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.

I founded EnergyPro, now re-branded ep consultancy and part of the ep group, in 2012, with the purpose of accelerating investment into energy efficiency in the belief that improving efficiency remains the best route to building a cleaner and fairer economy. Since then we have done a lot of work at every level from policy formation down to individual projects and sometimes it may be hard to see how these all fit together and support the purpose.  So in this blog I thought I would explain how the parts fit together.

The model that all of our work fits into is based on a consideration of what it means to increase investment into energy efficiency.  Increasing investment requires increasing the flow of viable, attractive and impactful projects through the development process from origination to financing to implementation and performance. Of course behaviour change is also important but the largest, longer-term impact comes from investment into physical projects.

The project development process, shown in Figure 1, starts with origination and then goes through development, business case, underwriting (decision making), financing, build, and finally performance.  As you move through any project development funnel the quantity of projects declines as some projects fall away, and for each individual project there is declining risk and increasing cost as more resources are spent on development.  An early-stage project concept has low-cost but a high risk of not happening, a fully-developed project has lower risk of not happening but getting through the development process inevitably costs money. This applies to all types of development – whether it is a building, a new product or a new company.  Of course in practice project development is not so linear, it has many loops and feedbacks as different ideas are worked-up and tested and barriers are encountered and over-come.

The quantity of energy efficiency projects being originated is driven by demand which is driven by several factors including: energy prices; regulation; carbon prices; how energy is viewed strategically within an organisation; available technology; the degree of creativity applied to problem solving; and the general ‘zeitgeist’ around energy efficiency. In recent years the zeitgeist around energy efficiency has improved as more people have recognised it as the most cost-effective way to reduce emissions and reach our climate targets, as well as the multiple benefits it can bring with it.

Figure 1. The energy efficiency project lifecycle

The various projects we have delivered or are working on support different parts of the project life cycle from origination, through building business cases, delivery and measurement is shown in Figure 2.

Figure 2. The energy efficiency project life cycle and ep’s work

Our policy related work for several governments helps build capacity amongst policy makers by informing them what is possible and providing decision tools. On some occasions we have helped write policy that strengthens the case for energy efficiency by introducing new regulations or strengthening energy efficiency institutions within government.

In project development, we initiated and implemented with support from the EC and a pan-European consortium, the Investor Confidence Project Europe, which is a set of Protocols that sets out how to develop and document energy efficiency projects in a standardised way. The Investor Confidence Project’s Investor Ready Energy Efficiency^™ certification system has been proven to reduce transaction costs and reduce project performance risks and is available for use by for any developer of efficiency projects across Europe.  As well as having launched the Investor Confidence Project in Europe, which helps build capacity across the market, we also get directly involved in project development for a number of clients.

Our work with the Energy Efficiency Financial Institutions Group (EEFIG) since 2016 covers pretty much the whole project development process from a financial perspective. Sub-projects such the first EEFIG Working Group on the Sustainable Finance Taxonomy and the recently launched Working Group on adopting Energy Efficiency First are focused on different aspects of financing and assisting financial institutions to build capacity in order to be able to deploy more capital into efficiency. The EEFIG Underwriting Toolkit, for which we were the primary author, directly addresses the underwriting stage and helps build capacity within financing institutions and provides the basis of a common language between financiers and developers.

As well as this general capacity building work through EEFIG and other channels we have advised a number of investors looking at energy efficiency, both at project level and company level, including UK listed and private funds, several European funds, and one of the largest Sovereign Wealth Funds. Our work helps them to understand the market size and trends, identify financing mechanisms, and understand and due diligence specific investment opportunities.

Our long support for, and recent work on the multiple benefits of energy efficiency, plays directly to building better business cases for energy efficiency. As Catherine Cooremans points out, the multiple benefits are usually much more strategic, and therefore interesting to decision makers, than simple energy cost savings. Properly identifying and valuing them is essential for building effective energy efficiency business cases, business cases that maximize the chances of approval.

In working with Recurve Inc to introduce metered efficiency and pay for performance models to Europe we are addressing fundamental problems with efficiency, which are that all too often its impact isn’t measured and its true value to the system is not rewarded. Measuring and metering efficiency and flexibility, and valuing and rewarding them both properly, represents a total paradigm shift that Europe has been slow to recognise. Implementing this approach would go a long way to increasing demand for efficiency by making it contractable and much more like energy supply in that if you don’t deliver it you won’t get paid.  In a pay for performance regime energy efficiency can finally become the resource we have talked about for many years.

