Four Ways to Build a Successful Renewable Energy Supply Chain
Achieving your renewable energy goals
Renewable energy is more efficient, cheaper, and more profitable than ever before, and that trend towards lower costs and greater efficiency isn't fading. Energy, utility and chemical companies are taking advantage of these trends and establishing aggressive renewable goals. This will require substantial investment in either buying highly-competitive assets, building renewable generation capability or partnering with a 3rd party. The question is: what is the most cost effective and competitive way to achieve your renewable energy goals?
Exponential growth opportunities -- but building a supply chain is highly competitive
Recent global risk events have changed the world for ever. Demand for oil is down, while consumer demand for environmentally-friendly energy has never been so high.
Renewable energy has been growing rapidly over the past two decades. This is evidenced by the fact that in 2019 natural gas and renewable energy generated 56% of electricity in the US, compared to 34% in 2010. Moving forward, data from BP's Statistical Review of World Energy, 2020* shows projected growth accelerating at an exponential rate. This is being driven by consumers, the public sector and the for-profit sector, all of whom are stampeding towards renewable energy technologies -- a sector many are not currently very familiar with.
Wherever you are in your renewable energy journey, there are four key areas you should look at in order to build a successful renewables supply chain optimized for future growth and efficiency:
1. Understand and digitize the end-to-end supply chain and operation as a whole: The challenge traditional energy companies face is to quickly get up to speed with the legal, technical, manufacturing and supply chain deployment dynamics associated with the renewables ecosystem. With the clock ticking, some organizations are rushing into ad-hoc acquisitions without a clear understanding of the end-to-end supply chain and operation as whole. The key is to understand the dynamics associated with renewable energy - including planning, due diligence, implementation, sustainable cost dynamics and innovation. Digitizing and visualizing the whole is critical to knowing how to extract the maximum measurable value from the renewable energy ecosystem, given your investors are most probably demanding it.2. Map out a pragmatic, step-by-step pathway to success: This is critical given the complexities and geopolitical dynamics impacting the supply chain. For example, reliance on China is diminishing, with alternative sourcing from Malaysia, Vietnam, Thailand and S. Korea becoming more prevalent. As a result, companies need to gain insight to leverage and expand sourcing relationships with manufacturers in multiple geographical locations. In addition, in North America growth rates vary considerably by state so having a clear understanding of installation partners with national or mega-regional presence and capability is critical to your path forward. Given the impact on the supply chain from recent global risk events, companies should also consider risk assessment initiatives such as the EPIC framework (economy, politics, infrastructure and competency) as part of the go-forward plan. This can be used for regional and country level risk assessments in supply chain. However, companies cannot rely solely on EPIC; they need a comprehensive supplier-based supply chain risk management (SCRM) solution.
3. Avoid overpaying for assets: Having a clear understanding of the end-to-end renewables supply chain is the first step to avoiding overpaying for assets in a world where everybody is competing for the same limited interests. Without the appropriate planning and due diligence, companies risk rushing in and buying from the wrong firm with the wrong sustainable products from the wrong suppliers. The key to avoiding this lies in effective operational due diligence (ODD) alongside the timely use of data analytics (DA) and artificial intelligence (AI) in assessing target companies. Deploying a comprehensive set of pre- and post-acquisition due diligence and implementation approaches with renewables experts helps reduce risk while improving confidence, competitiveness and time-to-value creation.
4. Set yourself up for ongoing cost and innovation sustainability: With the race on, it's critical you keep your eye on the future from a cost, innovation and sustainability perspective. For example, in the next five years nearly 100% of solar energy cells will be high efficiency (today that figure is only 50% PERC / PERL / PERT). This means R&D spend, technology roadmaps and investments are critical factors in supplier selection. From a technology perspective the gap in manufacturing costs between countries has fallen considerably, automation has reduced labor costs. This means you need to think of key aspects of the supply chain with the future in mind. For example, installed costs are expected to drop by another ~25% to 30% over the next decade. The response? Ensure your new EPC supplier contracts are indexed and contain appropriate improvement metrics and goals.
*BP Statistical Review of World Energy, 2020 (69th Edition)
Maine Pointe, a member of the SGS Group, is a global supply chain and operations consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in EBITDA, cash and growth across their procurement, logistics, operations and data analytics. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the plan-buy-make-move-fulfill digital supply chain to deliver the greatest value to customers and stakeholders at the lowest cost and risk to business. We call this Total Value Optimization (TVO)™.
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