Confero Winter 2015: Issue 9 | Page 31

The Energy Sector The Energy Sector By Gabriel Potter, AIF®, MBA | Westminster Consulting What powers the modern economy? Oil. What is the most universal cost for a business? We could make a good argument labor costs are the most basic expense for any business. After that, I think we could make an equally compelling argument energy is a nearly universal expense. In our early history, we generally relied on muscle power— human or animal—to get the job done. After the creation of basic tools and our earliest cooperative ventures, energy costs become fundamental at every level of a value chain. Pre-industrial cottage industries and post-industrial revolution energy sources were usually some combination of wood and coal. Since the industrial revolution, these materials made it possible for energy sources to exist separately from the natural energy powered industries (water-mills, windmills). However, when we talk about the modern energy sector, we’re solidly focused on oil and natural gas. For the past 100 years, most modern machines—and by extension, modern economies—depend on petroleum products. Alternative energy is growing in importance, but not a full replacement for oil yet We can already hear the naysayers challenging us, “what about alternative energy sources?” Broadly speaking, our electrical grid is sophisticated, flexible, and it can accept power generation from many sources. Nuclear energy, coal plants, hydro (river & wave), wind, and solar are established alternatives to petroleum with varying degrees of importance and potential. For instance, France relies heavily on nuclear, while other European countries are expanding clean energy sources. The United States still uses coal widely. Brazil invests heavily in biofuel (sugarcane) while other ethanol solutions (notably, corn) vie for widespread adoption. The widespread proliferation of solar technology has pushed the costs for generating a kilowatt of power from solar to parity with traditional natural gas, with promise of even greater efficiencies in the future. This is all very well and good for utility companies and the support of an electrical grid which keeps our smartphones charged and the air conditioners running. Sadly, none of these alternative energy sources is yet a fully viable candidate for www.conferomag.com | 29