strategy+busness

apwcpublication

28NOVEMBER2023

Theenergy-demand

opportunity:How

companiescanthrive

intheenergy

transition

Organizationsfaceanenergytrilemmainvolvingcosts,

carbonemissions,andsupplyuncertainty.Butenergy

systemadvancescanhelpthemcreatevalueandbecome

moresustainableandresilient—bytakingchargeoftheir

energydemand.

byJonChadwick,SamanthaVincent,ReidMorrison,andRobTurner

/energyopportunity

JonChadwick

specializesinenergytransition.

HeisapartnerwithPwCAustralia.

SamanthaVincent

isaleadingpractitionerinenergytransition.

SheisadirectorwithPwCAustralia.

ReidMorrison

isPwC’sGlobalEnergyAdvisoryLeader.HeisaprincipalwithPwCUS.

RobTurner

istheUKsectorleaderforenergyand

resources.HeisapartnerwithPwCUK.

OrganizationsworldwidespendmorethanUS$10trillionayeartomeettheirenergyneeds,andmanystand-alonecompaniesstruggleunderaheavycostburden.IntheUK,morethanhalfofbusinessessurveyedin2023(54%)said

thatenergyaccountedforupwardof25%oftheirbusinesscosts.1

Uncheckedenergyusagedoesmorethancutintothebottomline.Itisalsoamajorsourceofcarbonemissionsandacauseofoperationaluncertainty.

Butnewdynamicsintheglobalenergyarenapresentopportunitiesfor

businessestotackleallthreepartsoftheso-calledenergytrilemma—costs,

carbonemissions,anduncertaintyofsupply—atonce,byholisticallyevaluatingtheirowncurrentandfutureenergyneedsandassuminggreatercontroloverenergydemand.

Ofthesenewenergydynamics,perhapsthebestknownisthedecarbonizationtakingplaceasmorelarge-scalerenewablepowercapacitycomesonline.

Butbecauserenewablepowercanbeunpredictable,aswhencloudsblockthesunorthewindstopsblowing,energysuppliesandpricesmaybemorevolatileandharderfororganizationstomanage.Thesecomplexitiesarewhyother

energydynamicsmatter.Decentralization,resultingfromthedeploymentofsmall-scalerenewableenergygenerationandstorage,letsorganizations

1NpowerBusinessSolutions,Businessenergytracker2023,2023,

/businessconfidence

.

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Consumers

GenerationTransmissionand

produceandbankelectricitytoavoidshortagesandsurgingprices.Andthe

digitizationoffacilitiesandequipmenthelpsorganizationsmanagetheirenergyusewithmoreprecision,reducingcostsandguardingagainstrisks.

Thecombinedimpactofdecarbonization,decentralization,anddigitization

meansorganizationsthatoncefunctionedmainlyasenergyconsumerscan

nowplaythedualroleofproducer–consumer.Theseenergy“prosumers”mightstillpurchaseelectricityfromthegrid—onlynow,theycanalsoproducetheirownelectricity,storeit,andsellit.Andtheycanusedataandtechnologyto

modulatetheirenergydemandandtimetheirenergypurchasesandsalestomatchfavorablemarketprices.

Traditionalenergysystem

Centralizedfossilfuelpowerplantsgenerateelectricity,whichflowsinonedirection

tocustomers;energysupplyistypicallyreliablebutemissions-intensive.

distribution

Businesses

Residences

Fossilfuelpowerplants

Datacenter

Supermarket

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Decarbonization

Utility-scalerenewables(e.g.,solar,wind)areintroduced,startingthephaseoutoffossilfuelpower;thisreducesemissionsbutcreatessomesupplyinstability.

Supermarket

Datacenter

Nuclear

powerplant

Businesses

Residences

Large-scale

solar

Fossilfuelpowerplant

Hydropower

Offshorewind

Decentralization

Businessesandhouseholdsinstallsmall-scalerenewablesandbatteries;bidirectionalflowofelectricitytoandfromdecentralizedassetsrequiresinvestmentinnetworkinfrastructure.

