As we continue to break down the different business sectors, it's apparent that each sector has different factors that need to be considered when advising and building future growth opportunities for different company types. In the last episode we discussed the technology sector, and in this episode we're covering the energy sector!
Energy is a massive industry, it's one of the largest sectors due to its influence on the whole global economy. Listen to this episode to learn the 3 most important challenges energy companies must overcome in order to grow.
Energy is what took us from an agrarian society to the modern-day civilization we have today. With so much importance put on the energy sector, it's easy to understand why some governments want a say in how it is run. Some energy, like electricity and gas, are regulated by the government. And other alternative sources, like solar and wind, are privately owned.
When the government gets involved, there's a lot of compliance and regulatory law that needs to be followed, thus it becomes easy to create "somewhat regulated monopolies," where only one or few companies are able to fully comply.
For example, until recently, oil and gas were so highly controlled and regulated in the US that outside providers were able to manipulate the supply and create extremely high prices for these energy sources. At the end of 2017, the US signed the "Tax Cuts and Jobs Act," allowing exploration for energy sources within the US boarders. Ernst and Young states that this drove the price of oil to almost half the price it was before this, and now the US is becoming more and more self-sufficient. Many assume lower energy costs could hurt the economy, but the act actually improved the economy, helping capitalism.
Finding a balance when regulating the energy sector can be hard, trying to avoid creating monopolies but also make it fair for all energy sources. To give advice for an energy company, there are three main challenges you must overcome:
1. What energy source are you dealing with (i.e. oil, gas, battery, solar, wind)? Then, you must learn the regulatory laws specific to that source. There may also be government subsidies for alternative energy available, depending on the source.
2. Some energy sources are taxed heavier than others, so the advisor must be ready to deal with taxation on profitability, how to reinvestment capital, and the most profitable tax strategy to deal with depreciation of equipment.
3. How do you distribute profit? Many times profit is amongst groups, not individuals, so knowing how to distribute profit can be tricky for the energy sector. Along with profit, it's also important to know how to distribute a surplus of energy to individuals. If there is an alternative energy source in play, such as solar panels, then there must be an action plan that the energy company has to distribute this wealth as well.
All in all, energy sources need help with growth. With energy being such a pivotal sector, there are lots of things to consider when advising. There will always be a demand in energy, and it's important for the advisor to be a sounding board of where these energy companies want to go in the future. Whether the future requires government subsidies, revised regulations, new tax strategies, or distribution of profits in different ways, there are a lot of big decisions for energy companies to make. If you would like to learn more about how ProfitSee can help make these decisions easier, book a time with our team to learn more!