As the global energy sector rapidly shifts towards low-carbon economies, leaders in executive positions are faced with navigating an increasingly unpredictable energy landscape. The complexity of energy-related risks, ranging from infrastructure failures and price fluctuations to cyber threats, poses significant challenges to an organization’s digital operations.
Over the next five years, executives must recognize ten key energy risks in order to implement effective local mitigation strategies and consider investments in on-site energy generation or microgrids.
Figure: Key Energy Risks and Their Interdependencies
Embracing a proactive risk management approach will enable executive leaders to grasp the interconnections among energy risks and to implement mitigation strategies across various operations, including information technology (IT), manufacturing, and the broader value chain.
Fragile Infrastructure and Evolving Energy Consumption Patterns
A primary concern for IT infrastructure is the vulnerability of energy systems. The digital economy is heavily reliant on a stable power supply, yet aging grids and poorly maintained energy infrastructures are increasingly prone to outages. Incidents like the rolling blackouts experienced in South Africa highlight how fragile infrastructure can disrupt both energy availability and digital operations.
Extended power outages can have dire consequences for IT systems, leading to service downtime, potential data loss, and hampered communications. For businesses in regions with outdated energy grids, investing in alternative solutions such as microgrids or backup generators can help prevent interruptions during blackouts, thereby protecting data centers and ensuring the continuity of cloud services.
Moreover, energy consumption patterns are shifting rapidly, particularly in sectors reliant on data centers and AI-driven technologies. As businesses integrate AI and machine learning into their operations, their need for data processing and storage is increasing dramatically. This evolution brings immense pressure on energy supply, especially during peak demand periods.
The challenge lies in managing soaring energy consumption without straining existing infrastructure or inflating operational costs. Companies should project future power requirements based on AI and advanced computing workloads, aligning their energy strategies with expected growth. Investigating energy-efficient technologies and alternative sources, such as solar or wind power, can help lessen reliance on an already burdened energy grid.
Addressing Climate Risks in the IT Sector
Price volatility is another significant issue to consider. Geopolitical events and disruptions to global energy supplies can lead to fluctuating energy costs, creating uncertainty for long-term IT budgets. For instance, Europe’s reaction to the Russian invasion of Ukraine resulted in sharp increases in fossil fuel prices, directly affecting the operational expenses of data centers and IT services.
Such price fluctuations complicate the forecasting and management of costs tied to running energy-intensive operations. To mitigate this risk, organizations should explore initiating fixed-price energy contracts or long-term power purchase agreements for renewable energy. These options provide a degree of financial stability, allowing IT departments to manage their budgets more effectively while also promoting sustainability efforts.
Beyond immediate financial concerns, physical risks associated with climate change are increasingly threatening IT infrastructure. The frequency and severity of extreme weather events—such as floods, hurricanes, and wildfires—are on the rise, jeopardizing data centers, server farms, and critical communication systems. Higher temperatures intensify the strain on cooling systems within data centers, which are already significant energy consumers. As temperatures rise, cooling expenses increase, potentially leading to operational shutdowns if cooling systems fail.
Investing in climate-resilient infrastructure that can endure extreme weather conditions is essential to ensuring data centers remain functional even in adverse scenarios. This could involve integrating renewable energy solutions, such as solar panels or battery storage, to provide backup power during outages.
Cybersecurity is also an increasingly pressing issue, especially as energy infrastructures become more interconnected and dependent on digital systems. State-sponsored cybercriminals frequently target critical energy infrastructures, which can result in widespread disruptions. In 2023, 90% of the largest energy companies globally reported experiencing cyberattacks, many of which directly affected IT systems and essential services.
As the energy landscape evolves, organizations must take proactive measures to understand and address these risks. By investing in resilient infrastructure, securing dependable energy contracts, and bolstering cybersecurity protocols, businesses can protect their digital operations from the escalating uncertainties of the energy market.