Power Report
RapidKnowHow
Executive Summary
Industrial Gas 2026–2030 is not primarily a demand cycle.
It is a transmission discipline cycle.
The decisive variable under elevated energy volatility is:
Pass-Through Effectiveness (PTE)
PTE determines whether energy shocks compress ROCE — or are absorbed.
Most Boards monitor:
- Revenue
- EBITDA
- Utilization
- Capex
Few monitor:
Portfolio-weighted PTE.
That is the hidden KPI.
1️⃣ What Is Pass-Through Effectiveness (PTE)?
PTE measures how efficiently cost increases are transmitted through contractual pricing mechanisms.
Formula:
PTE = Recovered Cost Increase ÷ Actual Cost Increase
If:
PTE = 1.0 → Full recovery
PTE = 0.85 → Minor margin friction
PTE = 0.75 → Structural margin erosion
PTE < 0.70 → ROCE destabilization risk
This metric governs transmission of volatility.
2️⃣ Why PTE Matters More in 2026–2030
Under stable energy regimes, imperfect PTE is tolerable.
Under elevated volatility:
Imperfect PTE compounds.
Example:
Energy +15%
PTE = 0.75
25% of cost shock remains unrecovered.
For a €4bn operator, this can mean:
€40–70m EBIT leakage within two quarters.
ROCE compresses silently.
Not dramatically.
But persistently.
3️⃣ Segment Sensitivity
PTE varies structurally across supply modes:
| Segment | Typical PTE | Risk Profile |
|---|---|---|
| On-Site | 0.88–0.92 | Stable |
| Specialty | 0.90+ | Protective |
| Healthcare | 0.78–0.85 | Moderate |
| Merchant | 0.65–0.75 | High |
| Packaged | 0.80–0.85 | Moderate |
Merchant exposure amplifies low PTE.
Portfolio-weighted PTE matters more than segment averages.
4️⃣ The Silent ROCE Transmission Mechanism
Energy Shock
→ Imperfect PTE
→ EBIT Leakage
→ Capital Employed Inflation
→ ROCE Compression
→ Multiple Pressure
This mechanism is gradual.
It rarely appears as a headline crisis.
It appears as “performance drift.”
That is why it is dangerous.
5️⃣ Governance Blind Spot
Most IGAS Boards receive:
- Energy cost updates
- EBITDA bridges
- Capex approvals
Few receive:
Portfolio-weighted PTE tracking.
Without PTE visibility, governance becomes reactive.
Boards only see erosion once ROCE has already declined.
6️⃣ PTE Thresholds for 2026–2030
Volatility regime requires stricter discipline:
PTE > 0.85 → Resilience Corridor
PTE 0.80–0.85 → Monitor
PTE 0.75–0.80 → Governance Review
PTE < 0.75 → Structural Risk
Below 0.75 under elevated baseline volatility:
ROCE compression becomes mathematically probable.
7️⃣ PTE & Free Cash Flow
PTE directly impacts:
- Timing of cash recovery
- Working capital inflation
- Inventory financing burden
Lower PTE:
- Extends cash recovery cycle
- Reduces FCF stability
- Increases liquidity pressure
Under volatility, PTE is a cash-flow variable.
Not just a margin variable.
8️⃣ PTE & Competitive Gap
Between 2026–2030, operators with:
High PTE + Low Merchant exposure
will:
- Preserve ROCE
- Maintain valuation premium
- Retain acquisition optionality
Operators with:
Low PTE + High Merchant exposure
will:
- Experience margin drift
- Face capital pressure
- Enter consolidation vulnerability window
Small PTE differences compound into structural separation.
9️⃣ AI-Orchestrator Governance of PTE
The IGAS AI-Orchestrator™ approach integrates:
Signal:
Monitor energy deltas and contract caps.
Prioritize:
Identify low-PTE contract clusters.
Act:
Accelerate repricing, renegotiate clauses, reduce exposure.
Capture:
Stabilize EBIT & FCF.
Reinforce:
Restructure portfolio mix toward high-transmission segments.
PTE becomes a managed variable — not a passive outcome.
🔟 Strategic Conclusion
Industrial Gas 2026–2030 will not reward scale alone.
It will reward transmission discipline.
Pass-Through Effectiveness (PTE) is the hidden KPI that determines:
- ROCE stability
- FCF predictability
- Market value resilience
- Competitive positioning
Boards that monitor PTE proactively preserve advantage.
Boards that ignore it discover its impact through erosion.
Final Reflection
Energy volatility does not determine winners.
PTE determines whether volatility destroys value — or is absorbed.
That is the hidden governance truth of IGAS 2026–2030.
IGAS AI-Orchestrator™
by RapidKnowHow
Independent Board Intelligence for Industrial Gas Volatility & ROCE Governance
