The UK’s energy sector faces conflicting priorities. Businesses must invest for a sustainable future while keeping the lights on today. They must manage energy price volatility and working with customers while protecting profitability. And they must plan for the future in a sector where government is increasingly interventionist.

But against this backdrop, our new research, based on a survey of businesses in the utility and renewable energy sectors as well as interviews with industry leaders, reveals that businesses are focused on securing opportunity from adversity.

“We call it the energy trilemma – the need to deliver affordability, sustainability and security,” says Carmen Cheng, our National Sector Head, Natural Resources, Renewables and Utilities. “The most successful businesses will be the ones that work out the nuances of navigating a way through those priorities, investing in the shift to renewables while maintaining supply and managing cost.”

Our research suggests the industry’s leaders are up for the challenge. They are focusing on sustainability in the widest sense of the word, planning for supply chain disruption and investing in talent.

Renewable energy businesses are building the infrastructure that the UK will need as it works towards its decarbonisation targets, and utility businesses are also plotting a path towards reduced emissions. But the sector is under pressure to embrace a definition of sustainability that goes beyond simply reducing its carbon footprint.

Indeed, 70% of respondents from the sector agree that a truly sustainable business is a purpose-led company that has future-proofed itself by diversifying its supply chains and customer bases. In other words, the sector must take steps such as developing a more diverse and inclusive workforce and thinking harder about procurement not only because it is the right thing to do morally, but also because it makes business sense.

Indeed, the incentives to make that leap are numerous. Not least, points out Keith Reid, Group CFO at renewable energy group Infinis, the cost of capital in an investment-heavy sector is reduced for businesses performing better.

“For any infrastructure business building new projects requires significant investment says Keith. “The providers of growth capital – lenders or institutional investors – now are focused on you to satisfying key sustainability criteria. The more you can satisfy, the easier it is to access a broader pool of potential lenders and accelerate your growth.”

Equally, businesses in this sector know their customers want to see rapid change, as 86% think that failing to demonstrate sustainability credentials could lose them customers.

This is not to suggest the embrace of sustainability is straightforward. Cost is one difficulty – 58% say they would like to be more sustainable but finding the budget is a challenge.

• Support the business case for sustainability by focusing on the potential to reduce the cost of capital.
• Focus on change that goes beyond the environmental agenda, particularly around diversity and inclusion.
• Set realistic targets and be prepared to flex in the face of short-term volatility and disruption.

The war for talent is a challenge that spans multiple industries in the UK, but renewables and utilities companies are among those finding it difficult to recruit and retain staff. Our  research shows that 52% of respondents from the sector say plugging skills gaps is challenging.

One potential issue is that while other industries are moving to more flexible working practices, particularly around home-working, this is not possible for large parts of the energy industry’s workforce. The operational practicalities of renewable energy and utility businesses make home or hybrid working difficult to facilitate.

It is also the case that as the industry focuses on decarbonisation and embraces new technology, it needs skills and experience that the existing workforce may not possess.

However, leading businesses are finding ways to confront these obstacles. Many, for example, are keen to set out their stall as organisations of purpose, focusing on the desire of growing numbers of people to work for employers whose values they share. In this sector, 58% of respondents say that giving staff purpose at work offers some protection against them leaving for more money elsewhere.

“People want to work in a business they feel proud to be a part of,” adds Keith. “It is key to keeping the best people and developing them within the organisation.”

He also points to the need to develop long-term relationships with staff. “We’ve recently introduced a loyalty programme through which the whole workforce will benefit from the growth of the business over the coming years.

“post-pandemic, we have also focused on increasing the health and wellbeing services we offer our staff.”

• Boost recruitment and retention with a commitment to sustainability and purpose, building an organisation with values that staff share.
• Focus on strategies that reward loyalty and a shared long-term perspective, rather than trying to compete on headline salary.
• Support staff health and wellbeing, providing access to mental and physical support services.

Supply chain disruption continues to cause significant difficulties for many renewable energy and utility businesses – 52% of respondents from the sector regard this as a major challenge. Lead times for many components have doubled or even tripled, with extended supply chains still stretched by pandemic-related delays and logistics problems.

In the renewables sector, global demand for solar panels and batteries has soared, but supply remains limited, with a small number of producers in the Far East struggling to keep up.

To some extent, the sector is rethinking its supply chain, as 86% now say they prize reliability and trustworthiness in suppliers, while 54% say they no longer see the value of buying from suppliers based thousands of miles away just because they’re cheap.

Equally, however, with margin pressures a constant, businesses can’t afford to pay significantly more. While 72% of respondents in the renewables and utilities sector have made efforts to diversify suppliers, 80% still say choosing the lowest cost provider is important (see chart below).

How important are the following when considering suppliers? (% of respondents)

The key is to build greater flexibility into supply chains and production lines, argues Keith. “You have to accept that it’s going to be challenging for the foreseeable future,” he says. “We carry more stock in the business and accept there is a cost to that on our balance sheet.

“We’re also working much more closely than ever before with suppliers, trying to be proactive where lead times are increasing.”

For some components, it may be possible to broaden the supplier base – and to focus on suppliers closer to home. In other cases, businesses must be prepared to plan more for the medium term. Some solar and battery components are now taking 12 to 18 months to arrive.

• Build more flexibility into the system, holding more inventory, even if this adds cost to the operating line.
• Embrace greater supply chain diversity wherever possible, particularly through nearshoring and onshoring.
• Prioritise communication by staying in constant contact with suppliers and planning ahead to avoid last-minute shocks.

Carmen says leading renewable energy and utility businesses have become much better at anticipating challenges to come and positioning themselves accordingly. “It’s just about thinking ahead and taking the extra steps to mitigate the dangers you see,” she says. “That strategic thinking in multiple dimensions is what sets the leaders apart.”

Mitigation will take many forms, Carmen points out, and businesses will need to be imaginative. New partnerships may be required to deliver on customers’ changing requirements; vertical integration may be a response to supply chain challenges.

Nevertheless, for those businesses able to seize the initiative, the opportunity is to deliver with purpose as the world focuses on sustainable growth.