For many of us last week the SVB bank situation was a very stressful situation. I do not know anyone that had on their risk registers a line item that read “bank goes out of business” and a plan to deal with the situation. We were all left scrambling, making contingency plans on the fly and ultimately hoping for the best. It was a huge wake-up call, and an opportunity to ensure we are considering our risks and putting contingencies and management plans in place. There are so many parallels to the energy transition!
What do Banking & The Power Grid Have in Common?
When it comes to power, most of us are reliant on the centralized energy grid. We rely on it to provide us with the electricity we need to run our businesses. Power is the lifeblood of our economies and everything we do. But, just as with any other centralized system (which are more rigid, have many points of failure and can have severe impacts on many when they go wrong), there are risks associated with relying on the energy utility business model and transmission grid. The same can be said for having your money in the bank when it goes out of business.
It’s important to remember that when you put your money in the bank, it is yours on paper, but the bank does with it as they see fit in accordance with their business model. You’re entrusting your money to the bank, with the hope that it will be there when you need it. Unfortunately, it’s not always so simple. As we saw with SVB, when everyone wants their money at the same time because they have concerns, the money is not readily available. As with the energy grid – will power always be available when we need it?
As it turns out, there are a lot of similarities between relying on the centralized energy grid for power and having your money in the bank when it goes out of business. Let’s take a closer look.
- It’s important to understand that both of these scenarios involve trusting an external entity. When it comes to the centralized energy grid, you’re trusting the power company to provide you with the electricity you need, when you need it at an acceptable price. And when it comes to having your money in the bank, you’re trusting the bank to keep your money safe, have it when you need it, and at a reasonable price/return. At least with banks, we have a choice for which one we want to trust, with the energy sector we often do not have this choice – and even if we can choose from a variety of companies with different commercial models, they are all using the same transmission infrastructure.
- Both of these scenarios involve a certain amount of risk and relinquishment of control – we are passive consumers. With the centralized energy grid, you’re exposing yourself to the risk of interruption due to power outages and many scenarios out of your control – aging infrastructure, operator error, weather events, physical/cyber attacks or even a squirrel crawling into your local substation. Regarding the squirrels, you may think I’m joking, but this is a major issue, so much so these misbehaving squirrels even have a dedicated Wikipedia page: Squirrels Who Cause Power Outages. Our grid is a fragile beast indeed. In turn, this means we are also exposed to price risks and ever-escalating rates/changes in the way we are charged. Similarly, with having your money in the bank, you’re exposing yourself to the threat of your money disappearing if the bank goes out of business as a result of their risk profile, economic conditions, customer sentiment, interest rates, inflation, market trends, and more.
- Third, both of these scenarios involve opportunities to manage and mitigate risks. With the centralized energy grid, we can invest in an onsite energy solution – generation and storage assets built at your facility, that provide power security even when the grid is down while reducing the cost of energy over the next 20-30 years. This security can not be achieved by buying offsite power purchase agreements or renewable energy credits. Similarly, with your money in the bank, you can diversify your investments to ensure that your money is spread out among various banks, financial institutions, and investment types.
Finally, both of these scenarios involve significant consequences if you don’t take action to protect yourself and your business. If you don’t take steps to directly control/backup your power supply, you could be left in the dark for hours, days or even weeks and/or exposed to rates going up 3-40% year on year. The cost of power outages on businesses in the US in 2021 was $150B!! And if you don’t diversify your investments, you could be left without access to your money if the bank goes out of business.
It’s All About Managing Risk…
It’s important to remember that while the risks can’t be eliminated, they can certainly be minimized by taking the right precautions.
When managed correctly businesses can truly differentiate themselves through onsite energy systems and the energy transition with lower operating costs, increased security and resilience, and lower emissions. Win-win-win! In addition, you can increase facility asset values, access lower costs of capital, charge more for your products, build brand and reputation, and a whole lot more.
Think about it like this, the cost of just one outage will often pay for a solution that will last you 20+ years. Too often we wait too long and act only after we have suffered dier consequences. Like with the SVB situation, it all worked out this time, but what about next time? Every day we are seeing more energy outages across the country – how many warning signs will it take before you act and proactively place your business in the best possible situation for success? Don’t be the business that is shut down as a result of not having access to power, being unable to afford the cost of utility power or because you lost a contract because your emission profile was too high – take control and secure your energy sovereignty.
Sustainable and profitable business outcomes are available to you today – energy is an operational input that is vital and is within your direct control. Simplify and accelerate your energy transition today.
If you have been considering ways that you can reduce your overall energy risk, be sure to reach out to us today. Book a demo with one of our energy consultants today to learn how VECKTA can help.