Building on our work with investors we have advised several entities in UK and internationally, on the design of new finance instruments. Our focus is very much on the development stage as that is where there is a big gap.  There is an abundance of project money for well-developed projects but too few instruments to help get projects to that point.

Looking across the whole process we developed our ESCO-in-a-box business model which enables organisations such as local energy or economic development agencies to start-up and run successful local or regional energy service companies. The model is now being rolled out in the UK and also being applied in Kenya where we are also working on linking it to a finance instrument to close the loop and bring investment.  ESCO-in-a-box has also led us to work on ‘super-ESCOs’, or as we now prefer to think of them, ‘net zero development vehicles’ that can help bridge the development gap and mobilize a number of derisking tools and transaction enablers.

Hopefully that helps explain what we do and why we do it, at least on energy efficiency. If you are an energy user, a developer, or an investor, who wants to accelerate investment into energy efficiency and think we can help at any stage of the whole process of developing and delivering energy efficiency projects, we would be happy to talk.

Other parts of the ep group have different purposes and do different things: ep projects designs and develops net zero and regenerative projects in the built environment and ep asset management transfers energy transition technologies between UK and India.  The group itself uses its platform to bring investment and opportunity to SMEs which impact the transition to a net zero and regenerative economy.

www.epgroup.com

Glasgow, which is one of my favourite cities, is the centre of global attention at the moment. In my case, as well as looking forward to seeing what emerges from COP26, I was also remembering a period when Glasgow, and a large swathe of Scotland, led the world in energy management and climate action, (although we didn’t generally think of it that way back then). This reflection started when I was reminded that it was thirty years since I helped design and lead a very large energy management programme in Strathclyde Regional Council, back then the largest local authority in Europe. The project was the culmination of a series of energy management programmes across various local authorities, and writing the Audit Commission guide to energy management – an extremely useful guide for action, the kind of which we need more of now.

Strathclyde Regional Council covered a large chunk of Scotland, included a population of 2.9 million people, 60% of Scotland’s population and had more than 1,500 buildings covering Education, Social Work, offices, the Fire Brigade and the Police.  The energy spend in 1990 was £60m.  The Scottish equivalent of the Audit Commission, the Accounts Commission, using their version of the guide we had written, determined that the Council was the least efficient in Scotland and I was the junior member for a team of three consultants brought in to improve that situation and ended up as project manager.

We used a well proven approach: set a base line, establish monitoring and targeting, survey a sample of buildings, identify a set of standard measures that could be rolled out, and start with the big spending, least efficient buildings.  After a pilot programme in Education and Social Work the Council rolled it out under the guidance of the consultant team, recruiting a team of 25 auditors and energy managers across the sub-regions.

Over two years we deployed £7m of capital on a range of low-cost simple standardised measures including lighting controls, low energy lamps (pre-LEDs of course), heating controls, and heat recovery systems.  Amongst the few high cost measures was a Combined Heat and Power unit installed in the Police HQ which not only reduced energy costs but functioned as an additional stand-by generator and delivered extra resilience to the critical 999 call centre. I was always very well treated by the Police. The audited energy cost savings across the whole project were £10 million per annum or 17%.  Although we were not driven by climate change I do remember writing the first report to the Council ever to mention carbon savings where the reduction in carbon dioxide emissions was equated to taking a number of cars off the road for a year.

Much has changed in 30 years, particularly the context of climate change and our understanding of it, the available energy efficiency technology, and the rise of renewables which were only just starting to emerge in 1990.  However, some lessons from back then still apply:

• First of all – and critically important – the importance of leadership. The programme was supported 100% by the Chief Executive and any organisational barriers we encountered were quickly knocked over by him.
• Secondly the need to focus on scale and roll-out. With so many buildings there was no point doing one project here and there, we had to focus on rolling out standard measures across hundreds of buildings – particularly in schools. Scaling and mass roll-out are a different skill set to undertaking one-off projects.
• Simple metrics of performance and guides are important to prompt action – the Audit Commission guide helped local authorities determine where they sat on a scale of performance and set a pathway for how they could improve.
• Apply the Pareto principle – do the high users, most inefficient buildings first and then do the smaller ones – you get bigger results quicker that way.
• The importance of measurement – the technology of Monitoring and Targeting was very different then but we needed to measure and demonstrate results.
• Next training – we recruited and trained a team, most of whom did not have prior energy efficiency experience and I am proud that some are still active in the field 30 years after.
• There are large inefficiencies in practically all buildings – whenever they were built.

