Energy: three risks complicating decisions for large companies

# 35. Energy: three risks complicating decisions for large companies

For large companies, energy has become as much a strategic issue as an expense. Managers must contend with price volatility, uncertainty over electricity availability and decarbonization targets that change procurement choices. These constraints are particularly visible in regions where grids are aging or struggling to keep pace with demand growth. Responses developed for North American markets cannot be transferred directly to Africa, but the three issues they highlight — cost, reliability and long-term consistency — also concern African industrial companies.

The first risk is costs and their volatility. A company buying all its energy at fixed prices gains budget visibility, but may pay above market rates if prices subsequently fall. Conversely, full exposure to variable prices can increase bills when demand, fuel costs or grid constraints rise. There is therefore no universally optimal contract. The right balance depends on the consumption profile, the company's financial capacity and its tolerance for fluctuations.

Energy purchasing benefits from being treated as portfolio management. A company can stagger renewal dates, split volumes between fixed and indexed contracts, negotiate adjustment clauses and compare grid supply with on-site solutions. This approach reduces the risk of concentrating all purchases in a single market window. However, it requires reliable consumption data, negotiation skills and clear governance rules. Achieved savings must be compared with hedging costs and long-term contractual commitments.

The second challenge is the reliability of an electricity system facing growing constraints. The rise of data centers, artificial intelligence and the electrification of processes and vehicles increases electricity demand. If generation, transmission and distribution do not advance at the same pace, businesses may encounter connection delays, interruptions or increased grid-related costs. Major industrial projects must then factor energy into site selection and investment schedules.

This issue is decisive in several African economies, where access to stable electricity supply can limit mines, refineries, factories and logistics centers. Possible solutions vary by market: supply contracts with producers, dedicated power plants, on-site solar with storage, backup generators or contributions to financing power lines and substations. Each option entails costs, operational risks and regulatory requirements. A backup plant can ensure continuity, but increases fuel consumption and emissions. Solar can reduce grid purchases, but its variable output must be integrated into operations and sometimes supplemented by storage or another dispatchable source.

Regulation adds another layer of uncertainty. Authorities must determine how to allocate new infrastructure costs, responsibilities during load shedding and connection conditions for high-power consumers. For companies, these rules influence a project's competitiveness over several decades. Changes in transmission tariffs, capacity charges or grid access terms can alter a site's economics. It is therefore essential to include regulatory scenarios in the analysis rather than base decisions solely on current conditions.

The third challenge is aligning immediate purchases with long-term strategy. Companies with emissions reduction targets must examine their electricity's origin, renewable energy contracts, environmental certificates and actual results. Purchasing so-called green electricity does not automatically reduce the local grid's physical emissions. Accounting methods, the availability of guarantees of origin and the generation project's additionality are important criteria for evaluating the quality of low-carbon supply.

Energy strategy must also anticipate business growth. A company planning to increase production or electrify equipment may need more power in a few years. Overly rigid contracts risk limiting this expansion, while flexible supply can be more costly or less predictable. Planning must therefore involve energy, finance, operations and sustainability teams. Trade-offs between cost, security and emissions cannot be resolved by the purchasing department alone.

For African companies, energy management can become a competitive advantage if it reduces interruptions and protects margins. This requires precise assessment of loads, critical uses and opportunities to curtail or shift demand. Energy audits, maintenance and the efficiency of motors and cooling systems can often reduce needs before any new generation investment. Contracts and equipment must then be assessed on total cost, including financing, fuel, the grid, emissions and maintenance.

Large companies cannot eliminate market uncertainties, but can avoid facing them unprepared. Contract diversification, needs planning and monitoring supplier performance provide more room to maneuver than a single decision at renewal. Indicators to monitor include average cost per megawatt-hour, interruption hours, the share of needs covered by predictable contracts, carbon intensity and efficiency expenditure. Energy resilience starts with a strategy suited to the business and grid context, rather than the pursuit of a temporarily low tariff.