Operations Practice

Outsprinting the
energy crisis
High energy costs are hitting Europe’s industrial players hard. Bold
action could protect margins today and make companies cleaner,
stronger, and more profitable for the future.
by Peter Crispeels, Mikael Robertson, Ken Somers, and Eric Wiebes

© sinology/Getty Images

April 2022
 European energy markets are experiencing an
unprecedented shock. In the first quarter of 2022,
short-term gas prices on the largest European
exchange were five times higher than their 2021
average. The upward price pressures come from a
confluence of long-term trends and current events,
including shifts in sentiment among customers
and investors, carbon pricing, the post-COVID-19
surge in global demand, and, most recently, the
conflict in Ukraine.
In this environment, two groups of short-term moves
could create significant value for big energy users: a
new approach to energy procurement and a radical
focus on energy efficiency and decarbonization. Our
modeling indicates that the companies which make
the boldest and fastest moves in both these areas
could achieve sustainable margin improvements of
up to 10 percent while simultaneously reducing their
carbon footprint by 40 percent or more.

In energy-intensive industries, these Energy price stabilization

extraordinary increases are having a profound
impact on production costs, which have risen by
almost 50 percent in some sectors (Exhibit 1). The
situation is likely to be prolonged. Futures markets
are pricing European gas at twice or three times
their 2021 levels for at least the next three years.
Companies in these sectors face an urgent need
for action. They must ensure the viability of their
businesses today and find ways to maintain or
extend their competitiveness for the future.
Big users routinely purchase energy in advance to
hedge against price volatility. As companies come
to the end of their current positions, extraordinary
market conditions have created the opportunity to
think in new ways.
Hedges for future energy supply are currently
priced above the levelized cost of electricity (LCOE)
for renewable-energy projects. As a result, meeting

Exhibit 1
For some
For someprocess
processindustry
industryplayers,
players,rising
risingenergy
energyprices
prices have
have increased
increased
production costs
production costsby
byalmost
almost5050percent.
percent.

Typical production 150

cost structure,
process industry player,1 +48
index (Apr 2021 = 100) percentage
points

100 Energy and CO2

50
Other costs

0
Apr Apr Apr Apr
2021 2022 2023 2024
1
Fraction of total cost in 2021 for electricity 5% (€60/MWh), gas 5% (€20/MWh), CO₂ 2.5% (€50/MWh). Prices for gas futures based on
EEX Futures, TTF (title transfer facility) as of Mar 14, 2022. Electricity price assumed double of natural gas price including CO₂. CO₂ price evolving to
€100/ton for future years.

2 Outsprinting the energy crisis

some of a plant’s energy needs via the physical
ownership of renewables assets or power purchase
agreements (PPA) with renewables generators can
cut short- and medium-term energy costs while also
improving long-term price security.
Before the current energy crisis, one company in the
chemicals sector acquired a two-square-kilometer
plot of land next to its plant, intending to construct a
solar farm. Under a PPA that provided power at €50
per megawatt hour, the project supplied 45 percent
of the plant’s overall energy, with a payback period
of only one year. At today’s prices, such a project
would pay for itself in weeks.
Energy efficiency and accelerated
decarbonization
The most significant mid- to long-term opportunity
to mitigate high energy costs comes from plans
Exhibit 2
mitigate today’s
Accelerating existing decarbonization plans could mitigate today’senergy
price increases.
increases.
Cumulative reduction in baseline energy costs by energy impact scenario, %
0
–10
–20
–30
–40
0 1 2 3 4 5 6 7
Number of years
Outsprinting the energy crisis
that energy-intensive users already have in place.
European companies have adopted decarbonization
strategies that typically involve reducing energy
consumption by around 50 percent over the next
decade. Implementing a big part of those changes
in two to three years not only would fully mitigate the
currently expected price increases but also could
create a real competitive advantage—a profitability
boost of multiple percentage points (Exhibit 2).
That’s a bold step, but the main barriers to success
are organizational, not technical or financial. Since
projects that would have taken several years to
pay back will now do so in months or even weeks,
high prices have transformed the business case for
energy efficiency. The wide range of opportunities
includes high-efficiency cooling systems, pressure
recovery technologies, optimized configuration and
control of pumps and fans, and the replacement
energy
‘Fit for 55’ scenario
Expects 40% reduction over the
next decade
Typical energy-efficiency scenario
Save 10–15% in 3 years, payback
<2 years
Aspirational scenario
Through capital prioritization on a
handful of high-impact projects,
a 40% savings could be reached
within 3 years, mitigating expected
energy price increases
8 9 10
3
 of hydraulic or pneumatic equipment by electric
actuators (Exhibit 3).
One area of promise is the application of advanced
heat recovery systems that convert waste heat at
60 to 70°C into 100 to 110°C hot water or steam,
which can be reused in other processes. Recent
studies have shown that in some applications,
these technologies can reduce requirements for
process steam by up to 70 percent. The availability
of sophisticated digital twins that can simulate the
performance of plants has made it much easier to
design the best possible configuration for these
systems, dramatically reducing their capital cost
and delivering further operational cost savings.
To reap the benefits of such technologies in the
current energy crisis, industrial players will need
aggressive schedules and advanced project
delivery capabilities. They must streamline capital
approval processes and reallocate resources,
prioritizing engineering and procurement capacity
for the highest-impact energy-efficiency projects.
And they will need to adopt best-in-class design
and construction approaches, including highly
standardized modular designs, off-site construction
wherever possible, and the parallelization of on-site
work. Some industrial companies already use
these approaches and others to compress project
timescales by up to 40 percent.
The energy price shock is the latest test for the
resilience of Europe’s industrial companies. For the
best of them, today’s crisis could be the catalyst for
action that protects their short-term profitability
while helping them pull ahead in the race to a net-
zero world.

Exhibit 3

A 40 percent gain in efficiency improvements

percent gain improvements in three years or less can be
less can be
made through bold moves on energy supply and demand.
made through bold moves on energy supply and demand.

Heat demand Heat supply Electricity demand Electricity supply

• Full condensate recovery
• Improved pinch with new
heat exchanger
• Advanced heat recovery
• Condensing turbine
closure and steam
rebalancing
• Equipment replacement
• Process reengineering
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• Biomass boilers
• Biomethanization on-site
• Thermal storage
• Steam-pipe connection
with waste incinerators or
nuclear power plants
• Pump- or fan-based • On-site solar on empty
theoretical limit system land
redesign, including • Next-to-site solar
redesign of final users • Owned utility-scale
• Cooling-system redesigns renewables
using state-of-the-art • Optimization of combined
equipment heat and power operation
• Compressor system outside of subsidy regimes
redesign, eliminating all
losses across the entire
production chain
• Pressure recovery

Peter Crispeels is a partner in McKinsey’s Lyon office, Mikael Robertson is a senior partner in the Stockholm office, Ken
Somers is a partner in the Brussels office, and Eric Wiebes is a partner in the Amsterdam office.

The authors wish to thank Tomas Nauclér and Susanna Tulokas for their contributions to this article.

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4 Outsprinting the energy crisis