GUIDELINES FOR AN INTEGRATED ENERGY STRATEGY

A vision that’s supported by credible targets provides the context and direction for a company’s integrated energy strategy. It can be challenging to develop a vision, but it will provide clarity and guide decision-making so that the integrated energy strategy succeeds.

What you should be aiming for:

• A clear and ambitious vision that sets the direction for your integrated energy strategy and has the support of your board and executive management team;
• Ambitious, time-bound and science-based targets that will enable your company to realize the vision;
• A strong financial business case that considers a range of benefits and includes a marginal abatement cost curve to evaluate options.

A vision statement describes where a company wants to be. It acts as a long-term goal that provides direction and makes sure that everyone is working towards the same purpose. A well-defined vision statement is short, memorable and motivational.

Getting the executive management team to buy into a longer-term vision when the route forward might involve uncertainty is challenging. Developing a vision statement requires your company to have a shared understanding of the priorities, opportunities and challenges. By assessing the drivers for your strategy, it will be easier to develop an overarching vision that will become the lens through which decisions are made.

A vision statement also needs to articulate the vital role that upstream and downstream stakeholders will have in making your vision a reality. The vision should therefore be informed by an understanding of what’s important to stakeholders from across your value chain, how they will contribute to your strategy and the mutual benefits your strategy will have.

The vision should also be framed in the broader context of the SDGs which comprehensively lay out a collective pathway for humanity on the road to 2030 and, from a private sector perspective, provide a lens through which companies can translate global needs and ambitions into business solutions. Companies that integrate the SDGs into their long-term energy strategies will be much better placed to leverage market opportunities, manage emerging risks and secure an enduring license to operate on the road to 2030.

Robust and ambitious targets for your company’s energy use and associated GHG emissions should form the basis of your integrated energy strategy. Targets should cover all energy inputs, all energy consuming assets, all energy outputs and all GHG emissions from energy consumption. The targets should align with the policy context of the countries that you operate in and set energy efficiency and carbon targets that support country-specific goals. To evaluate what might be appropriate for your company, you can compare to the energy and carbon targets your competitors, suppliers and customers have set.

Energy efficiency and GHG emissions targets should be pinned to a suitable year in the future which gives you the ability to show improvement in energy performance, the associated GHG emissions reductions and financial return.

This will enable you to measure and report on the success of your integrated energy strategy and enable you to become more ambitious over time.

Setting science-based targets (SBT) is quickly becoming a global standard for GHG emission reduction targets. While the boundary of an SBT is wider than just the GHG emissions from energy use, companies can use this approach to set targets that are consistent with the Paris Agreement. SBTs will typically also cover a company’s Scope 3 emissions meaning that companies are also required to consider decarbonization across its value chain.

Companies can use the Science Based Targets initiative (SBTi) to validate and announce their SBT; alternatively, they can analyze and verify their targets internally. Targets should be reviewed at least every five years to ensure they match the latest climate science.

When seeking internal approval and buy-in for targets, it’s important to explain both why the target is right for your company and how it will be achieved. If you focus too heavily on the why, then the debate may get stuck on whether a target is required. Spend more time considering how the target will be achieved and the impact this will have on your business and the environment. Focusing on the solutions will make the “do nothing” option feel like a step backwards.

Your integrated energy strategy needs a strong financial business case. This requires colleagues from finance to be part of the strategy development team, and the consideration of how the strategy will manage costs, support business growth and mitigate risks.

To achieve the targets set by your integrated energy strategy, you’ll need a blend of solutions that have different costs and benefits. Finding the optimal blend for your company requires appraising of different measures under different scenarios.

When evaluating measures, it’s important to consider them from a financial and carbon reduction perspective. Using a marginal abatement cost curve (MACC) helps visualize low-carbon measures by presenting the cost per year of reducing a ton of CO₂ (either a positive or negative financial value) and the abatement potential of each measure. Using a MACC helps companies identify the lowest cost mitigation measure.

Using a net present value calculation will enable you to articulate potential cost savings and return on investment for your finance team.

If the payback threshold for capital investments is proving to be a hurdle, evaluate payback in the context of the expected life of the asset you are purchasing. Securing commitment for a payback threshold that is half the length of the asset’s useful life can help to unlock internal funding.