In the ongoing conversation around energy strategy, it’s hard to avoid the term “resilience.” It keeps coming up as one of the most touted advantages of investing in energy technology, and everyone seems to agree that it’s an important consideration.
But what, exactly, does “resilience” mean? Why should businesses care about it, and how can the way a business manages energy make it more resilient?
I spoke with Kelly Sennatt, Enel X’s Director of Product Marketing and the co-host of this fascinating discussion on energy transformation with PwC’s Managing Director of Sustainable Business Solutions George Favaloro, to get a better understanding of the connection between resilience and energy strategy.
Colin: Resilience seems like kind of a buzzword. What does resilience really mean as a business term in general, and why should businesses take it seriously?
Kelly: When it comes to defining resilience, I would say there are two ways to look at it: as a bigger concept, and as more of a tactical concept.
The “bigger-picture” definition is a business’ ability to react to change. In the face of accelerating technology, innovation, change in broader market landscape, politics—whatever change happens—that the business is able to last through it and thrive.
The “micro” definition of resilience is kind of a new way to think about business continuity: reacting to natural disasters, rising sea levels in areas where you might have more regular flooding, power outages. For example, this is becoming important in places like data centers, where so many businesses have their critical services relying on 24/7 reliability.
We’re seeing a lot of efforts around resilience in some of the world’s largest cities. We’ve had two hurricanes hit New York City in the past five years, and we’ve seen the kind of impact an event like that can have. So a lot of major cities are asking, “how do we make our infrastructure more resilient?”
CN: What are some of the things businesses do to ensure resilience as it relates to energy strategy?
KS: So one of the things we hear a lot from our customers is how demand response fits into their resilience plan. Yes, the payments for participating in demand response are valuable. But one of the most valuable aspects is being connected to the electricity grid, knowing what’s going on, and playing a role to prevent regional disruptions that can affect their business. So when an impending heat wave is expected to drive up demand and disrupt capacity on the grid, being in the know and being able to do something about it is a big part of resilience.
We’re also seeing a lot of companies embracing energy storage and renewable power to make them more energy-independent. The less reliant on the traditional electricity grid a business is, the more able it is to be resilient in the face of natural disaster or unforeseen issues with supply.
The companies that do this best are doing it proactively, using their energy resources as a strategic lever to create business opportunities. Starwood Hotels and Walmart are some good examples. These businesses make a point of being open when a storm or blackout forces others to shut down. That serves a role in their communities, because they’re able to provide a safe space, supplies, and shelter when people are without electricity. But, frankly, it’s also a business opportunity, being the company that has power on. You can sell batteries and water in the time of need, and you also become known as the company that helped when the community needed it.
CN: Why should businesses care about this now? Why is it so important all of a sudden?
KS: There are a couple reasons. One is that there are a lot more threats to resilience now than there ever have been before. The weather is more extreme—we’re seeing a lot more hurricanes hitting more populated areas than in the past. Unfortunately, we’re also seeing a lot more terrorism threats. A lot of these threats that are avoided—the ones we don’t hear about on a day-to-day basis—are on the electricity grid in major cities, where a lot of businesses and services rely on the grid.
In parallel to that, there are also a lot more ways to do something about these threats. There was no way to get electricity without the grid in the past, without relying on expensive backup generators. But new technologies like solar and energy storage are increasingly providing alternatives that can align with a resilience strategy. Demand response allows businesses to turn energy management into a revenue driver. Big data analytics helps them identify trends that could be costing them money which they may never have resolved before.
And these trends are global, with different implications on businesses in different areas. So a lot of companies are starting to look at the supply chain as part of their energy strategy. That’s why Coca-Cola, for example, is thinking so much about water and energy. What are the main requirements to make their product? Water is a big part, and so is the energy to make the product. With a resilience plan, the supply chain is protected by droughts in certain areas, changes to where water and energy are coming from, geopolitical concerns affecting pricing and regulations, and so on. Resilience, for many companies, can mean protecting the supply chain for the core product.
CN: One recent example that comes to mind is the Aliso Canyon natural gas leak in California. Experts are already seeing supply issues for natural gas and expect them to last into 2017, driving up prices for electricity and increasing the risk of blackouts in Southern California. What are some of the things companies could do to prepare for an event like that?
KS: In that area, there are a couple of things that businesses can do to be both resilient and proactive about it. There’s the community engagement piece—what’s the role that you can play in helping your community recover?
That can be as simple as local advocacy, getting involved in making sure it’s cleaned up. Or it can be turning to your energy resources to help support grid reliability. The leak is causing a shortage of natural gas in the area, which will make it more difficult to generate enough electricity to meet demand on the grid this summer. Businesses with solar or wind resources—or those that have invested in renewable power through power purchase agreements—can reduce the grid’s reliance on natural gas by contributing green power to the mix. Or they can use energy storage or demand response to alleviate the pressure their facilities would put on the grid, and reduce the chances of outages in the region.
CN: What happens to companies that aren’t resilient? What are the negative consequences there?
KS: It’s really about risk to your business. So you have to think about the risk of disruption to your business, not being able to produce at peak time, or simply not being able to have a place for your employees to go to work.
There’s also the broader risk that you’re exposed to market forces that you aren’t prepared for. Generally speaking, if you thought the stock market was going down or there was going to be a political change or regulation that would affect your business, that’s something you’d prepare for. The same thing is true in the energy world. There are real threats—whether it’s shutting down the business or driving up prices—that could seriously affect your financial performance.
Data centers are a good example. Say you have a data center in California, where it’s hot, there’s a drought, and suddenly a natural gas leak starts putting more pressure on the grid. How do you ensure that your company’s services that rely on that data center—whether you’re an online service or a large institution like a college campus—are available in the face of that risk?
CN: How can a business start preparing a resilience plan for energy? What does it entail?
KS: One of the things business can do to start is put in place a strategy. Depending on the kind of business and where it is located, resilience might mean something different. So a hotel, an office building, a manufacturing plant, and a data center will all have different needs. Then there’s location, regulations on energy sourcing, dependence on supply chain—the list of factors to consider is long.
So you need to define what resilience means for your business, and then get the tools to make sure it happens. The solution could be a procurement strategy, access to energy data including market prices, the potential to participate in demand response, or investing in renewables or energy storage—or it could be all of the above.
At the same time, you need to make sure that your investments align with your resilience plan. Don’t assume that storage or solar is the answer for your business just because you’ve been reading so much about them. Evaluate your business and determine what you’ll need to be resilient in the face of an unforeseen issue, and align the solutions with what you’ll need.