Large industrial energy users have traditionally procured electricity under long-term, low-cost, fixed-price contracts. This approach has enabled them to minimize costs and maximize utilization over decades. But in the future, as variable renewable energy (VRE) becomes the main form of power generation, these same large energy users will be exposed to increasingly volatile electricity prices. In this environment, companies will need to find new ways to create advantage and maximize profits from their energy-intensive operations.

How can CEOs best navigate such volatile electricity market conditions? We think they can derive inspiration from asset-backed energy traders.

Asset-backed energy traders make money by operating assets with built-in physical flexibility to create value in markets with volatile input and output prices. Leading companies have started adopting the mindset of these energy traders, creating and accessing flexibility in their production processes to build a competitive advantage out of volatile electricity prices. This approach also has knock-on benefits for the broader electricity system, helping to manage demand peaks and congestion and allowing greater usage of renewable generation.

When we speak to companies about using electricity flexibly, many tell us that this approach is difficult. As well as physical process barriers to flexibility, they must make fundamental changes to their business models to overcome other barriers including organizational, contractual, and informational barriers. By examining how leading companies have solved these problems, we have identified a multistep approach so that other organizations can do the same. In short, they must secure physical flexibility in their assets and processes, expose the business to market fluctuations, rewire the organization to respond to external market signals, and use digital technologies to understand and respond to variability. This journey needs to be driven by the leadership and doesn’t happen overnight: companies start with small changes and over time make more fundamental changes in the way they operate.