What have Renewables Ever Done For Us

I few weeks ago I drafted an article defending renewables. It never saw the light of day but I thought I would publish it here.

As a fundamental basis for our economic prosperity, the provision and price of energy is of vital importance. Energy price increases are never good news and will always attract debate, but the focus should be on the long-term. Trying to save a bit of money now only to be faced with much steeper increases in future is not what anyone wants but when we talk about reducing or removing renewable subsidies, in reality that is the direction in which where we are heading. That is why the Chancellor, quite rightly, is expected to maintain the current level of subsidy support under the Renewables Obligation (“RO”) regime when he presents his Autumn Statement. But what is it that we are actually paying for? The media, politicians and energy companies have spent a lot of time in recent weeks debating so-called ‘green levies’, and the use of such broad brush terminology has only served to confuse and cloud the issue.

The impact of green levies on your household costs is currently limited to around £120 per year, or about 10%, of the typical annual gas and electricity bill.  

Some commentators would have us believe that this all supports investment in renewables, particularly wind. That is simply not true.  

When you look at the cost of green levies the biggest single component – at nearly half the total, and possibly doubling next year – is ECO, an energy efficiency scheme.

If politicians want to deliver a meaningful and immediate reduction in energy bills, this is the area to focus on, as the scheme, despite its benefits, is placing too much burden on bill payers.

Another contributor to bills is the carbon floor price. Let's be clear: this is a tax, raising significant sums for the Treasury. It is probably adding only around £5 to your energy bills now, but that could quadruple in the next two years.

The Renewables Obligation scheme accounts for only £29 per household per year. It represents less than one quarter of the total cost of these Government schemes,and less than 3% of the typical energy bill.

This £29 has grown only modestly over the past 11 years, and is set to continue this modest rate of growth over the coming years. Onshore wind – contrary to popular belief – accounts for just one quarter of the total RO cost, so less than 1%of the total gas and electricity bill. Of all the schemes in place, the RO easily delivers the greatest value to the UK. It supports clean, affordable, domestically generated power. It is efficient in that it only provides support when electricity is actually produced and is a valuable driverof job creation.

By the end of 2013, renewable output will exceed 50 Terra watt hours for the first time. At nearly one sixth of total UK power demand, this output  is the equivalent of 7 new CCGTs, which would require an additional 1.7 billion therms of gas imported annually from Russia, the Middle East or Norway. One alternative would be to run our coal stations harder.  This would drive carbon emissions up by around 40 million tonnes and, more importantly, is an unrealistic possibility because the upgrades required for these ageing power stations have already forced several closures, with more to come in the next year or so.

The renewable industry is also serving as a catalyst for regeneration in manufacturing centres such as Humberside, Tyneside and Glasgow. It has contributed significantly to the development of both our energy infrastructure and the economy. It directly employs around 110,000 people in the UK and supports a further 160,000 jobs in its supply chain. It has stimulated academic teaching and research, with at least 12 universities offering renewables-related courses. And the industry has reached a level of maturity now where it offers a valuable source of income for our pensions and savings schemes. 

At £29 per household per year this represents exceptional value. This is £29 that is helping to diversify our energy mix and keep our energy supply secure. It is £29 that  is helping to reduce the impact of wholesale energy prices on consumers and lower our country’s carbon emissions.

We cannot influence wholesale gas prices - the primary reason for rising bills - but we can gradually become less reliant on gas and therefore protect ourselves from increases in bills that will be even less tolerable than they are currently. Renewables can and will rise to this challenge.

The government’s duty is to plan for the long-term prosperity of this country and that means continuing to invest in renewable energy, when the easy thing to do for short-term gain would be to stop. This is the time to keep the faith and invest in an industry that will help protect us from an otherwise inevitable future of rising bills.

Two key pillars of economic development

I gave a speech to the Glasgow dinner of the Institution of Civil Engineers last week and here is the core of the remarks I made.