Back then given the mandate we had we could only address no-cost and low-cost measures. Now, given the scale of the climate crisis and the need to decarbonise rapidly, we need to apply the same approach to higher cost measures with bigger savings. We know the capital is available to invest in such measures, we need the leadership to push for them and make them happen, as well as the right approach to project development and management, coupled with training and capacity building to deliver them. The time for small actions and one-off projects has passed.

At ep group, we work with businesses, investors and governments to deliver net zero and regenerative infrastructure – get in touch if you want to find out more. www.epgroup.com

PS The title for this piece is a line from ‘Glasgow (Your Heart is Made of Gold)’ by Scott McWatt, which is a great musical tribute to the city.

It feels important to mark the 20th anniversary of the tragedy of 9/11. As they are for many other people I imagine, my memories of that day are still vivid, and it is easy to answer the ‘where were you when it happened?’ question.  I couldn’t claim any personal connections to the event, fortunately, but I do remember it had a serious impact on me and it took about two years to process it properly. I felt an attachment to the World Trade Center and remember in the 1970s the publicity around its construction, and my excitement when I visited it for the first time in 1978, as well as being just as excited on subsequent visits to the observation deck in 1983 one crystal clear evening just as it got dark, and in 2001.

On the day itself I was in the Guinness Park Royal brewery at a start-up meeting of the Enron-Diageo Utility Alliance Agreement, an innovative 15 year utility outsourcing deal that had taken about a year to develop and implement.  Apart from the main order of business we discussed the celebration dinner planned for that evening. After the meeting I switched my phone back on to get a message from my wife who when I called her back, told me a plane had flown into the WTC. I assumed it was a light aircraft, mentioned it to the teams that were in the meeting and then left. Of course we didn’t have the access to instant news we have today on our phones. Strangely there was a TV in the meeting room but we didn’t think of switching it on.  The potential scale of the event only hit me when I got in the car to go back to Enron House. The driver had the radio on and we listened to the commentary, trying to work it out. The real impact hit me when I walked into the massive trading floor style office and there was a deathly silence and images of the towers’ destruction were playing on the big TV screens.  Many of the Enron staff were Americans and many had relatives and friends in New York.  Some were crying.

There was uncertainty about what to do and whether everyone should go home. Enron House overlooked the garden of Buckingham Palace and there were fears that London may also be targeted. We cancelled the celebration dinner with Guinness of course. After a few hours everyone was sent home and I remember listening to the news service on my phone and relaying information to fellow train passengers.  Once home I tried to call my American friends, who were nowhere near New York, but couldn’t get through.

Even now it is hard to contemplate the scale and impact of that day. For good and bad it has shaped the world we live in and in many ways we live with the consequences everyday. But on the 20th anniversary we should all take some time to remember the 2,977 people who were killed at the World Trade Center, the Pentagon and in Shanksville, Pennsylvania, as well as the many more that were injured, those who suffered (and still suffer) long-term health problems, the rescuers, as well as all their families and the survivors who are still affected by it.

The sheer volume of coverage of the IPCC’s AR6 report this week can be overwhelming. Like many people I asked what does it actually mean and what can I do about it?  I found these two summaries, from Carbon Brief, and Zeke Hausfather,  the most helpful of all of the analysis.

https://www.carbonbrief.org/in-depth-qa-the-ipccs-sixth-assessment-report-on-climate-science

https://twitter.com/hausfath/status/1425504589097279494

My key take aways?

It is “virtually certain that global surface temperature rise and associated changes can be limited through rapid and substantial reduction in global GHG emissions”.

“There is still a choice about how much warming there will be this century”.

That choice is ours. Leaders, business owners and colleagues, in every organisation, need to take responsibility and put their plans and reporting in place without delay, so we can reduce emissions as fast and effectively, as humanly possible.  We have the technologies and with the falling costs of solar PV and batteries, combinations of energy efficiency and renewables are now the lowest cost way of providing electricity – making replacing legacy energy infrastructure financially viable. Institutional capital is available and eager to find more sustainable investments.   The challenge is to take the knowledge we have and turn long-term intentions into investment plans that can be actioned now.

The ep group works with organisations to enable them to deliver net zero and regenerative infrastructure.  Get in touch today and start the conversation.

IPCC WG1 AR6 SPM Report Cover: Changing by Alisa Singer. Credit: Alisa Singer/IPCC.