EY: Examining Supply Chain's role in the Energy Transition

Digital technologies are transforming the energy landscape, especially for industrial sectors aiming for net-zero emissions.

AI and IoT, for example, when it comes to optimising energy use and boosting operational efficiency.

As EY's Sustainability Leader for Global Advanced Manufacturing and Mobility, Craig Coulter helps industrial clients make progress towards their sustainability goals, a process which includes developing strategic direction for decarbonisation.

This forms part of EY's efforts to supports industrial companies navigating the energy transition to low-carbon business models, covering carbon accounting, carbon pricing, regulatory compliance and circular economy principles to minimise waste.

Here, Craig shares insights on how energy and heavy industry – including their supply chains – can work towards decarbonisation.

How do you envision digital technologies transforming the energy landscape?

There’s no need to envision these technologies as part of a future energy transition; they are already being implemented before our very eyes and evolving quickly. 

Some examples include AI and the Internet of Things (IoT), which can optimise energy use in industrial processes. Sensors can also collect data on energy consumption and AI algorithms can analyse this data to identify inefficiencies and suggest improvements. 

These technologies facilitate better energy storage solutions and optimisation algorithms, which are critical for managing the intermittency of renewable energy sources — ensuring a steady supply of energy and maximising the use of renewable resources like wind and solar power. 

Additionally, machine learning (ML) models can predict when equipment is likely to fail or when it needs maintenance, which can prevent downtime and reduce energy waste due to inefficient machinery. 

One strategy I have seen work well is creating digital twins of energy assets, which enables simulation and analysis to improve their performance and efficiency. These virtual replicas can predict outcomes of changes to the system without physical testing, helping to optimise industrial operations for lower emissions. 

Digital tools also enable better tracking and verification of emissions data, as companies can monitor their carbon footprint in real time, manage their emissions more effectively and make informed decisions to progress toward net-zero targets. 

Additionally, blockchain and other digital tools can improve transparency in supply chains, allowing companies to track the carbon footprint of their products and raw materials — enabling better decision-making to reduce emissions across the supply chain.

These digital platforms help companies comply with environmental regulations and reporting requirements more efficiently, ensuring transparency and accountability in their journey toward net zero. As these technologies become more sophisticated over time and there is more data on their use, they will only become more effective and the efficiency gains they’ll help achieve will only keep growing. 

Can you foresee any hurdles in effectively integrating these technologies to optimise energy usage and meet sustainability objectives?

While digital technologies hold the promise of revolutionising the energy sector and expediting the energy transition and the pursuit of sustainability objectives, there are challenges to effectively integrate them. 

For one, the uneven global economic recovery post-COVID-19 has reduced investment and incentives. The ripple effects of supply chain disruptions stemming from lockdowns, including higher inflation, which spurred higher interest rates, have forced industrial companies to reduce investment in sustainability initiatives and governments to reduce decarbonisation-related incentives. 

Additionally, existing energy infrastructure is insufficient for future demand. According to the International Energy Agency (IEA), under existing policies and market conditions, global renewable capacity is forecast to reach 7,300GW by 2028. This growth trajectory would see global capacity increase to 2.5 times its current level by 2030, falling short of the goal set out at COP28 to triple global capacity by the end of the decade.

Limited data on energy and other ESG factors also limits visibility into targets and performance. In the EY 2023 Sustainable Value Study, 68% of advanced manufacturing and mobility respondents said that advances in AI have significant potential to optimise supply chains and reduce carbon emissions. However, half acknowledge that the lack of high quality or real-time data is the biggest barrier to AI accelerating progress on their climate change initiatives. 

The supply of critical minerals needed to develop low-carbon technologies is tenuous, and low-carbon technologies and associated supply chains depend on essential minerals which will need to develop significantly to meet increasing demand in the next decade. Yet much of the renewables supply chain, which includes critical minerals such as copper, lithium, nickel and zinc, are heavily concentrated in developing countries, making supply chains less robust as a result of geopolitical volatility. 

Amid disruption to global energy supply chains, how vital is it to prioritise energy sustainability initiatives? 

Current disruptions to global energy supply chains highlight why we need to prioritise energy sustainability initiatives.

When we focus on sustainable energy strategies, such as diversifying our energy sources and moving away from volatile fossil fuels, we’re building more resilience. 

By tapping into local renewable resources, we can also reduce our dependence on energy imports, which adds in another layer of stability to our energy supply. Volatile energy prices can disrupt economies — and renewable energy resources can offset this by helping to stabilise prices with their low marginal costs of production.  

Digital technologies enable better forecasting, integration and management of renewable energy sources for industrial companies and can facilitate the integration of renewable energy sources into industrial operations, making it easier for companies to switch to cleaner energy sources. 

Advanced battery technologies and energy management systems can also help companies store excess renewable energy when supply is abundant and use it when supply is constrained. 

Finally, blockchain and other digital tools can provide transparency in supply chains, allowing companies to identify and mitigate risks associated with energy supply disruptions. 

What are the primary energy-related challenges in achieving net-zero targets?

Many industrial processes are energy-intensive and reducing energy consumption without compromising output can be difficult. 

Industries often rely on fossil fuels for high-temperature heat and as feedstock for chemical processes, making it challenging to transition to cleaner energy sources. An effective energy transition will require upgrading to more energy-efficient equipment or installing renewable energy systems, which requires significant upfront capital investment – a barrier for many companies. 

Additionally, existing infrastructure may not be compatible with renewable energy sources and will require substantial modifications or replacements, while inconsistent or unclear government policies and regulations can create uncertainty, making it difficult for companies to commit to long-term investments in net-zero initiatives. 

Companies now must account for emissions not only from their direct operations but also from their supply chains, which can be complex and less controllable. 

Renewable energy sources like solar and wind are great but they're intermittent, which means we need reliable energy storage solutions that are still being developed or might cost too much right now. Plus, our current electrical grid is not set up to handle many of these renewable sources and upgrading it can be costly and time-consuming. 

This is why we need to support continuous technological advancements in areas like carbon capture and storage (CCS), hydrogen fuel, advanced nuclear power and next-generation renewables — to make them work better, scale up easier and cost less in the long run.

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