Energy and engineering have always been closely linked and, indeed, have been two of the key pillars of our economic development over the last three hundred years. It was engineers like Newcomen and our own James Watt who unlocked the secrets of steam power and allowed us to use the energy in our coal that in turn transformed 18th century Britain. Engineers took that unleashed energy and added innovation to age old processes in industries like cotton in Manchester  and ship building here in Glasgow and made Britain the industrial colossus that bestrode the world. Civil engineers used the new availability of non animal 'horse power' , a term incidentally coined by Watt himself,  to shrink the world with canals and railways.

Energy and engineering then unlocked the second revolution in the 19th century. Engineers found out how to extract, distill and  tap into a new source of energy, oil, and then turned their minds to democratising transport with the internal combustion engine. The Civil engineers got into the act by designing and building the road network we are still using today. This transport revolution lasted until well into the twentieth century and it continued to transform our country. North Sea oil, from the 1970s onwards has been a major driver of the Scottish economy and it has placed Aberdeen on the World map. We now take motorways for granted but construction of the M8 only started in 1965, after I was born, and was only finished 33 years ago.

Then during the twentieth century we had a third energy revolution with the coming of the age of electricity. The National Academies of America decided that electricty was the single biggest innovation of the whole century, simply because all other advances in fields such as healthcare and communications depended on the availability of electricity. Building on the work of engineers like Edison, Swann and Westinghouse our immediate predecessors transformed the lives of millions by bringing them light. The civil engineering feats of the hydro engineers of the 1950s and 60s is truly astounding as I witnessed in a 24 hour nonstop trip around the North of Scotland to visit  34 different  hydro power stations this summer. Our modern world is now completely dependent on a reliable power supply as events on Arran and Kintyre earlier this year illustrate. We truly life in an electric age. 

That of course brings us to the 21st century when I believe we need another energy revolution lead by engineering innovation. Why do we need that revolution?

We have to decarbonise our energy production to avoid global climate change that would undermine the security and economic well being we expect for ourselves and our children

We have to reduce our dependency on finite resources like fossil fuels that will get increasingly difficult and expensive to find.

We have to power a digital economy that depends on reliable supplies whilst at the same time make sure that people can afford to pay the bills.

That threefold challenge depends upon us addressing two key areas; how we behave as consumers and citizens and secondly, what we design and build. For obvious reasons I am going to address the second and I can see three areas where the engineering profession needs to come to the rescue of the energy industry.

1. How we produce electricity. Gone are the days of building ever bigger fossil fuel units. The power system of the future will have lots of local and distributed generation sources. Zero carbon energy will be the norm and we need engineers to get the cost premium down, be that in offshore wind or nuclear. We need our universities and R and D firms to look at the next stage in technology again be that in nuclear with fusion or renewables with marine energy.

2. How we distribute energy. Our local power and gas grids, the wires and pipes in your streets, are dumb, it is an analog system. It needs re-engineering to make it fit for the 21st century so that it is self healing, responsive to two way flows of energy from multiple sources and smart in how it operates. A wide spread uptake of electric vehicles will present a major challenge to our grids. Engineering, combined with behavioural economics, will have to give the answers.

3. How we use energy. Here my main message to a group of civil engineers is that our buildings, be they homes, offices, factories or leisure facilities like this hotel have to be an order of magnitude more energy efficient than they are now. Our built environment stock is an international disgrace and that is why fuel poverty is such a British disease. We  need radical and innovative solutions to both what we build now and in the future and how we go about retrofitting our existing buildings.

 I was in the  Royal Society building in London chairing a conference on heat. But I found out something far more interesting. In 1759 one of the Society's top Prizes, the Copley award was won by a gentleman called John Smeaton. He is known as the first civil engineer but the prize was awarded for his work on the extraction of power from water and the wind. a man before his time and he  was only 35 years old. We need people like John Smeaton, young people, to yet again shake up our energy industry and our engineering profession.

If during the industrial revolution engineers unleashed the power of fossil fuels, and during the transport revolution harnessed the power of oil and in the electric revolution realised the power of the grid, we need engineers to unleash, harness and realise the power of zero carbon energy in the 21st century energy revolution. 

A week in the life of...