Businesseswith

solarandbattery

installations

Onshore

wind

Residentialsolar

Utility-scalebatterystorage

installations

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Digitization

Internet-of-thingsdeviceshelpcoordinatedecentralizedenergyassets;energyusers

managedemandtoachievesavings,usemorerenewablepower,andsupportgridstability.

))

●

))

Alltold,actionsthatorganizationstaketomanagetheirenergydemandwillhelpthemcreatecommercialvalue,achieveenvironmentalandsocialbenefits,and

boostresiliencetoriskssuchassupplydisruptions.Inthisarticle,we’llshowhoworganizationscanrealizethesebenefitsandbuildcompetitiveadvantagewith

fourcomplementaryapproachestodemand-sideenergyaction:optimizingtheirdemandthroughenergy-efficiencymeasuresandmoreflexibleusage,pursuing

energyindependence,maximizinginteractionswiththemarket,

andelectrifyingoperations.

HowanAustralianindustrialparkcreatedvaluebychangingitsapproachtoenergydemand

Tounderstandhowcompaniescancreatevaluebymanagingtheirenergydemand,considertheexampleofMoorebankLogisticsPark(MLP),Australia’slargest

intermodalfreightfacility.Likeotherlargeindustrialorganizationswithsignificantenergydemandandambitiouscarbon-neutralitygoals,MLPandmanyofitstenantsareseekingtoreducetheScope2carbonemissionsthatresultfromtheiruseof

purchasedelectricity.Thefacility’sownershipconsortiumalsorecognizedthatsuch

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effortswouldhavetobebalancedwithtenants’needforeconomical,reliable

electricpower.Inresponse,theconsortiumpartneredwithrenewablesfundSolarBaynotonlytoinstallandoperateAustralia’slargestrooftopsolarinstallationattheprecinctbutalsotousetechnologytomanageenergydemandinanefficient,cost-effectiveway.

Underthepartnership,SolarBaywillinstall60megawattsofbehind-the-meter

rooftopsolaralongwith150megawatt-hoursofbatteriesforenergystorage,whichwillservetenantsacrossthefacilitybywayofalocalizedelectricitynetwork,or

microgrid.Thisintegratedsystemwillbecapableofdeliveringalltheenergythattheparkusesduringdaylighthours,equivalentto44%ofoverallenergyneeds.

Therestofthefacility’spowerwillcomefromanoff-sitewindfarm,givingtenantsenoughrenewableenergytomeetthefullneedsoftheirelectrifiedoperations.

Theswitchtorenewablesisexpectedtopreventsome67,200metrictonsofcarbonemissionsperyear,significantlyreducingtheScope2footprintofMLP’stenants.

Thepartnershipalsoinvolvestheuseoftechnologysuchasefficientheating

andair-conditioning,lightingandcontrolsystems,andextensivesubmetering

andmonitoringsystems,tooptimizethegeneration,storage,anduseofenergy

acrossthelogisticspark.ThisapproachextendstoMLP’sinteractionwiththegrid.SignificantportionsofMLP’stotalenergydemand(orload)areflexibleenough

thattheycanbeshiftedtotimesofthedaywhenpowerischeaperorwhenthegridisunderlessstrain.Byadjustingthoseloadsinlinewiththechangingpriceand

supplyofpowerfromAustralia’sgrid,MLPcanoptimizeconsumptionofpower

generatedon-site.Itwillalsoprovidewhatareknownasgrid-supportservices,

whichhelptobalancethesupplyanddemandofpowerandensurethatelectricityflowsproperlythroughthenetwork.

Aggregatingtheenergydemandoftenantsacrossthefacilityandcoordinating

itsmanagementallowsMLPtomaximizethecommercialbenefitsofitsgrid

interactions,whileimprovinggridperformanceforothersonthenetwork.Andastheprojectexpands,MLPintendstooffertenantsadditionalservicessuchasfastchargingforelectrictrucksandhydrogengenerationandsupply.

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Thebenefitsofdemand-sideaction:Commercial,sustainability,andresilienceeffects

Theshifttobecominganenergyprosumermaybeunusualfornow.

