As if writing predictions for the energy industry weren’t tough enough every year, 2017 presents a particularly challenging dynamic, as the expected policies of the next presidential administration clash with diverging global ideals to create a very cloudy future for the sector.
President-elect Donald Trump has claimed that climate change is a hoax, vowed to bring back coal, threatened import duties on a number of goods, and promised a more business-friendly environment in general. If we take these claims at face value, it’s easy to foresee a tough year for energy management and renewables.
However, I think just the opposite will happen. Here are three reasons why energy efficiency, renewables, and sustainability will continue to gain significant traction in 2017.
Energy prices will be higher in 2017, driving businesses to embrace energy efficiency
Amid a consistent decline in energy prices in the past couple of years, it has been relatively easy for companies to stay within their energy budgets. All signs point to that changing this year. As I write this article, natural gas futures have hit a two-year high and oil prices have continued their march upward. As energy prices continue to rise throughout 2017, businesses will be forced to embrace energy efficiency in order to keep their budgets in control.
Now, you may wonder how we know energy prices won’t fall again, or that the new administration’s promises to bring back coal won’t cause a price decline. While nobody knows for sure, a quick look at supply and demand trends can give us a good idea.
On the production side, energy producers have been badly burned by the rapid decline in energy prices. New production has been slower to generate, and there appears to be broad support for production agreements to support price levels. On the demand side, an expanding economy typically causes demand to increase or at least remain stable, which would help drive energy prices up.
What about coal? Without the financial concerns over climate change regulations, could we usher in a new era of cheap coal-fired electricity? What the coal debate often overlooks is that the regulatory efforts to tackle climate change are not what caused the decline of coal in the United States. Quite simply, raw economics have evolved to make coal less relevant. Natural gas is a much cheaper and more efficient power source than coal, and natural gas power plants are cheaper to build, easier to site, cheaper to operate, and provide a much more flexible energy resource than coal plants. And even if the federal government loosens restrictions on CO2 emissions, coal plants still need to pay for abatement controls to prevent a variety of other pollutants, or risk causing the kinds of smog seen in Beijing. These costs aren’t going away, and in an increasingly competitive market, they will perpetuate the coal industry’s economic challenges.
Faced with a choice between improving energy efficiency or allocating more budget to account for rising energy prices, businesses will do the logical thing. That’s the great thing about energy efficiency—no matter what you think about climate change or sustainability, it just makes good economic sense. And that case just keeps getting stronger as energy costs inch higher.
Corporate demand for renewable energy will rise
As with energy efficiency, the case for renewables will become even stronger in 2017, as renewable prices continue to fall while traditional power prices rise.
The big question heading into 2017 is what will happen to the subsidies that have helped bring renewable energy prices down. I have a few thoughts here. First, I doubt that Congress will vote to sunset the Federal Investment Tax Credit (ITC) in 2016 and risk impacting the 200,000+ American jobs in the solar industry. If Congress does, however, vote to sunset the ITC early, demand for renewables will likely skyrocket in 2017 as companies rush to take advantage of the ITC before the expiration date.
Beyond that, in the event that federal support dissipates, state programs and regional initiatives will continue to provide financial support for renewables. New York and San Francisco already have aggressive energy efficiency mandates, and Denver moved ahead with strict mandates on energy use and greenhouse gas emissions in commercial buildings just a few weeks ago. The state- and local-level efforts to support renewable energy appear here to stay.
Stakeholder pressure around sustainability will intensify
Ask any corporate sustainability manager if federal policies drive their energy or climate change initiatives and most would probably give you a chuckle. Government regulation has not driven corporate sustainability policies to date, stakeholder demands have. It is well-documented that millennials want to work for companies that share their ideals around social and environmental issues, and customers are increasingly showing a preference for companies that show a commitment to sustainability.
Meanwhile, investors are continuing to push for more sustainability data from businesses, and this is for one simple reason—research continues to create a strong link between energy and sustainability performance and overall financial value.
With little federal policy putting restrictions on greenhouse gas emissions, these forces could combine to fill the void and ensure businesses show a commitment to sustainability.
What does this all mean for your business?
With these predictions in mind, my recommendation is for businesses to take a close look at their 2017 energy budgets now and start considering how they are going to achieve their targets. If you built your budget on last year’s energy prices, for example, you are going to be in for a rude awakening.
Every business is different, so consider what kinds of investments in energy efficiency and renewables could best position your organization to embrace these trends.
Finally, don’t react to policy changes at the federal level by scrapping your sustainability plans, as key stakeholders could double down on their demands for transparency and progress.