I am asked quite a lot now about what I am doing and how I fill my weeks after having spent nearly 11 years in an all encompassing, more than full time job. I guess I now have what many people would call a portfolio or plural career with a number of non executive and part time jobs. I deliberately wanted to keep quite busy but not silly busy and I think I am sort of achieving that, although my wife says I am away as often as ever! This week is in many ways typical as it involves trips to Glasgow and London but a quiet Monday morning and Wednesday afternoon. In between I will have managed an involvement with 9 different organisations.

1. I attended an Audit Committee update wearing my John Wood Group hat.

2. I spoke at an energy policy debate at Edinburgh University

3. I visited the first turbine to be produced by a tidal energy company I am involved with.

4. We held a management meeting of the software company where I have an investment.

5.  In my role as President of the Energy institute I chaired a heat summit.

6. I chaired a board phone call for Infinis Energy.

7. Then its a Maggies cancer charity finance committee to attend.

8. As chairman of Scotland's 2020 group I will be speaking at a dinner for Civil Engineers in Glasgow. 

9. I have an induction day at Aggreko.

On top of that I have had a few cups of coffee with contacts and friends and responded to the usual welter of emails and to started to think about my visit to a 10th organisation on Monday, which is another of the energy related SMEs I am involved with. Never a dull moment!

A minute in the life of......

I came across a snapshot of a single minute in the life of our data driven world.

Facebook.  208,000 photos uploaded.

Twitter.    350,000 tweats. 

 YouTube. 100 hours of video uploaded.

Google.   3.5 million search queries.

And those numbers are going up all the time. 90% of the data which currently exists was created in the last two years. 

You can ring my bell

Over the last few weeks I have been kept busy working for a company called Infinis Energy. It is a pure UK renewables business so was right up my street. It has performing assets in three different technologies; landfill gas, onshore wind and hydro. What has been different for me is that I was approached to be Chairman as part of the preparations for a listing on the London Stock Exchange. I have never been through an IPO (initial public offering) before and found it very interesting and, at times, frustrating. It involves a cast of thousands. I counted five different investment banks, three law firms, two corporate finance advisors, a specialist adviser on landfill gas and one firm of accountants. The conference calls, which at times were running at more than one a day, had so many people on them that I thought they might crash the system. 

It is also a very bureaucratic and legalistic process. The company had to issue a 250 page prospectus which amongst other things includes a very long list of every possible risk, to the extent that I thought we should have included the risk of a meteor hitting one of the Infinis sites. We had to have a number of Board meetings and I dread to think how many trees were sacrificed to produce all the papers. Everyone seemed to be issuing comfort letters to each other and everything had to be verified. 

On top of all this the business had to be marketed to investors. I got involved in something called 'pilot fishing', a term which seems tautologous at best as it involves initial discussions with potential investors and then the Management team spent nine days on a roadshow covering the UK, the US and Germany. They had over 40 one to one meetings as well as group lunches and video conferences. At one point the database of investor contact had over 700 individual fund managers being tracked.

This all came to head on 20 November when Infinis became the latest company to list on the London Stock Exchange. The management team were invited to a nice little ceremony to mark the start of trading, like the bell ringing ceremony in New York. They kindly invited me and it was a really good way to mark the end of the IPO process and the beginning of life as a quoted company. 

As a result I know find myself the Chairman of a public company board. Will I have to grow up now?

The Seven Ps of Effective Travel

I gave a key note speech at a conference on Scotland's clean air initiatives last week and it got me thinking of the hierarchy of travel options. I have used as my guiding principles the need to reduce both carbon emissions and air pollution, particularly in our cities. I have come up with a travel pecking order of 7 Ps:

1. PEACE. It is always best if we can avoid actually having to travel in the first place, partly because it can waste so much time. Modern technology like video conferencing, skype, face time and conference calls should always be the first option we think about.

2. PEDESTRIAN. I feel a little guilt promoting this one as I have a bad leg which makes it difficult for me to practise what I preach but for our local travel it should always be an option.

3. PEDAL. The second active option we should think about. Every time I go down to London I notice an increase in the number of bikes on the streets. The 'Boris Bikes' have made cycling easy for ad hoc journeys and Londoners are responding.

4. PUBLIC.  If we can't use our own energy to get around then the shared options are the next best. We have to use modern, digital, technology to make public transport easier to use. Apps for journey planning and real time data feeds are obvious steps we need to take. Maybe Edinburgh, with its new tram, can take a lead here. 

