The Energy Industry produces or supplies energy through exploration, development, marketing, storage, production and refinement. Networks of companies are involved throughout these stages to produce and distribute the power the economy needs. The two main sectors of the energy industry include:
- Nonrenewable: Nuclear power, heating oil, gasoline, petroleum and diesel fuel
- Renewable: Onshore and offshore wind power generation, wave and tidal power generation, solar power generation and ethanol
This energy is transmitted and stored using infrastructure networks like grid technologies.
In the coming decades, global energy consumption is expected to increase due to growing populations, better energy source access and higher living standards. This energy demand will increase electricity demand, especially through natural gas, wind and solar power. Turning to these renewable sources will help reduce carbon dioxide emissions, though energy companies should still prioritize decreasing their environmental impact.
Trends in the energy industry and various external factors contribute to the issues this sector faces. Some challenges in the energy field include:
- Economic activity: The energy industry’s ability to earn revenue is tethered to the business cycle. Economic activity significantly impacts energy demand. Factors such as employment, industrial production, housing, disposable income and gross domestic product (GDP) drive the business cycle. During periods of economic expansion, energy production increases, which raises the price of commodities. In recession periods, demand and commodity prices drop. When the price of energy commodities decreases, energy companies earn less profits.
- Cost reductions for renewable energy: The cost of electricity from renewable energy is much cheaper than fossil fuel plants. Since electricity consumption is increasing, renewable energy is the most cost-effective way to meet the high demand. This investment in renewable energy means power companies in the nonrenewable sector will have to face fierce competition in a saturated market.
- Geopolitics: Political events influence the energy industry by making products less available or changing the cost of commodities.
- Asset management: Energy businesses have high capital expenditures since they own large amounts of fixed assets, including processing equipment, land for reserves and facilities and transportation infrastructure.
- Weather conditions: The weather impacts the energy industry through severe conditions and natural disasters. These circumstances can damage the infrastructures that support the sector and disrupt business. Commodity prices also tend to increase in seasons with pleasant conditions.
- Research and development: Many energy companies invest in research and development to update their methods to the most efficient ones. This practice also helps companies, and the energy industry as a whole, adapt to changing environmental policies.