Derek McKay, CIO, Australia, ERM Power [ASX: EPW]

CIOs in businesses around the world are collectively stepping up and facing head-on the challenge of managing digital disruption in their markets. It is now entrenched within market leading businesses that the role of the CIO has broadened from managing operational efficiencies through to taking a leading role in setting the strategic direction of the organisation. Today’s CIO needs to understand market trends and their future impacts on their business, bringing their digital capability to the development and implementation of the company’s strategic plans.

In this context, an emerging theme within businesses today is how the combination of modern digital capabilities with the rapid advancement of renewable technologies can impact business outcomes. Energy costs have traditionally been seen as a smaller and steady part of the operational budget, not varying much from year to year. The disruption in many energy markets, largely due to the ingress of renewable technologies, has changed this dynamic significantly. There is a clear place for CIOs to take a role in understanding these business impacts and what digital capabilities can be utilised to maximise business performance.

Renewable technologies in energy markets are introducing very low marginal cost power into the electricity systems in steeply increasing volumes. Smaller installations at businesses and residential locations, such as roof top solar photovoltaic systems, are changing the wholesale market outcomes, with net electricity demand during the sunny parts of the middle of the day reducing materially. 

The California Independent System Operator (CAISO) coined the term ‘duck curve’ back in 2012 to describe the demand profile shape that is resulting in drastically lower prices in the day time periods, while prices in the evenings are increasing. Coupled with increasing large scale renewable facilities, largely solar and wind, and the potential for retirement of traditional coal fired base-load facilities, electricity market prices are generally becoming more volatile. The complexity of the electricity market outcomes are also increasing.

While electricity market structures and price outcomes differ around the world, whatever the location businesses using material amounts of energy should be developing a structured Energy Management Plan. The centre piece of the plan needs to be the philosophy that the most effective outcome is derived through understanding the relationship between what is driving their purchasing costs (through an electricity retailer), and how and when they consume and/or produce energy at their business facility. There is a lot more to be gained than through simply installing energy efficient devices in isolation from an understanding of the wholesale market pricing. The best overall outcome for the business comes from managing both electricity supply and demand.

Tailored Energy Management Plans identify opportunities to improve energy productivity or reduce costs based on a comprehensive analysis of your current and planned energy use. These include the energy investment timelines associated with the use of renewable technologies on-site (such as solar photovoltaic systems), load management systems, and other modern energy saving technologies. Investment in off-site larger scale renewables through more complex wholesale market arrangements is also an option when combined with a supply offer from your electricity retailer. With increasing uptake, battery technologies are also becoming a more commercial viable option.

Modern analytical techniques, including machine learning, using real-time data feeds allow businesses to take advantage of sophisticated demand and price monitoring and forecasting. 

The ‘Internet of Things’ is also reducing the cost and increasing the availability of solutions to monitor and act on information that can directly impact on energy productivity.

The ability to utilise renewable and other modern energy technologies, coupled with deep analytics and real-time demand management activities, is now readily available. Businesses should realise their competitors are taking advantage of this, so they need to get on board or be left behind.

In 2018, ERM Power conducted an energy productivity trial in Australia in conjunction with government and industry. It found that investment in modern energy productivity technologies in the manufacturing sector yielded annual savings in electricity costs of 28 per cent. ERM Power studied a number of its own commercial and industrial customers, with annual electricity bills ranging from $25,000 to $3 million, and identified savings of 27 per cent of electricity costs.

In order to take full advantage of the potential savings business need to develop a better understanding of their own energy productivity and how they make investments in digital, renewable and other modern energy technologies. This will require an element of upskilling their staff, from those in operational roles, all the way to CIOs, CFOs and the company board. In the meantime, for Australian businesses, ERM Power advises customers on how to manage their electricity supply and demand, ensuring the business impacts of renewable and modern energy technologies are well understood.

The challenge for CIOs, particularly those in energy intensive industries, is to step up and set the agenda for managing the business impacts of advancements in renewable technologies. The traditional and largely nonproactive approach to procurement of energy, or simply installing more energy efficient devices over time, is not going to allow your business to outpace its peers. The capability of CIOs to understand how data, intelligent analytics, coupled with technology and an understanding of market dynamics, is a key part of driving business performance