5. POOLED. The other shared transport is car pooling or lift sharing. Businesses should give incentives to staff who car share, like reserving the best car park spaces for their cars.

6. PLUGGED. New vehicles are being developed all the time with all electric cars, plug in hybrids, hydrogen buses and LPG fleets having a role to play. These have lower emissions than conventionally fuelled vehicles.

7. PETROL.  Our final choice, the last resort if you like, should be the private car (be it petrol or diesel). All too often, however, it is our first or default choice.

The challenge for policy makers and organisations is to make options 1 to 6 easier to adopt more often and then we will use them more often. If we just hit the car user over the head or in the wallet we will not get the sustainable behaviour change we need. 

An Element that changed the world

I have just finished John Browne's new book, 'Seven Elements that Changed the World". It was the last section, on silicon that really struck me. That humble element has changed the world in four different technological areas; three of which are still having a profound impact today.

Firstly there is glass, whether it is the highly decorative ornamental glass from Murano in Venice or a common window we tend to take it as a given. However, it was only in 1845 that the window tax was abolished in the UK and the use of glass started to transform our built environment. This was given a kick start by the Great Exhibition and its Crystal Palace which contained 300,000 panes of glass. Glass hasn't just changed our homes and cities, it also changed our view of the whole universe when Galileo looked through his telescope and realised that the Earth wasn't at the centre of the Universe. 

Secondly, we have the use of silicon in photovoltaic cells to produce electricity. The scientific breakthrough came from Chaplin, Pearson and Fuller working at Bell Labs in the mid 1950s. As Browne puts it, this discovery was so important because " in one year, more energy reaches the earth's surface from the Sun than will ever be extracted from all the sources of coal, oil, natural gas and uranium. In one day, the earth's surface receives 130,000 times the total world demand for electricity" Whilst in the UK solar is still only a niche product it is revolutionising the lives of people in sub Saharan Africa who don't have access to mains electricity.

If that wasn't enough then silicon forms the base material of the integrated circuits that are at the heart of all modern computing, including the iPad I am typing this entry on. The forerunner, the transistor, another product of Bell labs, won for its creators Shockley, Bardeen and Brattain a Nobel prize and after a period of development up until the mid 1960s "the exponential rate of increase in computing power and the consequential reduction in the cost of that power has been going on ever since." As a result, Browne points out, the typical smartphone contains more computing power than at the whole of NASA when men landed on the moon.

Silicon is transforming one last part of our lives; communication. The use of fibre optic cables is the backbone of the internet which connects more of us everyday to more and more data and information. I can be half way round the world and download vast reams of Board papers in seconds. At times this doesn't feel like progress! But when you stop and think of the revolution in communications we have seen in our lifetime it is incredible.

If the 18th to century were the Carbon age then the 21st century certainly feels like the silicon century.

The Missing Chapters

I have just finished a book that should be required reading for all Government Ministers: "The Blunders of our Government" by Anthony King and Ivor Crewe. They describe the differences between mistakes, errors of judgement and blunders and arrive at the following definition of the latter; "an episode in which a government adopts a specific course of action in order to achieve one or more objectives and, as a result largely or wholly of its own mistakes, either fails completely to achieve those objectives, or does achieve some or all of them but contrives at the same time to cause a significant amount of 'collateral damage' in the form of unintended and undesired consequences".  

They then go on to analyse an impressively frightening list of blunders of the last thirty years; the poll tax, personal pensions, the child support agency, the ERM, the Millenium Dome, individual learning accounts, tax credits, the asset recovery agency, payments to English farmers, IT procurement (particularly the NHS debacle), the London Underground PPP and ID cards. The second half of the book then describes the author's views of the reasons behind these blunders dividing them in to human factors such as cultural disconnection, group think and prejudice and then system failures. The following quote sums up this second group of factors "the weakness, despite appearances, of Number 10 [Downing Street], the speed at which ministers are moved from post to post, the pressure on ministers-and ministers own desire- to be constantly active, the lack of effective individual accountability in the system, parliament's near irrelevance and the absence in Whitehall of sufficient quantities of relevant and essential skills. But there is another feature of the British system- or rather a non-feature- that is worth noting. There is at the heart of the British system a deficit of deliberation."

