There’s a strong analogy to be made between our food and energy systems.
If you had a choice, which of the following options would you choose:
- A diet of mass-produced and processed foods for the rest of your life; or
- A diet of home-cooked meals made with locally sourced and organic produce?
Let’s very quickly break down the potential scenarios of each. The first diet, while being immediately gratifying, will result in weight gain, a variety of physical ailments and mental health challenges. The latter diet could result in health, well-being and longevity. I know which option I would choose.
Why am I talking about food and diets?
Energy consumption is as vital to our lives as food consumption. Just as our bodies need food to function, our buildings and homes need energy to function. The key word here is function.
Fueling our bodies with mass-produced, processed foods helps us function in the short-term with minimal additional benefits. Our energy system has largely kept the power flowing and our buildings functioning, but doesn’t consider the costs associated with this model.
Let’s explore the concepts of “organic energy” and “energy fasting” for our businesses and how they can be compared to managing our diets for better health and longevity.
The Analogy: Energy and Food
When you break it down there are so many similarities between our food and energy systems, let’s explore some of them:
Control by Few – Both our energy and food systems are controlled by a few large producers. A study of the food industry found that 85% of groceries analyzed were controlled by four firms or fewer. Our energy markets in the U.S. are largely managed by utilities with monopolistic control.
Mass Production – Energy and food is produced in bulk. To keep up with demand, we created mega, industrial systems to produce food and energy at scale.
Imported – Food and energy today are produced far from where they are consumed. As a result the product needs to be transported vast distances leading to inefficiencies and system losses. On average, for every unit of energy that goes into a power plant, only about one-third is effectively used at the endpoint due to inefficiencies associated with the production, transmission and distribution of power.
Supply Chain – Both products are reliant on complex supply chains. Food production requires fertilizers, pesticides, water, complex equipment, and a network to move raw inputs, harvested outputs, and final products globally. Energy requires the raw inputs – coal, oil, and gas to be transported around the world and relies on equipment that is largely imported.
Deterioration – The older the system gets, the more we degrade the product. With food production we degrade our ecosystem, impacting soil health, water quality, and more and in turn our food production requires more fertilizers, pesticides and the food quality and nutrient value deteriorates. With many single points of failure, our energy system is increasingly susceptible to disruptions. The American Society of Civil Engineers gave the U.S. energy system a C- grade in 2021. Maintaining current reliability, which is deteriorating, will cost $2 trillion by 2030.
Misaligned Incentives – Both of these critical resources for our lives are managed by entities that need to deliver year-on-year shareholder growth. As such they are incentivized to lower the cost of production (food)/operations (energy), increase the cost to the consumer and get the consumer hooked on the commodity.
Hidden Costs – Both industries have costs on our economies, businesses and society beyond the direct commodity. Our food system incurs significant “hidden costs” due to its effects on human health, the environment, and social and economic disparities. In 2019, Americans spent roughly $1.1 trillion on food, covering production, processing, selling, and distribution costs. However, this amount does not include healthcare costs for diet-related diseases, environmental damage, or the social costs of pollution and biodiversity loss. When these hidden costs are considered, the true cost of the U.S. food system is about $3.2 trillion per year. The same goes for the energy industry, for example, according to a study by the National Academy of Sciences, the hidden health costs of coal combustion for electricity, were estimated to be about $62 billion annually, due to air pollution impacts alone.
Grid Gluttony
The reliance on an industrial, bulk produced and monopolized system are significant. The costs to businesses are direct and indirect:
- Increased blackouts: From 2015 to 2020, major blackout events in the U.S. increased by 60%, costing businesses $150 billion annually.
- Rising energy costs: Industrial electricity costs have increased from about $0.01 per kWh in 1970 to over $0.08 in 2023, an average annual increase of 4%. This is the minimum businesses should account for year on year and we are today seeing annual escalations as high as 20%+.
- Insurance challenges: Insurers are raising premiums, reducing coverage, or exiting markets due to severe weather and power outages. For example, wildfires have led to unprecedented insurance losses, prompting companies like State Farm and Allstate to stop offering new policies in California. Other states are following and having insurance coverage will become increasingly challenging or expensive.
- Environmental degradation: Fossil fuel energy production releases greenhouse gases, driving climate change and leading to severe weather events such as hurricanes, floods, and wildfires. In 2021 alone, 20 severe weather events with an individual cost of $1 billion or more, were reported.
- Sustainable operations: Regulations, contracts, share prices and access to top talent and quality capital are increasingly reliant on a business’s ability to operate in sustainable ways.
Local Energy
Onsite energy systems and microgrids, like solar panels, battery storage and advanced technologies can generate and store energy right where we use it. This is akin to preparing and enjoying from-scratch meals made with locally sourced organic ingredients. Both require more upfront effort to plan and develop, but once in place, they provide significant and long-term benefits.
