Energy & Utilities Services
Sustainability vs. Sustainable: Is your energy management strategy truly efficient?
At its core, the word “sustainability” is defined simply as the ability to continue at a certain level—no explicit consideration for whether something is “green,” renewable, or recyclable, and no defined parameters around carbon footprint. Simply: “able to continue.”
This naturally begs the question: is your energy management strategy sustainable?
Deregulation opens the door for complexity
Very few expense categories simultaneously occupy the space of “mission-critical, yet completely ignorable” quite like energy and utilities does (that is, for those not involved in its management). When people show up for work, if lights are on, machines are powered, and faucets are running—things are smooth.
Thirty years ago, this was about as complex as energy and utilities got. You received a bill from your utility provider, and you paid it. If not, utilities were shut off.
In the early 90’s, however, the energy industry underwent a fundamental shift in regulations. Congress opened energy markets to wholesale generators and open-access transmission services, which essentially eradicated vertically-integrated utility monopolies and gave states the option to further deregulate supply-side components of electricity and natural gas.
This is what created the need for a central, strategic energy management program for organizations across the country. Within a brief period of time, energy went from something with limited spend-addressability, to something that can be purchased in the open market like other commodities—and which now required a comprehensive strategy.
For 20 years, that’s essentially what energy managers did; built and executed strategies centered on the ability to source electricity and natural gas from third parties in certain markets. Various levels of sophistication existed (and still exist) but at the end of the day, there were two very direct goals: keep the utilities on and pay as little as possible to do it.
Effectively managing both spend and carbon reduction
But in the last decade, the energy industry has undergone an enormous transition—a great sustainability revolution. Following the Paris Agreement of 2015 and a global commitment to limit the impacts of climate change to an increase of 1.5 degrees Celsius above pre-industrial levels, carbon reduction has become a critical component of an energy management strategy.
In the last three years in particular, a tidal wave of regulations directed at carbon emissions and corporate sustainability goals has brought energy strategy front and center for many organizations, begging the question: Is it possible to achieve lofty carbon reduction goals without significantly driving up cost in the process?
Of course, the answer is complicated, but it is very much aligned with procurement’s broader effort to do more with less. And in this case, “less” requires cohesion across traditionally siloed groups within a company, because the surest and easiest way to drive up cost in this category is to operate in siloes.
That alone is not particularly unique—managing spend locally and non-strategically always leads to higher cost within a category. But uniquely within energy and utilities, organizational siloes not only lead to higher category cost, but also present the risk of not meeting sustainability goals or mandates—potentially inducing further cost through punitive damages.
It is only through careful strategy-setting and execution that companies can hope to achieve both spend and carbon reduction at the same time.
Breaking down organizational silos
There’s an old saying for energy managers: “The cheapest kilowatt-hour is the one that you never use.” In other words, if you want to reduce spend, use less energy—a strong case for efficiency and demand-reduction projects.
But it also happens to be true that the least carbon-intensive kilowatt-hour is the one you never use. Are sustainability departments and, more importantly, the budgets for sustainability projects weighing these cross-functional benefits? Are companies appropriately considering all costs and benefits when analyzing and contemplating efficiency projects? For many, such as those with sustainability and energy groups operating in siloes, there might be little consideration for these multi-faceted benefits.
A utility bill management solution is similar. Bills need to be paid and sustainability groups need relevant information from those bills to track Scope 1 and Scope 2 emissions. Are energy managers and sustainability groups deploying these solutions together, or have they both solved for their needs independently, leading to duplicative processes and technologies? This is the irony of inefficiencies in a world focused on efficiency.
In a category with rapidly expanding regulations coupled with corporations’ publicly-stated sustainability goals, the cost of inaction is steep. But the need to act as stewards of fiscal responsibility is also very real. Now more than ever, amid a massive overhaul in the energy industry, it is time to take a step back and review overarching strategies for achieving ambitious goals, asking:
- Where do sustainability and energy management sit within the company?
- Are they operating together or independently?
- What are the incentives for how category managers execute?
- Are we adequately weighing secondary and tertiary costs and benefits for projects?
- Do we even have goals or strategies in these categories?
We’ll be exploring these important questions in future posts. Be sure to follow along so you can work toward breaking down your own organizational siloes and achieve true spend reduction while meeting carbon goals.