I have to say that my experience of dealing with Governments over the last decade or so is totally in accord with the analysis and conclusions of the book. Here is just one illustration; in my nearly eleven years as an energy company CEO I dealt with nearly eleven Ministers of State for Energy (nearly as the last one was shared with the Business Department). In fact my only negative reaction to the whole book is that two chapters are missing; one on the two energy efficiency schemes, the Green Deal  ECO and one on the whole electricity market reform process. I am sure they will be in the second edition!

The age of big data and collaboration.

I was sent an interesting article by Ron Kasabian about big data. He talks about the stages in typical technology developments where, after a 'peak of inflated expectations', we usually enter something called the 'trough of disillusionment'. He argues that, as far as  big data is concerned, "there is fact substance behind the hype". I would agree. The amount of data that is available is growing every day and we are finding increasingly creative uses of it to change our perceptions of how things can or should be done. Kasabian offers four useful tips to avoid disappointment.

1. Think even bigger. He argues that the more data sources you have the better and that increasing the data by a factor of ten is the answer. I suspect he is right, the key is to think bigger rather than smaller. 

2. Find relevant data for the business. The key is to know what data will make the biggest business or societal impact.

3. Be Flexible. As he says "we are in a phase of rapid innovation" and, as in any field of endeavour, that requires pilots, trials, rapid learning and multiple iterations.

4. Connect the dots. I believe that a real prize in the big data revolution will come from exactly this. It will be about combining data from different sources and different organisations to give insight that would elude the individual silos where that information currently resides. This points to increasing cooperation between organisations in both the the public and private sectors. 

We are entering the age of big data but also the age of collaboration and together these two themes can offer us a path to more sustainable economic development. 

C-: Could do Better

The road to true sustainable development really depends on two things; what we build (the engineering challenge) and how we behave. It is this second one that many of us struggle with. Last week the Scottish Government published its report on the ten key behavioural areas that should be addressed. There is a wealth of data in the report and it can be accessed through this link.  http://www.scotland.gov.uk/Publications/2013/10/3267. The behaviours cover four topics, energy, transport, food and waste. A few of the statistics I picked out were:

- 47% of people in Scotland monitor or, in simply keep an eye on their home energy use which means that over half of us don't.

- only 66% of homes with cavity walls have actually insulated them and only 45% of lofts have adequate insulation in them. 

- less than a quarter of Scots turn off heating on unused rooms.

- 57% never turn the TV fully off overnight. 

- around 30% either walk, cycle or use public transport to get to work. That proportion has stayed pretty constant at that level over the years. 

These society level statistics are all very interesting but what really matters is what we do as individuals. So I decided to do a little thought experiment. I scored my personal performance on each of the ten behaviours out of ten giving me a theoretical maximum of 100. I scored 48. What was interesting was that on a few areas I scored well, we do, for example, keep our thermostat low, but on other areas I was hopeless. I scored myself 0 out of 10 on healthy eating, my love of curry and chips beats apples and carrots I'm afraid. I don't do well about dependence on the car but I have significantly improved my MPG by both car choice and less speed. 

I shared this with a group of leaders in the Scottish public sector and two things emerged. Firstly, we all recognise that we aren't perfect and our individual performance is mixed. Secondly, what counts is gradual and incremental improvement. So my challenge is to get 48 up to, say 60 in the next year. If we aim for perfection we might as well give up but we can all aim to get better.

Risky business

Having read the raw material from the UN's IPCC 5th assessment report I also had a look at some of the comments that various people have been made following its publication. Generally, the majority of the comments were supportive.  A good example would be the Scotsman's editorial which in a lengthy and thoughtful piece said "Even if not totally convinced by the scientific evidence, surely the prudent course of action for us all is to act to counter global warming because it is just to big a gamble. Living on our planet in a sustainable way is the only path that makes any sense." On a similar theme I also liked this one from Professor John Shepherd of Southampton University. He said "Uncertainty is a reason to be cautious, but not a reason to do nothing. On the contrary, uncertainty is a reason for taking action to avoid possible serious risks."

