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| • | Going green. The war in Ukraine is spurring Europe to reduce its dependence on foreign fossil fuels. These efforts could be speeding up investment in green energy. Already, large companies are building wind farms and installing solar panels to generate on-site power. Moreover, steep energy costs are increasingly prompting businesses to sign purchase agreements that secure clean energy at fixed rates. From January to October 2021, companies worldwide signed 203 such agreements, a 44% increase from the previous year. [Reuters] | | | | • | Fuel, food costs rise. The energy price hikes of recent years have been the biggest since the 1970s. Now, the World Bank projects that fuel and food costs will continue to increase in 2022. According to its April report, energy prices will shoot up 50.5% from the previous year, while food prices will increase nearly 23%. Inflation is surging in many parts of the world. In the US, the consumer price index hit 8.5% in March, the highest it’s been in 40 years, and in 19 European countries, inflation climbed to 7.5% that same month. [WSJ] | | | | • | Soaring production costs. The energy crisis is hitting Europe’s industrial sector hard. Surging demand and the war in Ukraine have contributed to expensive energy prices. In energy-intense industries, production costs have spiked by nearly 50% in some sectors, McKinsey analysis shows. Moreover, futures markets are pricing European gas at double or triple its 2021 rate for the next three years. | | | | • | Relying on renewables. Today’s high prices mean that using renewables to meet some of a plant’s energy needs could cut costs and improve price security. Before the current crisis, a chemicals company acquired some land next to its plant, intending to build a solar farm. Under a power purchase agreement, the project supplied 45% of the plant’s energy, with a one-year payback period. This project would pay for itself in weeks at today’s prices. By acting boldly, industrial leaders can make their companies stronger, cleaner, and more profitable for years to come. Two moves could create significant value for big energy users. | | | | — Edited by Belinda Yu | | This email contains information about McKinsey’s research, insights, services, or events. By opening our emails or clicking on links, you agree to our use of cookies and web tracking technology. For more information on how we use and protect your information, please review our privacy policy. | | You received this email because you subscribed to the On Point newsletter. | | | | Copyright © 2022 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007 | | | |
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