The FT has an interesting piece today on the UN’s prediction of serious weather volatility (http://www.ft.com/intl/cms/s/0/993fd13a-11e0-11e1-9d4d-00144feabdc0.html#axzz1eG78urFA). I was speaking to a friend in Shanghai this week who is an exec in steel and he says that future energy costs in China are his #1 worry. China is now the single largest market for him, and energy is 20% of production costs. Yet energy risk markets are underdeveloped in Asia, so manufacturers have to start thinking about individual, enterprise-level risk solutions to this issue.

Energy has traditionally been a network business, with production concentrated in a few players in any given market. Speaking with other execs in China recently, I wonder if in 20-30 years the typical Chinese major will be both a manufacturer and self-contained energy micro-utility? I know that a lot of thought has gone into the issue of production of energy at the “city block” level and of course many companies have ancillary energy production capability alongside major manufacturing plans. But perhaps a key to getting alternative energy sources to not be so alternative anymore is to have every major manufacturer “un plug” from state grids and to secure their own energy source, either in a networked or site-specific way.

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Posted by Carlos Alvarenga

Carlos Alvarenga is the Executive Director of World 50 ThinkLabs and an Adjunct Professor at the University of Maryland's Smith School of Business.

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