7 Tips for Successful Energy Business Plans

Energy and carbon managers may dream of having unlimited funds to address the challenges of achieving net zero emissions. However, they are faced with the reality of competing for limited investment resources amidst various corporate priorities.

A recent poll conducted by Mott MacDonald surveyed ports and shipping industry professionals and found that 39% of them struggle to secure committed plans and budgets for their carbon management projects.

This challenge is not unique to this sector alone. In my capacity as an Energy Transformation Specialist, I interact with a diverse range of large energy users, including airports, manufacturing firms, water companies, and hospitals. A common issue that surfaces is the difficulty in building compelling business cases for energy transformation and net zero programmes when the costs and benefits are spread across the entire business.

To gain a comprehensive understanding, it is crucial to engage with a broad spectrum of internal stakeholders, ranging from colleagues in operations, facilities, fleets, commercial departments, finance teams, and sustainability units. Moreover, some costs may be covered by, or benefits may accrue to, external stakeholders such as tenants or service providers at the site.

Here are some valuable tips to help in developing a robust and persuasive business case:

Capture all potential revenues: Unveiling the complete spectrum of revenue possibilities stemming from an investment is a potent tool. For instance, energy generation and storage assets can introduce new revenue streams through private wire sales or by offering ancillary services to the grid. Initiatives aimed at reducing emissions may be monetisable as carbon credits. Earnings from additional service provisions, such as electric vehicle charging or low-carbon shore power, should be thoughtfully considered across the business due to the diverse business models involved.

Offset cost savings: While pay-back periods are typically calculated based on when the net cash inflows from an investment equate to the initial cost, it is equally essential to consider cost savings or avoided costs elsewhere in the business. These could include operational savings, reduced maintenance costs, avoided grid capacity reinforcement costs, and future carbon offsetting costs. It is imperative to factor in forecasts for wholesale costs and non-commodity costs over the investment duration, as energy price assumptions play a significant role.

Demonstrate the value of price certainty: Attaining price stability and being able to accurately estimate energy costs offer substantial benefits. Exposure to fluctuating national and global energy prices leads to increased hedging costs and forecasting risks. Methods such as self-generation, demand reduction, or load shifting initiatives can help mitigate this exposure. Articulating the value of price certainty, aligning it with long-term budget planning (potentially tied to a regulatory cycle), and illustrating its impact on others, such as tenants, is crucial.

Ask to recycle energy cost savings into further programmes: While some organisations cannot redirect operational cost savings due to regulatory constraints, others follow a practice of reinvesting such savings back into the overall budget. For net zero-related initiatives that require ongoing investments over several decades, it is logical to channel any resultant energy savings towards implementing additional measures to further reduce costs and carbon emissions.

Show the full range of co-benefits: In addition to direct costs and revenues, decarbonisation measures offer a broad spectrum of co-benefits, which are at times equally, if not more, crucial in propelling action. Financially, energy efficiency or new service provisions, such as charging infrastructure, may positively impact real estate value. Investor perception, share price impact (for listed companies), customer satisfaction, reputation with various stakeholders, accreditations, and regulatory obligations are all influential factors that should be considered.

Engage with partners who benefit and could contribute to the cost: Coordinating carbon management activities among multiple stakeholders benefiting from efforts at the same site requires strategic cooperation. This may involve appointing a project manager to liaise with stakeholders and establish a cohesive programme with financial commitments. Understanding the decision-making hierarchy within each party and how their business models align with carbon reduction initiatives is paramount. Tailoring the business case to resonate with the language of decision-makers, elucidating the impact on rent or utilisation rates, for instance, is necessary.

Show potential funding sources: Balancing capital financing between borrowing, grants, third-party investments, and internal funds poses a significant challenge. Building an energy transformation roadmap that outlines the timing of investments and expected payback periods is a good starting point. Understanding where related funding sources align, such as within building modernisation programmes, can help in identifying potential sources of funding. Maintaining project briefs ready for swift deployment in cases of underspends or grant/loan funding schemes opening up is advisable.

In conclusion, it is essential to think holistically about potential benefits, including intangible ones, when crafting a business case for energy transformation and net zero programmes. Each organisation may bring unique factors to the table that could strengthen the argument for further investment towards climate change mitigation.

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This informative article was featured in the May 2024 issue of Energy Manager magazine. To stay updated on the latest trends and insights in the energy sector, make sure to subscribe here.