Butourresearchsuggeststhatalmostallorganizations—insectorsas

diverseashealthcare,manufacturing,andretail—canusedemand-side

energyactiontorespondeffectivelytothetrilemmaofgrowingandvolatilecosts,

greenhousegasemissions,anduncertaintyofsupply.Thebusinesscasefor

demand-sideactionrestsonthreecategoriesofbenefits.

█Commercialbenefits.Demand-sideactionhelpsorganizationsandtheir

supplychainsforgecloserinteractionswiththeenergysystem,reducingenergy

and

carboncosts

andunlockingrevenueopportunities.Withrenewablesand

batteries,organizationscantradeinenergyunits,offergridbalancingservices

toenergynetworks,andcreateancillaryrevenuesourcessuchasenergyattribute

certificates(EACs,alsoknownasrenewableenergycredits)andcarboncredits.

Costsavingscanbereinvestedinthebusiness.Meanwhile,organizationsmay

haveopportunitiestofundtheirenergyprojectsbyaccessing

governmentgrants

andincentives

,greenfinancethroughloansandbonds,and

capitalfromenergy

systempartners

.

█Sustainabilitybenefits.Fromanenvironmentalandsocialperspective,

reduceddemandfor

gridpower

andproductionofon-siterenewableenergywill

driveemissionsreductionsacrossassetsandoperations.Theseinitiativescan

alsoexpandanorganization’ssociallicensetooperatebecausetheydemonstrate

commitmenttosupportinggridefficiencyandprovidingenergytolocal

communitiesduringgriddisruptions.

█Resiliencebenefits.Finally,organizationscanboosttheirresiliencetoclimaterisks(

bothphysicalandtransition

)andreducetheirexposuretooperationalrisks

resultingfromgeopoliticalandothersupply-sidefactors,suchasgriddowntime.

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Thedemand-siderepertoire:Fourapproachesthatcreatebusinessvalue

Someorganizationswithenergy-intensiveactivities,suchas

chemicals

companies

,manufacturers,andsteelmakers,havelongmadeitaprioritytoimprovetheirenergyefficiency,knowingthiscanreducetheircostsandtheirgreenhousegasemissions.Now,manymoreorganizationshavetheopportunitytotakechargeoftheirownenergydemand—andtoscaleuptheirimpactbypartneringwithotherentitiesintheirsupplychains.

Here,weidentifyfourcomplementarysetsofdemand-sidepracticesthatreliablyyieldcommercial,sustainability,andresiliencebenefits.

Optimizingenergydemandwithnewefficiencymeasuresand

shiftsinusagepatterns

Whenorganizationsreducetheirenergyconsumption,theylowercosts,cutcarbonemissions,andbuildresilienceagainstsuchdifficultiesaspricespikesorsupplyshortages.Onesimplewaytosaveenergyistoinstalldigitaldevicesandsystemsthatmonitorandcontrolusageinsmallappliancessuchasair

conditionersandwaterheaters.Becausethesebasicinterventionscanyieldenergysavingsofupto40%forlittleornocost,almosteveryorganizationstandstobenefitfromthem.2Thekeytotheireffectivenessistorollthemoutatscale(ratherthanpiecemealoronlyinsomefacilitiesorlocations),increasingtheamountofenergysaved.

Businesseswithenergy-intensivebuildingsandequipmentorwithflexibilityinusage,suchasindustrialmanufacturersorretailshoppingcenters,are

wellpositionedtoobtainfurtherbenefitsbyadoptingmoresophisticated

approaches.Forexample,organizationscanusesensorstodetectthepresence

2InternationalEnergyAgency,Copingwiththecrisis:Increasingresilienceinsmallbusinesses

inEuropethroughenergyefficiency,October2022,

/reports/coping-with-the-

crisis-increasing-resilience-in-small-businesses-in-europe-through-energy-efficiency

.

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Possibleinitiatives

Fourapproachestotakingchargeofenergydemandthatcanhelpcompaniescreatebusinessvalue

Organizationssearchingforvalueintheenergytransitionhavemanyoptions.

