All Good Things

Today is my last day at EEVS Insight. Five years after founding the business with my friend Hilary Wood, I am stepping down as Managing Director and leaving the firm in others’ capable hands.

But they don’t quite get rid of me that easily… I’m delighted to have been asked to continue to represent and advise the business, a role which I’m looking forward to immensely. I will be at the X-Energy event on 21st Nov, with an EEVS hat wedged firmly in place.

Over the coming months I am very pleased to be working with CDP (the Carbon Disclosure Project) looking at energy efficiency finance issues as part of my MBA with Ashridge Business School. Beyond that I will be looking forward to new adventures and opportunities, but for now I thought I would share some musings on the last few years. Being at best a fair-weather LinkedIn user, I have no idea whether these ramblings will be of any interest, but I felt compelled to put something up here to mark the event, and in particular to pay tribute to my EEVS colleagues, past and present, who have made the last five years a real pleasure.

Like all the best ideas, EEVS was born out of necessity. Working for an energy efficiency technology vendor back in 2008, we needed a way of proving the savings that were being achieved when the technology was installed. Being relatively new to the industry, to our astonishment we found there was no standard way of doing this. Concepts like monitoring and targeting (M&T) were established, and addressed the importance of understanding day-to-day variation in energy use, but the idea of building in a structured ex-post evaluation of retrofit energy savings was not widespread.

The upshot, it seemed clear to us, was that energy efficiency projects remained low-value and piecemeal. Without a convincing way of valuing the benefits, many organisations only undertook projects that were so small that this didn’t matter, or where the funding was provided from elsewhere, or where a building needed to be upgraded for some other reason.

Our quest for a response to this issue led us to the niche Measurement and Verification (M&V) industry in the US. It is often claimed that the ESCO market in the States is more advanced than elsewhere. I am not sure this is true - it has certainly been around for longer but it remains a fraction of its potential size - but it is certainly true that the US has done an excellent job of exporting the concept of the investment grade energy efficiency project. M&V is a key element of this and its bible - the IPMVP (International Performance Measurement & Verification Protocol) - was exactly what we felt the UK needed in order to start valuing energy efficiency properly.

So, we got ourselves trained in IPMVP, we built software, systems and processes to enable us to carry out M&V calculations, and we hired colleagues to help us. And it became clear that here was the genesis of a business in its own right - in an industry still rife with snake oil salesmen, surely there was a role for an independent arbiter, using empirical data and unbiased calculation methods to prove performance?

In an extraordinary gesture of confidence, in 2011 our employers agreed to let us spin off EEVS into a separate business and provided the initial backing. In the first year we had precisely one client, but within a few years we were providing independent verification services, M&V training and advisory services for end-users, ESCOs and financiers, all of which we still offer today.

But the M&V issue is just one dimension of the thorny problem of large-scale energy efficiency. Developing a scaled, ambitious, deep retrofit project in an operational estate is like a game of jenga in reverse. The technical proposal, the investment case, the balance sheet treatment, the project governance, the M&V, the confidence of host, supplier and investor... These are the precariously stacked bricks that make up a successful project. Lose one and the whole edifice collapses.

In recent years EEVS has progressed from being purely an M&V provider to being the ‘glue’ that holds these fragile structures together. Some of the biggest energy efficiency programmes in the UK now benefit from our consultants’ hard-won expertise in governance and performance management. And I am also hugely proud of the policy and evaluation work our team has done over the years to try and spread this thinking more widely, including designing the M&V systems for the Electricity Demand Reduction (EDR) pilot delivered by DECC (may it rest in peace), developing systems for the Scottish Government’s Non-Domestic Energy Efficiency framework, and creating a new generation of MAC Curves for the NHS Sustainable Development Unit’s Securing Healthy Returns work earlier this year.

And alongside our work, there have been other marked advances in improving confidence in energy efficiency projects. To pick a handful, the Investor Confidence Project is standardising energy efficiency to make projects investable and aggregatable, and is now progressing at a pace; The Curve is crowdsourcing data on real energy saving projects to lower barriers to uptake and provide a dataset for investors; and our other humble contribution, the quarterly Energy Efficiency Trends report series we publish with Bloomberg New Energy Finance, is tracking confidence and technology trends in energy efficiency.

Despite these advances it is clear from our surveys that this remains a frustrating sector in which to do business. A typical energy saving project is still a low-value one-off, and having a short payback period is the overwhelming measure of success. But there are undoubtedly green shoots - use of third party investment is gradually growing, large projects are becoming more normal in the public sector, and energy efficiency may be poised to form part of the government’s new ‘industrial strategy’.

