secure Power Purchase Agreements (PPAs) for their energy needs and industrial heat pumps to capture and reuse energy. Virtual Power Plants (VPPs) will also become prominent with commercial buyers and sellers trading energy. Multinational manufacturers will arbitrage different energy prices and shift production to locations with the lowest energy prices, along the same lines as when they arbitraged different wage levels. Data center operators will mimic this strategy and orchestrate workloads, where permissible, to locations and time of day that reduce their energy costs.

Those firms with a long-term view and deep pockets will consider creating microgrids to meet their energy needs. For some, investments in Small Modular Reactors (SMRs) could get the green light (see ABI Research’s Small Modular Reactors (SMRs) – Technologies, Applications, and Use Cases report (AN-6502)) as they look to become energy independent. Effectively managing their firms’ energy needs will increasingly become a source of competitive advantage for manufacturers, warehousing operators, and building owners.