Inthishypotheticalusecase,ahardwareretailchainsurveysthepotentialbenefits

Pursuingenergyindependence

Possibleinitiatives

Energygeneration:Installingon-siterenewables,suchassolar,togenerateelectricityforuseorsale

Energystorage:Installingon-sitebatteriestobankelectricityforuseorsale

Optimizingenergydemand

Possibleinitiatives

Energyefficiency:Usinglessenergyto

performanactivityorachieveanoutcome

Energyoptimization:Timingenergyuse

totakeadvantageofbetterprices

Potentialbenefits(illustrative)*

Potentialbenefits(illustrative)*

40%ofelectricitygeneratedon-site

byinstallingsolarandbatteries

30%reductioninenergydemand

fromlightingafterinstallingenergy-

efficientLEDfixturesinstores

Demand-

sideenergy

approaches

Electrifyingoperations

Maximizingmarketinteractions

Possibleinitiatives

Equipment:Switchingappliancesandmachinerytoelectricmodels

Fleet:Switchingtoelectricvehiclesandchargingsystems

Energytrading:Buyingandsellingenergyorenergycontracts

Potentialbenefits(illustrative)*

Ancillaryservices:Reducingenergyconsumptionorprovidingbulkenergyatspecifictimestosupportgridstability

70%reductioninfleetemissionsfromswitchingtoelectricvehicles

Energyattributecertificates(EACs)orcarboncredits:Sellingcertificatesforunitsofrenewablesgenerationoravoidedemissions

Potentialbenefits(illustrative)*

10%energyspendoffsetbyrevenuefromsolarpowergenerationandsalesofgreenenergycredits

60%ofenergyspendoffsetbyrevenuefromusingbatteriestomaintainastablegrid

100%carbonneutralityachievedbybuyingEACsforallenergypurchases

*Potentialbenefitsarebasedonahypotheticalusecaseforahardwareretailchain.

Source:PwCanalysis

9|

ofpeopleorchangesintemperature,sotheycandialtheirlightingandheatingupordownasnecessary,takingintoaccountfactorssuchascostsandenergyavailability.Withdatafromnetworkedsmartdevices,organizationscan

forecasttheirenergyneedsandfindopportunitiestoapplytheapproaches

describednextinthissection,suchasinstallingon-siterenewablesandstorage.

DemandoptimizationtechniquescametogethersuccessfullyforoneEuropeanindustrialmanufacturer.Whenmanagersperformedanassessmentofthe

organization’son-siteenergydemand,theyfoundmultipleopportunities

toimproveenergyefficiency,includingupgradingtomoreefficientelectric

motors,repairingleaksincompressedairsystems,andoptimizinglighting

controlsoftware.Thesechangesenabledtheorganizationtoreduceitsenergyconsumptionby10%,itsannualenergyspendingby€2million,anditsyearlyCO2emissionsby3,000metrictons.

Pursuingenergyindependencewithon-siterenewablepower

andstorage

Reducingtheirrelianceongridpoweroffersorganizationsanotherwayto

avoidsuchrisksassurgingprices,poweroutages,andserviceinterruptions.Italsohelpsthemsavemoney,becausepurchasingfewerkilowatt-hoursfromthegridresultsinlowernetworkcharges.InAustralia,theUS,andtheUK,thesechargesaccountfor20to40%ofthetypicalenergybill.3,4,5Insome

jurisdictions,pursuingenergyindependencewillalsohelporganizations

minimizetheirenvironmentalleviesandtaxes,suchasthoseappliedundertheEU’sCarbonBorderAdjustmentMechanism(CBAM)andEmissions

TradingSystem(ETS).Theactionthatunlocksthesebenefitsisinstalling

3AustralianEnergyRegulator,Stateoftheenergymarket2023,October5,2023,

.au/publications/reports/performance/state-energy-market-2023

.

4USEnergyInformationAdministration,Electricityexplained,accessedNovember2023,

/energyexplained/electricity/prices-and-factors-affecting-prices.php

.

5UKParliament:HouseofCommonsLibrary,Domesticenergyprices(researchbriefing),September2023,

https://commonslibrary.parliament.uk/research-briefings/cbp-9491

.

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Basicinterventionscanyield

energysavingsofupto40%

forlittleornocost.

on-site,or“behind-the-meter,”renewableenergygenerationandstorageequipment.

