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The need for energy security

india Updated: May 26, 2010 10:50 IST
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Leaders from around the globe met at the World Future Energy Summit last month in Abu Dhabi to talk about contemporary energy issues. One of the topics on their agenda was energy security, an important matter for businesses.

To wit, how is a growing long-term supply of energy going to be guaranteed? Is your company thinking about the stability of its long-term energy supply?

With global events such as the 1973 oil crisis and the record highs in energy prices in 2007 and 2008, countries have been looking to make their energy sources more secure. Eastern European countries are nervous after the Russia-Ukraine gas disputes in 2006, 2007 and again in 2009. Countries in Central Asia and the Balkans are scaling up infrastructure development of gas pipes to diversify their risk away from Russian gas. In Poland, risk management means the development of biomass. Political issues aside, even the US is responding to West Asia’s energy security concerns by funding the incredibly expensive and environmentally destructive Alberta tar sands oil project in Canada, and is investigating biomass.

There is also the debate about peak oil—the point in time in which the world reaches the maximum rate of petroleum extraction, something that would trigger a terminal decline in production. There is much speculation about peak oil, with many sources suggesting it has already hit Japan—a country previously wholly dependent on imported oil, which has now transitioned to nuclear energy and gas. The UK turned to their North Sea oil reserves to once again become a net energy exporter. Abu Dhabi, Qatar and Saudi Arabia have sovereign wealth funds to help support their transition to a non-oil economy once they begin to run dry.

Countries are hitting two birds with one stone by scaling up renewable energy as a solution to both the energy security issue and climate change. After all, the idea of a never-ending supply of energy is appealing, isn’t it? Recently, Germany, the UK, France, Denmark, Sweden, Belgium, Ireland, Luxembourg and the Netherlands announced a €30 billion collaboration to link up wind, tidal and hydro plants in the North Sea to contribute 100GW of power, equivalent to just under half the total power generated from coal in the US. In Chile, public-private partnerships with European energy companies are aiming to bring stability to an energy supply that is currently dependent on Bolivia, which is politically unstable, and Argentina, a country facing its own energy security issues.

The implications of increasingly risky and uncertain energy supplies to business are paramount. Business is left with two options: to leave this to governments (as it is traditionally their responsibility), or to take matters into its own hands.

It is our opinion that businesses need to start preparing for future energy issues. Governments can only take us so far. In the US, for example, the innovation system is fundamentally flawed. The US government is providing billions to fund research and development and create new technologies. However, power suppliers are not adopting these technologies. In the US, for a technology to be adopted by municipal utility companies, it must be proven to work. But how is an energy innovation proven if it is not adopted first?

With governments struggling with their own systemic issues, energy supplies will become expensive if not scarce. Soon businesses will not be able to expect low energy prices and easy availability and therefore will need to sacrifice existing consumption pleasures. So if they want to maintain equivalent levels of consumption in the future, businesses would need to start compensating the lack of energy coming from the grid.

Businesses must do two things: become more energy efficient and/or buy energy generators for themselves, preferably renewable.

Companies will need to be smarter and more economical about energy usage. They need to shed the notion that energy is infinite. Consider Yahoo’s Silicon Valley office: When it gets hot and there is pressure on California’s energy infrastructure, Yahoo sacrifices personal comfort and turns the air conditioning down.

Lighting, computer screens and air conditioning or heating are the three most energy intensive areas of an office. Here are some practical tips to lower this usage:

• install the most efficient lighting with a motion sensor and run campaigns about switching off monitors;

• have an external energy auditor or volunteer analyse business to find out exactly where your electricity usage is coming from;

• develop your own mini-sources of energy. There is a fast growing market for small solar or wind energy generators for offices, homes and factories. You will find returns on this investment within five years.

Such examples of businesses taking matters into their own hands are growing substantially in the last couple of years. In fact, pioneers are seeing the potential for business—not government—to take a large role in the development of the renewable energy sector. By taking matters into its own hands and supporting renewable energy, business can reduce its long-term energy supply and expense risks.

Corey Billington and Darren Willman are professor of operations management and procurement, and research associate, respectively, at IMD, Switzerland. Comment at theirview@livemint.com

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