The recent disruptive evolutions in the energy market had a considerable impact on the bottom line of many organizations. This effect was observed across different sectors and did not solely affect energy intensive organizations. Some organizations had to close one or more facilities as the surge in production costs could not be compensated by an equal increase in product prices.
Although energy prices today are less elevated, and gas storages in Europe have been filled in the short run, the underlying factors causing the uncertainty of both energy supply and prices are still present. In response, the EU adopted the Electricity Market Design reform (2024) to stabilize energy prices, enhance consumer protection, and accelerate renewable integration. Going forward, organizations will have to structurally mitigate the related risks. Although the root cause of the current inflation is linked to the increase in energy prices, macro-economic evolutions are impacting the energy market as well. Any evolutions, such as the recent instability of the financial sector, will therefore have to be closely monitored. The impact of both macro-economic conditions and potential energy price changes for organizations will have to be managed.
The uncertainty is further fed by the ongoing geopolitical tensions between Russia and Ukraine since considerable increases have been observed, and are still expected, in European defense budgets. With Russia being a pivotal country for energy supplies in the past, the impact of the war in Ukraine is fundamentally changing the European energy landscape and is accelerating the energy transition.
The EU’s REPower EU plan has significantly reduced Russian fossil fuel imports and expanded LNG infrastructure and interconnectors to diversify supply. However, the question remains whether sufficient gas supply can be secured for subsequent winter periods, and if Europe can and wants to keep relying on Russian Liquified Natural Gas – a supply that is yet to be impacted by the war. Under the EU Gas Storage Regulation (2022/1032), member states must fill 90% of gas storage capacity by November each year to ensure winter preparedness.
More unknown but equally important, factors such as drought and the rise in water temperature are also looming as the energy sector is highly dependent on water during its production process. This holds true for conventional energy generation such as nuclear and gas fired plants but also for renewables such as hydropower and hydrogen. It is beyond question that the focus on this water-energy nexus will intensify in the years to come, particularly once the effects of global warming become more visible and broadly understood. The 2024 Water Resilience Initiative by the European Commission calls for integrating water stress into energy planning, particularly for thermoelectric and hydropower assets.
While some organizations focus on market share recovery, energy management within all organizations will need to professionalize in parallel. Front-runners in tackling energy security challenges will not only limit the impact of energy market evolutions on their organization but will also gain a competitive edge. This does not only involve transitioning to renewables and defining a smart energy mix but also achieving unprecedented energy efficiency levels. Any unit of energy which is not consumed, not only supports the energy resilience of your organization but saves costs.