Anorganization’spotentialtogenerateenergyon-sitedependslargelyonits

facilities’locationandphysicalcharacteristics,aswellaswhatweatherpatternsprevail—particularly,howmuchsunshineandwindthereis.

Potentialisalsocontingentonhowmuchspacetheorganizationhasavailable.Thosewithsignificantrealestateholdingsnormallyhavebetterprospects,

becausetheyhavemoreroomforsolararrays,windturbines,orbatteryinstallations.

Butthatdoesnotmeanthatotherorganizationsarelockedout.Theymightbeabletoinstallsolarpanelsonrooftops,insomeinstances.Theycanalsolooktoreduceexposuretoenergycostsembeddedinthepricesofgoodsandservicestheybuy—forexample,byprovidingaccesstolow-costrenewablesinexchangeforbettercommercialoutcomes,suchassupplyguaranteesordiscountson

goodsorservices.IKEA,forone,providedsomeofitssupplierswithpowerpurchaseagreementsandothermechanismstohelpthembuyrenewable

electricityfromthegrid.Thecompanyalsoofferedthemdirectfinancingforon-siterenewables.6

6IKEAwebsite,IKEAexpandsrenewableenergyprogrammetosuppliersintenadditionalmarkets,

accessedNovember2023,

/global/en/newsroom/sustainability/ikea-expands-

renewable-electricity-programme-to-suppliers-in-ten-additional-markets-230215

.

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Reducingtheirrelianceongridpoweroffersorganizationsanotherwayto

avoidsuchrisksassurgingprices

andpoweroutagesandinterruptions.

Anotherapproachtoinstallingon-siterenewablesandstorageisto

enterintocommercialagreementswithenergyproviders

thatcansupplycapitalandsupportrollout.Asmentionedabove,theMLPownershipconsortium

partneredwithanenergyprovidertoco-fundinstallationof

solarpanelsandbatteries.

Whererenewablepowergenerationispractical,therearemanyprecedentsforitsimplementation.Nearly60%ofthemembersoftheRE100globalcorporaterenewableenergyinitiativenowproducerenewableelectricityfortheirownconsumption,mostusingsolar.7Throughon-siterenewableelectricityand

thermalenergygeneration,oneEuropeanfoodmanufacturerreducedits

Scope1and2emissionsby68%(froma2015baseline).Contractstopurchaserenewableenergyhelpedtheorganizationrealizefurtherimprovementsin

environmentalperformanceandstayontracktoachievea100%reductioninoperationalemissionsby2030.

7ClimateGroupRE100,Onsiterenewableelectricity:Whyit’sakeypartofabusiness’climatestrategy,August2021,

/our-work/news/onsite-renewable-electricity-why-its-key-part-business-climate-strategy

.

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Maximizingmarketinteractionsthroughenergytrading,demand

response,andproductsales

Organizationsthatparticipateinmarketsforenergyandenergy-related

productsandservicescanbothreducecostsandgeneraterevenue.

Timingtheirpurchasesandsalesofelectricity,forexample,letsthemtakeadvantageofchangesinthepriceofgridpower.Organizationscanalso

developandsellenergy-relatedproductssuchasEACsandcarboncredits.

Andtheycanofferenergyretailerstherighttoremotelydischargebatteriesduringpeakdemandperiodsorearnincomeformoderatingenergy

consumptiontosupportgridstability.

Topursuetheseactivities,organizationsmustputfoundationalcapabilitiesinplace.Forexample,theymustoperatetheirownrenewableenergyassetsto

issueEACs,andtheyneedoptimizationtoolstoorchestratetheirenergyloads(thatis,theenergyconsumptionacrossaportfoliooffacilitiesandequipment)inresponsetochangingprices.

Forthesereasons,participationinenergymarketsislikelytoworkbestfor

organizationssuchasretailchains,commercialoffices,anddatacenters,whichhavehighvolumesofcontrollableenergyassetsandtheabilitytotailortheir

energyusagetodailyfluctuationsincosts.Organizationswithlowerlevelsof

energydemand,orlessflexibleenergydemand,mayfindfeweropportunitiestoadjusttheirenergyusageaspriceschange.Theseorganizationsmightconsiderpartneringwithotherstoaggregateenergydemandandcollectivelyengageinthemarket.