By locally producing and storing energy generated, the system is more efficient, democratized and reliable. There will also be more opportunity for compounded value in the long term. Distributed energy systems last 20+ years and with today’s technologies, system costs and incentives can pay for themselves in as soon as 1 year.
Through energy as a service (or power purchase agreements), we can realize the benefits of these systems without investing any capital and still get power at a lower rate than what the utility charges with little to no escalation. This is the equivalent of having a private chef with no out of pocket expenses, how nice would that be? Learn more about financing energy systems here.
Ultimately local energy results in cheaper, more reliable and sustainable energy.
The Benefits of Local Energy
By relying more on local energy, we reduce dependency on utility power. Similarly when it comes to reducing dependence on unhealthy foods, a healthy diet can help your body recover and function better. Not being reliant on your utility power can lead to numerous benefits for businesses:
- Cost Savings: Using onsite energy sources can significantly reduce utility bills. Generating our own energy means not paying as much for grid power, and we can choose to buy grid power when it is cheapest and cleanest.
- Sustainable Impact: Onsite energy systems, like solar panels and wind turbines, produce clean energy, reducing greenhouse gasses and our carbon footprint. Being powered by renewable energy also increases share prices, attracts top talent, and appeals to customers and investors.
- Energy Independence: Just like preparing healthy meals at home gives us control over what we eat, using onsite energy gives us control over our energy supply – access and reliability. We become less vulnerable to power outages and fluctuations in energy prices.
Creating a Healthy Relationship
Everything has a cost, and in both health and energy, making some compromises and investments today can lead to significant benefits in the future.
Due to an increasing reliance on processed foods, today 11.6% of the U.S. population (38.4 million people!!) suffers from diabetes, costing the healthcare system $412.9 billion, including $306.6 billion in direct medical costs and $106.3 billion in indirect costs, according to the American Diabetes Association. People with diagnosed diabetes now account for one of every four health care dollars spent in the U.S. Like escalating energy costs, the cost of insulin increased 24% from 2017 to 2022. The current and trendy fix to weight management – ozempic – is used to artificially suppress appetite. The drug is expensive and when you stop taking the drug, the eating habits, weight and health impacts return.
Similarly, relying on utility power and using contractual mechanisms like Renewable Energy Credits and Offsite Power Purchase Agreements to reduce emissions is like relying on processed foods and managing consumption with Ozempic. The risk being that we are investing in short-term contractual mechanisms to artificially achieve desired outcomes. Yet, we are still reliant on grid power, and our businesses are still vulnerable to power outages.
Furthermore, we now have to pay for power rates that are increasing year on year, and, buying carbon offsets, which are also increasing in price year on year. This is energy extortion and gluttony at its finest. Our short-term mindset results in significant margin erosion and an unhealthy business – susceptible to market conditions outside of our control.
The Path Forward
Investing in both our health and energy future requires planning and commitment. To learn more about the cost of inaction, your energy options and executing an energy transition plan with purpose and confidence, check out the Energy Transition Winners & Losers White Paper.
By investing in local (onsite) energy systems and reducing reliance on utility power, we can enjoy cost savings, operational and societal benefits, and greater energy independence. Similarly, by educating ourselves and making a conscious decision to buy and consume food that nourishes our bodies, we can prevent future health problems and enjoy a better quality of life for longer. Make the positive investment today, and we will reap the rewards tomorrow and for decades to come, with compounding benefits. You may be surprised to learn that there are literally millions (single facility) to hundreds of millions (portfolio of facilities) of dollars of trapped value across your business in the form of energy that you can unlock today!
This may feel complex and overwhelming but it does not have to be. VECKTA is the only platform and expert team custom-built to modernize and streamline how you buy onsite energy systems. Our Platform has been designed to support you to:
Define Goals and Needs: Determine your primary objectives, such as reducing costs, improving resilience, reducing emissions, or meeting specific contractual requirements.
Evaluate Market Conditions: Review regulations, incentives and market trends to understand the risks and opportunities.
Conduct Analysis: Assess your existing energy source (price, emissions, reliability), how you consume energy, and site constraints. Evaluate all available technologies (solar, storage, wind, generators and more advanced technologies) and market conditions to configure the optimal energy system—both technically and financially.
Involve Stakeholders: Engage key stakeholders to ensure all perspectives and requirements are considered and reported through a single source of truth.
Plan for Future Needs: Design for increased energy needs (electrification of equipment/fleets), resilience and adaptability to future changes – including those of your customers, board and investors.
Buy the Right Solution: Get competitive and transparent quotes from the leading suppliers in the market, customized to your specific needs and objectives. Build the right system, at the right price, with the right partner while maximizing value and mitigating risks.
Start your journey by connecting with me directly or our team now and become a champion of profitable and sustainable business outcomes.
