Permanently Higher Energy Prices Are Forcing Businesses to Innovate or Die
The age of cheap fossil fuels has come to an end. Since the beginning of 2021, the prices of natural gas, crude oil, and diesel have skyrocketed, driven largely by supply chain issues exacerbated by the pandemic and Russia’s invasion of Ukraine.
As a result, wholesale electricity costs have spiked more than 400% in many European countries since the beginning of 2021. While electricity prices have dipped slightly in recent months, to merely 200-300% higher, many of these same countries are now transitioning away from Russian fossil fuels at an urgent pace, which will keep supplies tight and prices high for the foreseeable future.
While Europe has absorbed the most serious energy price increases so far, the current energy crisis will resonate around the world. Once that happens, businesses will be forced to make a choice: improve their energy efficiency or reduce their operations.
This isn’t scare-mongering. In response to the looming energy crisis, German Economy Minister Robert Habeck warned that, in order to reserve energy for hospitals and other critical infrastructure, industry will be first in line for cuts if shortages continue through winter.
While recent gains in renewable energy might reduce costs in the long term, companies can’t wait that long. To survive the transition, they must reduce their overall energy consumption without cutting business-critical operations.
Luckily, recent advancements in energy-saving technologies have provided an easy solution to this dilemma. As Fifth Wall’s Greg Smithies said recently during a Net Zero Action Heroes interview, these technologies have reached a tipping point.
“With many of these technologies, you can sell them today to an active climate-change-denying CFO because, on an economic basis, they just make sense,” he says. “These technologies are ethically good, sure, but they’re also cheaper, better, and faster. It’s kind of a no-brainer.
Retrofitting an HVAC system with an energy-efficient motor, for example, has become an easy win based on the savings alone, regardless of a company’s position on climate change. As energy prices continue to rise, the ROI on these energy-efficiency projects will only look more and more attractive.
The age of cheap fossil fuels once powered the industrial revolution. Now, their disappearance will power a revolution in energy efficiency. From the Built Environment to Transport, every industry stands to benefit from adopting these technologies, now more than ever.
Buildings account for 40% of global energy consumption. For companies managing large building portfolios, small fluctuations in energy prices can wipe out profit margins; bigger ones pose an existential threat. This is especially acute in commercial buildings, already suffering from high vacancies due to the pandemic.
Luckily, reducing energy consumption in commercial buildings is fairly straightforward. HVAC consumes nearly half the energy used in these buildings, and nearly 30% is wasted by outdated technology. But new-age motors, like Turntide’s patented switched reluctance motor, can reduce annual HVAC energy consumption by up to 57% according to a study by the National Renewable Energy Laboratory.
Plenty of companies, such as Wilko in the UK, had already captured huge savings before energy prices started climbing last year. Going forward, their investment in energy efficiency will be a strategic differentiator in the retail business, an industry long known for tight margins.
Manufacturers specializing in energy-intensive products — like HVAC, air handling units, and fan arrays — are especially well-positioned to take advantage of this opportunity.
For example, Turntide recently partnered with XNRGY, one of the largest custom air handling manufacturers in North America, to transform their XnFan Array fan system into an optimally efficient Smart HVAC solution ideal for data centers and other environments with mission-critical cooling systems.
Against the backdrop of surging energy prices, partnerships like these will become more and more common, offering a competitive advantage to OEMs that offer this value.
The transportation industry has been racing to electrify for years, driven primarily by evolving consumer appetites and increasingly ambitious climate regulations.
Construction and agriculture equipment. Last-mile delivery vehicles. Warehouse robots. These commercial and industrial vehicles, long powered by combustion engines, have viable electric alternatives that provide the same power with higher efficiency and better control.
Up until now, the short-term value of cheap fossil fuels has dampened their adoption. The latest energy shocks changes the calculus.
Now, just like the owners and operators of large building portfolios, businesses managing large vehicle fleets stand to lose millions of dollars as a direct result of skyrocketing fuel prices. These combustion-powered fleets require gasoline, which has not been immune to the recent price surge.
In Germany, for example, the cost of gasoline spiked from $1.30 to $2.35 per liter between March 2021 and March 2022 before dipping slightly to $2.15 per liter in April. A significant portion of that increase came in the weeks following Russia’s invasion of Ukraine, and while several other factors played a major role in the overall price surge, the aftershocks will undoubtedly cement these high prices for years to come. With many EU countries moving to ban Russian energy, the block will need to replace nearly 27% of its gasoline imports from 2021, which will only drive costs higher.
The fallout will not be limited to the EU. Both the UK ($1.30 to $2.04 per liter) and U.S. ($.50 to $1.08 per liter) have already seen a similar increase over that same period and will be impacted by this new void in the energy market, meaning business around the world will be paying more to fuel their combustion-powered fleets.
As prices continue to rise, vehicle electrification will become less and less about hitting national climate goals and more and more about sustaining your business. What you might have once considered a long-term obligation to our shared planet is now the only way you can protect your bottom line from future energy shocks.
Against this backdrop, businesses have two options: improve the energy efficiency of their buildings and accelerate their transition to electric vehicles or reduce their operations and sustain heavy losses on the energy market. One of these options provides immediate ROI and would insulate your business from price volatility. The other equates to rolling the dice and hoping that your business can survive an energy crunch that promises to extend well into the future.