For what it’s worth, here are three of my thoughts about the direction of energy efficiency in the UK...

1. The future is soft

Being an engineer, I am guilty of thinking of energy efficiency in terms of projects, which have a beginning, a middle and an end. But actually the drive to improve energy performance does not have to be like this. In the organisations that do this best, enhancing energy performance is an intrinsic part of a continuous improvement culture, which values the input of all colleagues in boosting performance and stamping out waste. Increasingly I believe the focus will be on creating the enabling conditions for energy efficiency (and resource efficiency more generally) through understanding and applying the success factors that the leading organisations already enjoy.

2. The future is hard

More business processes than ever are outsourced, so organisations are increasingly pushing responsibility for their energy performance out to their supply chain. Outsourcing of energy services has been around for a long time, but the governance and management of contractors has lagged behind. We are constantly told about ESCO contracts over-promising and under-delivering, and contractors wriggling out of guaranteed savings arrangements. Partly at fault is the asymmetry of expertise between the ESCO and their client. Energy is complex, and there is a tendency to downplay this complexity in order to get a deal, which can return to bite both parties later on.

For scaled, long-term energy services outsourcing to work, governance has to get more muscular and contractors have to be held to account when things go wrong. Tentative steps towards self-regulation (we were involved in drawing up an EPC Code of Conduct a few years ago) are a start, but not yet enough. Organisations considering outsourcing energy services need specialist support, clear guidance and strong enforceable contracts to ensure the promised savings are genuinely bankable.

3. The future is finance

There is huge interest in investing in energy efficiency. Over several years EEVS has fielded a steady stream of enquiries from investors who have enjoyed success in renewables and assume that energy efficiency must be fairly similar. Their interest often wanes when it becomes clear that this isn’t the case, but nevertheless this ‘money push’ is becoming increasingly difficult to ignore, particularly as the explosion of interest in green bonds continues.

Advanced M&V techniques are giving us the ability to value savings (avoided energy consumption) in complex estates accurately, and to move past the ambiguity of outcomes that has dogged energy efficiency projects in the past. So it is possible to have genuine certainty around the returns from energy saving projects, and thereby to make payment for services entirely performance-linked. In time this will open up the market for third party investment in energy efficiency programmes in corporates, and I firmly believe it will become the norm for a company to outsource optimisation of its energy to a financed energy services contractor.

It is often said that disruption comes from outside an industry, and in our case the most likely source would seem to be the burgeoning Internet of Things. Over the last year I have been fortunate enough to be involved with a handful of projects at the leading edge of the IOT and Industry 4.0 revolution, which promises to transform the way we think of the built environment. But as we don’t yet know exactly how this will happen, waiting for it to come along or speculating too wildly on its implications are unhelpful.

Fundamentally, the money is ready, the technologies are ready and the opportunity is huge. What holds us back is a cloud of partially-understood issues - largely human and organisational - and it seems unlikely that the IOT revolution will send us a silver bullet to cut through these, although it could significantly accelerate investment if it comes at the right time.

At EEVS we have promoted the importance of valuing savings through independent M&V, and we advise on how projects should be structured and governed, and I believe these are important contributions. But a ‘wicked’ problem like mobilising energy efficiency needs a multitude of solutions, and we all need to look at the challenges we can address today. Now is the time for creative thinking, for innovation (particularly in business models and finance), for investment and scale, for a strong lead from government, and for a healthy market in which solution providers compete cleanly, ethically and transparently.

By far the most rewarding part of my experience with EEVS has been the privilege of working with such a committed and creative team of colleagues. We are fortunate in this industry to be united in a common belief in the importance of tackling climate change, which I think provides a purpose and focus that other sectors lack. But I also think the EEVS team have gone beyond the call of duty on more occasions than most, and together we have solved problems for our clients no other team could. It has been, and remains, a very special club to be part of, and I am enormously grateful for and proud of what we have achieved together.

I am delighted to be leaving the company, which is now part of APC Technology Group Plc, in the very capable hands of its new Managing Director, Mike Kennedy, who brings immense business experience and has already earned the trust of his team. Hilary Wood and Ian Jeffries complete the management team and lead a growing band of consultants and analysts who will continue and build on the great work we have done over the last five years.

Thanks to all who have supported us over the years - we appreciate it - and I’ll see you down the road. Bye for now.