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specific turbines or smelters , this could be a quick and economical adjustment . But it could also lead to using fuels that produce more carbon emissions ( for example , moving from gas to coal ) and so run counter to sustainability targets .
However , there are alternatives with a lower carbon footprint , such as biogas or hydrogen . In general , these commodities are more expensive than natural gas because they are associated with nascent technologies . Producing these fuels is capital intensive . But they could spur offtake agreements that secure a fixed price for a long period . For the off-taker industrial company , this provides cost predictability and a potential competitive advantage when prices of other commodities rise or are volatile .
Getting started
Energy-intensive industrial companies would benefit from creating a strategic road map to optimize their energy procurement approach . To get under way , a company could consider developing a view on future energy prices and building a better understanding of energy management , including the permitting process for construction projects .
Moreover , an energy procurement optimization exercise should explore different scenarios . For each of the scenarios , industrial companies should consider several factors , such as the appetite for freeing up cash to fund potentially heavy capital spending on own-generation or the availability and prices for supply instruments in each local market .
Once a company has established a strategic road map , implementing it will often require new capabilities . These include energy management skills for physical PPAs , financial accounting skills for virtual PPAs , trading skills for hedging , and skills to manage an on-site generation asset . One question for leaders to ask themselves would be whether the company should develop these capabilities in house or outsource them to a specialized counterparty .
The preferable option for a given company
Exhibit 4
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