Organizationsthatdodevelopthecapabilitiestoengageinenergyand

energy-relatedmarketscanrealizesubstantialgains.Onealuminum

manufacturerbasedinAustraliaearnedasmuchasAU$19.2millionper

yearoverafour-yearperiodafterenrollingintheAustralianReliabilityandEmergencyReserveTrader(RERT)program.Thearrangementallowedthe

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Organizationsthatparticipatein

marketsforenergyandenergy-relatedproductsandservicescanbothreducecostsandgeneraterevenue.

organizationtocollectfeesfromtheAustralianEnergyMarketOperatorinexchangeforrampingdownitssmelterwhentheelectricityloadonthegridpeaked,helpingpreventinterruptionsandoutages.

Electrifyingoperationstoboostefficiencyandmitigateemissions

Thefourthapproachtodemand-sideactioninvolvesreplacingfossilfuel–

poweredassets,includingvehicles,withelectricalternatives.Running

equipmentonelectricity,particularlyrenewableelectricity,isadirectway

tolessencarbonemissions.Itcanalsoenabletheotherthreedemand-

sideapproachesbypositioningorganizationsmorestronglyasprosumers

inanincreasinglyelectrifiedenergysystem.Andelectrificationcreates

financialbenefits,becauseelectricequipmenttendstobemoreefficientthan

conventionalequipment.Electricheatpumpsarethreetofivetimesasefficientasnaturalgasboilers,andall-electricvehiclesare4.4timesasefficientas

gasolinecombustionenginevehicles.8,9Afurtherfinancialconsideration:earlyadoptersmayfindopportunitiesforgreenincentivesorsubsidiestohelppayforelectrification.

8InternationalEnergyAgency,Thefutureofheatpumps,revisedDecember2022,

/assets/4713780d-c0ae-4686-8c9b-29e782452695/TheFutureofHeatPumps.pdf

.

9USNationalRenewableEnergyLaboratory,Efficiencyratiosforlight-dutyall-electric

vehiclesintheUnitedStates,June2023,

/data/10963

.

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Ofcourse,electrificationdoesboostanorganization’sdemandforelectricity,whichcanthenexposeittopricevolatilitycausedbymacroeconomicevents,periodsofpeakdemand,orlowrenewablesgeneration.Thisaccentuates

theimportanceofoptimizingenergydemandandcostsorinstallingon-siterenewables,asdescribedabove,whilealsoelectrifyingoperations.

Numerousorganizationsaroundtheworldhaverealizedmultiplebenefitsfromswitchingtoelectrifiedtechnologies.OneUK-basedutility,forexample,aimstodecarbonizeitsfleetofvansandheavy-goodsvehiclesbyconvertingtoelectricvehiclesandalternative-fuelsvehicles,therebycreatingthepotentialtoreducefleetemissionsmorethan90%by2030.Thephasedrollouttargetedbythe

organizationisexpectedtoresultina50%reductionofitstransportemissionsby2027.

Gettingstarted

Thetrilemmaofhighenergycosts,carbonemissions,anduncertaintyinenergysupplycreatesanever-greaterneedfororganizationstoplaymoreactiveroleswithintheenergysystem.Andtechnologicaladvances,alongwithpolicyshifts,areprovidingorganizationswithnewmeansofrespondingtoenergyrisksandcreatingcommercialandenergy-savingopportunities.Iforganizationscan

fullycommittotheseapproaches,theycanrealizesignificantvalue.

Infollowingthefourdemand-sideapproachesdiscussedinthisarticle,

organizationsneedn’tprioritizeoneovertheothers.Theywillgainmostfrombringingcomplementaryactionsintoanintegratedportfolio—forexample,byimplementingenergy-efficiencymeasurestolowerdemandwhileelectrifyingoperationstosupporttheeconomicaluseofon-siterenewablesandstorage.

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Leadingorganizationshavefoundithelpfultoassembletheirenergy

m