Lessons from Enron for a net zero world

In my third retrospective blog in recent months I wanted to mark the 20^th anniversary of Enron’s collapse and draw some lessons for the transition to net zero.

I was only in Enron for the last 18 months of its existence but it was quite a ride.  When I first joined the London office it was a major shock as up until that point, I had largely worked for small organisations so walking onto what was the largest trading floor in Europe at the time was quite intimidating.  Truth be known I had no idea what was going on for the first few weeks at least! It was only when I got involved in developing a project covering a portfolio of several hundred buildings that I got fully engaged.  My experience in Strathclyde (see earlier blog) was helpful here, though in the end that particular project fell at the last hurdle.

Then the prospect of a project with the Guinness Park Royal brewery arrived which was perfect for me as I had spent most of my PhD working on energy efficiency in industry with a focus on brewing, malting and distilling, (it was tough being a student and visiting dozens of breweries and distilleries but someone had to do it).  The vision for the Guinness project was the purchase of all on-site utility plant and provision of all utilities on an ‘as a service’ basis, and after a long and complex development and negotiation process we were able to implement it, only for it to fall away a few months later when Enron went into administration. Fortunately I was able to save the deal and the team by pivoting it into RWE and we then repeated it twice more in Guinness breweries in 15 year term deals.  The Park Royal project turned the highly inefficient brewery to the best in class, reducing specific energy from 200 MJ/hl to 110 MJ/hl (the standard measurement in the UK brewing industry).

The innovative approaches pioneered by Enron included: bundling of energy supply and investment into infrastructure to reduce energy use and operational costs; right sizing of equipment of all types, risk assessment of energy efficiency measures, and aggregating loads for demand response.  The time has come to apply many of them at scale.  All of our legacy energy and utilities infrastructure, both in the energy grids and behind the meter in industry and buildings, is completely inappropriate for the new realities of climate change and the world of low-cost renewables, large-scale heat pumps, energy storage (power and thermal), flexibility and convergence of technologies.

Rather than tweak systems with marginal improvements we need to mobilize institutional capital in large-scale, multi-utility, integrated upgrades behind the meters of large industry and commerce. These kinds of investment can make the returns demanded by infrastructure investors, or better, and bring about significant reductions in emissions and multiple other benefits.  They will however require risk sharing in the development phase and in the long-term operation.

So what are the lessons from Enron?

• Organisations need to think big – really get behind their net zero targets and go for radical change to infrastructure and go for portfolios not just individual sites. The time for tweaking around the edges and small-scale pilots is over. This requires leadership pushing for ambitious targets and not accepting the established solutions.
• You need creative engineering and systems thinking – look for integration and right sizing opportunities and don’t just accept the standard solutions on offer from vendors and contractors.
• Look at the entire energy cost picture. Energy costs are more than just the cost of energy itself, they include O&M costs, capital requirements, compliance costs as well as the often hidden costs on people, working environment etc. All the costs and all the benefits need to be considered in the business case which needs to be linked to the organisation’s strategic goals and commitment to emissions reduction.
• Think long-term, these are long-term investments and need long deals, 10 or 15 years with the risks that entails. Net zero targets help here – aim for projects that meet or exceed 2030 and even 2040 targets as infrastructure installed in the next couple of years is likely to be still around at least into the 2030s.

What would an Enron-esque organisation be doing today for large corporates?  It would be a bespoke service company using a standardised process, and technical solutions would likely include offsite PV with private wires, energy storage, hybrid and integrated power and thermal systems, potentially becoming an energy hub for the neighbourhood, right-sizing, provision of grid services, and lots of connectivity and data providing carbon and wider impact reporting.  It would also have ready access to institutional, infrastructure type capital and packages of behind the meter utility infrastructure, beyond just roof-top solar and batteries, a potential new asset class for investors keen to invest in ways that support the transition to net zero. Finally of course it would need sound accounting practices, a lot more humility and a purpose / impact driven corporate culture.

We are starting to see more organizations look for this kind of service and growing interest from investors. Individual suppliers and contractors can provide parts of the solution but the missing pieces are often the development skills and risk capital, and the ability to integrate and stand behind the risks.

At ep group, if you want to explore these kinds of solutions we’d be happy to talk about our approach to enabling them and how we can assist.  For more information please go to: www.epgroup.com or you can contact us here.

We look forward to starting the conversation.