As I’ve written in recent columns, the energy crisis has put the question on the agenda of some CEOs, but for the most part the overwhelming uncertainty has led companies to pull back spending rather than take visionary steps or make big bets.
First, the longer the crisis persists—or is perceived as likely to persist—the more likely companies are to begin making different capital allocation decisions. Right now, there are mixed signals about how long the crisis will last. Energy experts see a prolonged crisis even in the best-case scenario just on the basis of the physical reality on the ground. Reserves have been depleted, tanker ships are out of place, and infrastructure has been damaged. And it could get worse. Yet, to the bafflement of many in the industry, markets don’t seem to be pricing in a prolonged crisis. The forward price of crude oil for contracts delivered over the summer remains under $100 barrel compared to $112 today.
To make big visionary bets, executives will often need to believe that high prices are here to stay. But, even in the worst case scenario where there is no geopolitical solution, high prices will eventually drive a recession and a decline in demand. That’s not a situation where executives want to make big investments. "In order to have a real sustained capital reallocation to renewables and alternatives you need a sustained price spike,” says Bob McNally, president of Rapidan Energy Group, which conducts energy market analysis. “We may have new all-time highs... But then it's going back down again.”
Firms tend to emerge from small energy shocks more productive and energy efficient, after investing in new energy efficient technologies and processes. But large energy shocks drive different results: market conditions make it hard to find the resources to invest in new approaches. It’s a challenging paradox: the more dramatic the energy disruption, the harder it is to find the capital to address the challenge.
Nonetheless, study after study shows that energy shocks do change how companies allocate capital over the long-term. As facilities roll over, energy shocks remind companies of the value of efficiency for their new investments. In a study covering three decades of U.S. manufacturing, researchers found that a 10% increase in energy prices led new plants to use 1% less energy.
The picture that emerges is a complicated one. To expect a rapid change of direction without policy intervention would be overly optimistic. But the cost and volatility of energy at this moment is yet another finger on the scale in favor of new approaches.
To get this story in your inbox, sign up to TIME's Future Proof newsletter here.
Hence then, the article about will an energy crisis push executives toward clean tech was published today ( ) and is available on Time ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
Read More Details
Finally We wish PressBee provided you with enough information of ( Will an Energy Crisis Push Executives Toward Clean Tech? )
Also on site :