Taking a business perspective has always led me to the same conclusion. The risks of doing nothing are just too high because both the evidence that climate change will continue is strong and because the consequences of that change are so serious. If you were plotting a heat map of global risks then climate change has to be near the top right corner given its likelihood and impact. Boards rightly focus on these top right risks and so should Governments.

Simple science sound bites

At the end of last week the UN's IPCC fifth assessment report on climate change started to see the light of day with the publication of the Summary for policy makers. During an idle hour or two I decided to try and read it. I'm afraid I struggled with some of the science. One issue that strikes you, however, is that even the scientists have struggled to get across the concepts of levels of certainty and uncertainty. I guess events around the War in Iraq and then the debates around the Syrian crisis have shown us all that we need to better understand the basis on which claims are made.

This means that each statement is accompanied by caveats around the degree of certainty. Here are some examples.

1. "Warming of the climate system is unequivocal". This is about the most definitive statement in the whole report.

2. "Each of the last three decades has been successively warmer at the Earth's surface than any preceding decade since 1850". This statement has 'medium confidence" attached to it.

3. A bit later the report states, this time with high confidence that "Over the last two decades, the Greenland and Antarctic ice sheets have been losing mass, glaciers have continued to shrink almost world wide, and Arctic sea ice and Northern Hemisphere spring snow cover have continued to decrease in extent". 

The report then goes on to look at some of the 'whys'. It says "human influence on the climate system is clear" and that "human influence has been detected in warming of the atmosphere and the ocean, in changes in the global water cycle, in reductions in snow and ice, in global mean sea level rise, and in changes in some climate extremes". This seems a pretty long charge sheet and the IPCC say that the evidence has increased since their last report. The key sentence is therefore "IT IS EXTREMELY LIKELY THAT HUMAN INFLUENCE HAS BEEN THE DOMINANT CAUSE OF THE OBSERVED WARMING SINCE THE MID 20th CENTURY". I understand that in the last report a few years ago it was just 'highly likely' so extremely is an attempt to show an increase in confidence.

That seems pretty clear to me. The report then tackles forecasts and as with any forecast the range of uncertainty is obviously much greater than that around explaining past behaviour. I decided to focus on the global mean temperature forecasts, over the last 120 years or so it has gone up around 0.6 degrees. The report details four scenarios for the next 60 years and they all have ranges of temperature increases as follows:

Scenario 2.6.    0.4 to 1.6

Scenario 4.5.    0.9 to 2.0

Scenario 6.0.    0.8 to 1.8 

Scenario 8.5.    1.4 to 2.6

By my reckoning even the lowest estimate of the lowest range shows warming quicker than we have experienced in modern times  (my maths says about about 30% quicker) and a sort of completely unscientific range in the middle of the four scenarios would suggest it could be around three to four times faster. Given the changes in the various ecosystems we have already seen that ranges from the extremely worrying to the postively frightening. 

And finally one more quote which neatly summarises what has to be done. "Continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. Limiting climate change will require substantial and sustained reductions of greenhouse gas emissions. ". My sentiments entirely although I would add one more S. Soon. 

Bombshells, vandalism and stand by generation

Last week was certainly an eventful one in the world of UK energy policy and given the last few years that we have had that is certainly saying something. After a quiet start Ed Milliband dropped his bombshell of a twenty month retail energy price cap. This strikes me as policy making at its worst. There are three problems with it.

 Firstly, it seeks control of the end user price of a commodity without doing anything about the underlying costs and leaving retailers at the mercy of trends outside their control. We are obviously all concerned about high energy prices but attacking retailers fairly low profit margins is missing the target by a long way. By my reckoning over the last few years retail margins have been, at the most, the fifth biggest contribution to rising energy prices, if that. They certainly rank well behind 1) the global and well documented rise in wholesale energy prices; 2) increases in network charges which are the subject of independent price control regulation; 3) the relentless rise in government imposed costs on clean generation and energy efficiency; and 4) upward pressure on overheads as suppliers prepare for smart metering and the green deal. Government directly controls one of these (number 3) and heavily influences another (number 4) but Miliband decided to target all his guns on the margins.

