Australia’s resilience to global supply-chain disruption has been tested in recent years, as turmoil caused predominantly by the pandemic exposed vulnerabilities in local manufacturing capacity, speed to market, higher costs and lack of flexibility.
When Aurecon advised the Government of South Australia through all stages of the Hornsdale Power Reserve, it was a fairly unique project. Conceived and constructed in record time, the world’s largest lithium-ion battery system at the time met local energy storage needs. The breakneck pace was achieved because there were no global supply-chain shortfalls in equipment, labour or materials. Now, five years later, the market has been vastly altered. The policy landscape has shifted, with federal and state governments establishing climate-transition targets, inflationary price rises have occurred (linked to the pandemic, floods, drought and war) and delivery delays are impacting just about all products.
Sovereign capability and self-sufficiency are talked of as noble goals like no time in the recent past.
Global supply chains associated with energy-transition risk
Many organisations are underestimating supply-chain challenges associated with the energy transition. Economies need to decarbonise at a rate and scale that is difficult to fathom.
On one hand, there’s pressure on resources of all types, from human labour to parts, machinery and infrastructure. On the other, organisations can now re-evaluate past processes and develop better outcomes, moving from solely discussing costs, location and trade-offs, to environmental and social trade-ups. For example, the application of circular-economy thinking can reduce resource consumption and plan for resource re-use at end-of-life. In addition, exploring local manufacturing may reduce carbon emissions and energy use.
How will the three core historical assumptions made around supply-chain decisions stack up in the energy transition?
Assumption 1 – Supply and demand is organic
Our experience has shown that risks arise in the gap between aspiration and reality. What was world-leading a few years ago is a minnow today – compare the original Hornsdale Power Reserve battery (at 129MWh) to the Waratah Super Battery planned for NSW (expected at 1,680MWh). This is 13 times larger in just 5 years.
If your role in the energy transition is being a consumer of low-carbon energy, such as a miner, refiner, manufacturer or hydrogen exporter, you are one of many organisations competing for the same resources, whether it be renewable energy generation, grid-connection capacity, transmission capacity, land, labour, or export capacity at a port.
If you’re playing a more direct role in renewables projects, then you’re likely already aware that large parts of the world are now competing for the same solar modules, wind turbines, design engineers, freight capacity, steel and concrete, construction workforces and demountable site offices.
Assumption 2 – Social value is secondary
Social value and an organisation’s sustainability response is front and centre in today’s strategies – and will continue to be in the future. When supply-chain disruptions threaten a transition there are solutions, such as new technology adoption, automation, finding a local source or re-skilling workforces. However, these changes bring their own hurdles. If longer supply chains are required, this means higher carbon emissions. Further re-skilling and finding new supply sources takes time, money and patience, which doesn’t bode well for the ‘available now’ demands of most industries.
As organisations procure goods and services, they also have a responsibility to mitigate their supply-related carbon emissions.
This means going beyond data collection and setting clear emissions-reduction expectations for suppliers. Organisations are starting to join forces to drive emissions reduction at scale through lifecycle assessments and the development of an actionable sustainable procurement process.
This then extends to social value. If you can understand, then create, social value through the energy transition, you can progress responsible supply-chain management.
Assumption 3 – Supply decisions only involve trade-offs
A strong case is now evolving for local Australian manufacturing. For example, Fortescue Future Industries will begin manufacturing renewable energy electrolysers domestically.
This can’t just happen overnight. Supply chains are large, long and take time to develop. Perhaps the current disruptions are the catalyst needed to address transition risk in the form of reduced delivery distances, eco-friendly material inputs and lower energy use? Local manufacturing may also provide greater certainty, faster delivery, resilience and generate greater social value than using international suppliers. This is a trade-up, not a trade-off.
Why make the shovel in the gold rush towards clean energy?
No matter where your organisation is in its energy transition, by making the shovel in the gold rush towards clean energy, you can catalyse climate action and secure your company's future through understanding risks and establishing processes to address these for profit, people and the planet.