Renewable energies are on the rise, but efficiency targets are not

16 December 2022

European companies prefer policy direction to specific savings commitments while a slow but steady shift in the energy mix takes place.

Energy was in the spotlight in politics, business, and society in 2022. We took this as an opportunity to examine trends in energy consumption and procurement for listed firms in Europe. The adoption of energy policies and efficiency targets differ significantly, leading to a central question: Should companies be concerned with reducing their climate-friendly energy use or not?

Energy policies: mere window-dressing?

We started by evaluating energy policies and targets and their prevalence among the companies. The discussion of whether these policies really have an effect or if they are mere window-dressing is ongoing. While nearly every company in the dataset had an energy policy in place in the year 2021, only about half of the firms had energy efficiency targets.

This observation can be explained easily. It is much simpler to set a qualitative policy—more or less strict and comprehensive—than binding quantitative reduction targets. This omnipresence of energy policies connects to the discussion if a “box-ticking” culture can really improve a company’s sustainability practice.

Over time, the number of companies with an energy policy steadily increased from an already high level of around 94 percent in 2017 to 99 percent in 2021. Energy-intensive sectors, such as Industrials and Basic Materials, started from a lower level than, for example, Healthcare and Financials.

Energy targets: not very popular

Unlike energy policies, there is no clear trend over the years for energy targets. While around 47 percent of the companies had energy targets in 2017, 48 percent did so in 2021. The Basic Materials, Industrials, and Consumer Cyclicals sectors, which account for half of the companies in the dataset, even showed a convex pattern. This means that more companies had savings targets in 2018 and 2019 than in 2017 or 2021. We will elaborate on possible reasons for this later.

Looking at the percentage ratio of energy targets by country of company headquarters, Norway had the lowest, and neighboring countries Finland and Sweden were in the upper range. With the huge amount of hydropower resources in Norway, this observation automatically leads to the question of what role the energy quality—that is whether it is renewable or not—plays in having such targets. We will also discuss this later.

Nonrenewable energy in decline

The next question was how the consumption of energy has changed over the years. Median energy use in absolute terms (GWh) for the almost 500 companies remained relatively stable over five years. Energy consumption per million dollars of revenue overall decreased by 10 percent. Renewable energy seems to be replacing other energy sources, as nonrenewable energy consumption decreased by almost one third over the same period. Interestingly, individual companies both with and without efficiency targets were able to achieve massive savings in the use of nonrenewable energy.

Even more interestingly, the group of companies that had no efficiency targets for some of the five years realized the biggest reduction in nonrenewable energy use per million dollars of revenue—around 69 percent—whereas the group of companies that kept targets over the years reduced their amount by only 13 percent. Companies with no efficiency targets at all saved almost half of their nonrenewable consumption.

The numbers are different, but the picture is the same for total energy use per million dollars of revenue: companies without efficiency targets performed better than firms with targets.

Why? Baseline effect, caution, or irrelevant?

There could be several explanations: first, the baseline effect. Companies with savings targets may have already taken the big steps. Some programs may also have been phased out. Second, companies that are challenged to reduce their energy consumption because of their energy-intensive business models might be reluctant to set efficiency targets yet might work intensely on achieving savings. And third, companies that mostly or exclusively consume renewable energy might consider efficiency targets to be unnecessary. In any case, this should be examined further.

But should companies reduce their renewable energy use or not?

The quick answer would be “no,” but this question must be thought of systemically, given the interdependencies in energy supply. The answer depends on the storage capability of a renewable energy source and the possibilities of collective optimization. We therefore conclude that the answer should be “yes” if the saving contributes to overall system stability or security of supply.

We are interested in having a dialogue about the results of our analysis and our conclusions. Your thoughts are welcome.