Governments across the globe have pledged to achieve net-zero emissions by the year 2050. The U.S. alone has a reported 6,347.7 million metric tons of CO2 equivalent to wipe out in that time. At the front of this enormous task stand energy companies.
Carbon neutrality can’t happen overnight. This global mission takes intensive capital planning, and the spotlight is on the energy and utility sector to lead the way in investments toward a green economy.
Capital investments will make up about $140 billion in annual spend for 2021 – 2023, according to the Edison Electric Institute, and that’s just for U.S. owned entities. These investments are where the energy sector can proverbially put its money where its mouth is. But supporting a successful Net Zero strategy will require dynamic capital planning capabilities.
Reactive and inaccurate capital planning can lead to unsuccessful and overbudget projects. Poor execution of those projects can create financial problems that will knock a firm off its path to Net Zero for years to come.
To achieve business objectives and produce an effective capital plan, companies must have a transparent, connected financial system and access to timely data sources. Only empowered with the proper data-driven insights can a capital plan hope to achieve strategic goals.
To efficiently execute a capital plan, your organization needs to be in sync. This means all financials need to be connected and aligned, there should be transparency between departments, and all data should be current and integrated across the organization. In essence, you need a single source of truth.
Achieving a defined source of truth is a particular challenge for energy companies. Often enough, each plant or substation forecasts their own capital plan in disparate Excel models, using varied global assumptions. This leads to incongruent outputs across projects and plants. In addition to these inconsistencies, the time it takes for each team in the field to model and submit their own capital projects to a corporate FP&A team is a costly redundancy.
Deploying a connected planning software, like Anaplan, provides an exceptional opportunity to connect and align your organization. The software does not require your business to conform to predetermined modules but offers a fully customizable modeling experience based on your company’s needs.
Anaplan takes input from each plant or substation and aggregates the information automatically, eliminating time and labor from the modeling process and from the final aggregation of capital projects. It can also automate data input to save even more process time and avoid human error. The tool provides instant analytics, offering more time for thoughtful and strategic planning.
Anaplan integrates any table-like outputs from your firm’s current asset management software into its system, so your FP&A team instantly has what they need for forecasting.
For energy and utilities, connection and alignment are particularly imperative due to the fluctuating nature of regulations. Global assumptions must be uniform across the firm’s capital planning process, and the capital planning process must also allow for flexibility around new regulations.
In planning for Net Zero, for instance, a new federal investment tax credit for Clean Energy infrastructure means capital planning teams need to update their current models. With multiple teams creating multiple plans – requiring multiple Excel models – corporate governance has their work cut out just communicating the required information update.
Then those teams have to input the data, update their disparate models and resubmit to corporate. Finally, the organization still needs to integrate all those models together to gain a holistic picture. That’s a lot of redundant effort, manual input, and room for error.
With Anaplan, a single corporate team uses customized security capabilities to manage these sorts of assumptions centrally, and then cascade them throughout the capital planning model. The tool provides customized security packages so that only certain authorized user roles can update global assumptions. Users submitting their capital plan are made aware of any updates and can see how their plan is affected by any of those global assumptions.
These same global assumptions can also be integrated from external sources and eliminate the reliance on manual maintenance. Factors such as the CPI Index, commodity prices, and FX rates are easily imported on a scheduled basis to allow for an accurate, real-time forecast.
Spaulding Ridge has a proven track record and the industry experience to implement solutions like Anaplan at energy companies across the globe. As a Global Strategic Partner for Anaplan, and a top implementation and advisory firm, Spaulding Ridge knows how to smoothly transition your company to its new digitally-connected environment and ensure your team has the resources and knowledge they need to succeed.
To learn more about how Spaulding Ridge can help you hit your capital planning targets through better organizational alignment, contact Sean Hickey at [email protected].
