Energy conversations

Buro Happold

21/11/2012 Written by: Adam Poole No comments

A new season of Buro Happold’s Energy Conversations started at the Building Centre in London. These are the brain child of the Sustainability Team Leader Alasdair Young. They are an hour and a half debating sessions with lots of speakers (five) each talking for five minutes or so. I am quite persuaded that the story of society, of politics, of everything is really the story of energy capture and this is really the power of these events. When we have a collection of people talking about energy the conversation moves back and forth between technology, finance, government and EU policy, DIY and what I am doing for my Granny and is compelling at each stage.

Last night’s event was about the Green Deal, which is something in which, we as a company, having tested the policy over three days as a business wargame, have more than a passing interest. The line up was impressive, and was marvellously chaired by Garry Felgate, one-time CEO of the energy companies’ trade association and now of Chop-cloc (how cool a business idea is that). Everyone did a good job. Peter Farrand of DECC was encyclopaedic in how he explained the Green Deal mechanisms, Peter Weaver of Mansell Energy, using prezi to good and slightly dizzying effect, gave a balanced view, suggesting it would be good if it could be made to work. The telling point was how the UK Government’s budget for announcing the digital radio switch-over was ten times the size to the  Green Deal promotional budget: Radio 1 vs climate change, there could only ever be one winner. This sense of balance was further amplified by Andy Deacon of the Energy Saving Trust.

The really memorable presentation was from Steven Heath of Knauf Insulation who, with newly arrived child, was going through the stages of improving his home – London Victorian terrace. He combined photos of the key parts of his home – boiler, condition of the windows, single skin wall, air bricks and a very clean and empty loft — with tales of mystery shopping where different parts of the supply chain had consistently given him the wrong advice. It made you want to weep. The message was a Green Deal treatment would cost £12,000-£15,000 and it was one financing method amongst several. Steven even said he had begun the project hoping it would be covered by the Green Deal but he had been affected by the on-going delays in getting the scheme.

The real star of the event however was Ingrid Holmes of E3G, who has investment bank experience and talked about the Green Deal in terms of the cost of money. This links closely with our own experience of having wargamed the policy. In our game we invented a number of fictitious banks, energy companies and retailers, gave them backgrounds, cash war chests and shareholder objectives and invited them to invest in the Green Deal if they could make it work for them in terms of the sorts of restraints we thought they would be operating under. Typically this meant not being able to lend Green Deal finance at much less that 15% IRR. Ingrid made the same point. She talked about there being sources of low cost finance which need to be below 7% and some token Government pump-priming —£260m. One can see that if there is enough low cost finance for the scheme to get working for long enough then the market could begin to understand the risks associated with this untested product, and with time, money, particularly from pension funds, could be lent at lower than 15%. But from all that one could see none of this was about to happen.

When the Germans tried something similar, Ingrid told us, KFW Bank was able to lend at 1% because its loans were subsidized by the German Government. The UK is not doing this. Instead, we have the Green Deal Finance Company, which is a coming together of a lot of interested parties, ostensibly to share the risks and rewards, although one does wonder why it has so many firms of lawyers and accountants involved working at £6,000 a day. In our game we created a similar sort of vehicle to see what would happen were it to act unscrupulously. We found that it was it was absolutely in the key position, controlling the bulk of the finance necessary for the policy to succeed and thus in a position to demand every increasing subsidies. Our game also looked what happened should the Green Deal ever move from a ‘nice to have’ policy to one of strategic importance, such as a hole in the nuclear programme, where upon the Over A Barrel Finance Company creamed it in.

All in all the Green Deal feels a little like trying to light a fire with too little kindling and damp wood, the starter fuel (low cost finance) burns out before the main fuel (pension funds) has dried out.

If you would like to learn more about what the Buro Happold Green Deal war-game discovered or how war-gaming could help develop your strategic planning contact Adam Poole