Secondly, Governement mandated price freezes don't work as all the evidence from the 1970s suggests. How soon we forget. They produce distortions in the market, create sub optimal behavior on the part of both customers and suppliers and only delay the inevitable. King Canute springs to mind. They are notoriously difficult to implement. Let me illustrate with a simple example. Industrial customers typically sign multi year energy contracts which frequently have price variation clauses in them to deal with the uncertainties facing both sides. Is Government simply going to tell willing buyers and sellers that they can't trade the ways they want to.

Thirdly, whatever politicians may think and assert, there is, and always has been, a link between levels of investment and levels of profitability. If Mr Miliband thinks that he will get the investment needed to largely decarbonise the UKs electricity industry by 2030 (I happen to believe this is a good goal by the way) and at the same time drive a substantial segment of the industry into artificial losses then he is living on a different planet than the one I occupy. The businesses of the production and supply of energy are largely owned by the same companies and are certainly financed by similar investors. What affects one part of the energy industry naturally affects the other bits. Politicians seem incapable of understanding that the investment climate is a fragile thing and the ructions of last week will have undermined confidence throughout Board rooms of Europe.

I don't know how it will all play out but the energy supply business will become even more dysfunctional and  the UK's generation capacity crunch will be deeper and longer than we thought a week ago. If Mr Miliband gets his heart's desire and is given the keys to Number 10 Downing Street in 2015 his first task should not be to hold a press conference or appoint a cabinet but check the stand by generators work. 

Kings, film stars, pop songs and scientists

I have been reading the latest edition of 'Science Scotland' published by the Royal Society of Edinburgh. Its focus is on earth sciences which in many respects were born in Scotland with the publication of James Hutton's 'Theory of the Earth' in 1785.  This tradition is carried on by the Scottish Universities Environmental Research Centre (SUERC) who do an astonishing range of work. One page of the magazine gives a summary of some of the more popular work.

1. Dating Kings. The SUERC used it accelerator mass spectrometer to carbon date the bones found in Leicester which indicated that the individual died between 1475 and 1480 confirming that the remains were indeed those of Richard III. I find it amazing that we can be that accurate after over 600 years and I can't even remember what I did last month.

2. What killed the dinosaurs. SUERC was part of an international team that confirmed the extinction was precisely 66,038,000 years ago, exactly the same time as an asteroid or comet hit the earth. Where was Bruce Willis when he was needed. (A reference to the film Armageddon if you were wondering).

3. Space invaders. A team are about to try and answer David Bowie's question by examining a fragment of a Martian meteorite. 

4.  More than just a granite chin. Scientists from Aberdeen and SUERC have recently discovered that 1.5 billion years ago, granite played a key role in creating life as we know it, prompting the shift from simple to more complex organisms. We all know why Aberdeen University played the leading role!

The frontiers of science are incredible. 

Cancer centres and clean shoes

I have been involved with the Maggies Cancer Centres charity for a number of years, more recently as a Board member. The charity is mainly involved in building drop in centres that are next to oncology facilities to help more people affected by cancer live better lives. My involvement has shown me the role that architecture and design can have on well being and Maggies Centres are all well designed and visually distinctive. Each one is different but they are all, fundamentally, based around the kitchen table. 

The charity started 17 years ago in Edinburgh and this week I attended the opening of the 17th centre which is in Aberdeen. It has been designed by a Norwegian firm of Architects and so was formally opened by the Queen of Norway (hence the need to polish my shoes) along with the Duchess of Rothesay (as the Duchess of Cornwall is known in Scotland).  It is another striking building and I was very taken with the use of natural light and local materials. The centre also celebrates the links between Scotland and Norway and the oil and gas community were out in force as they had played, together with the golfer Colin Montgomerie, a major role in the fund raising. 

I have visited a number of centres over the last few months and know that the latest addition will make a real difference to people's lives in the North East of Scotland.

Beyond the numbers

Many years ago I qualified as a Chartered Accountant and have maintained my membership of the relevant institute, the ICAEW. In my new more relaxed existence I have started to pay more attention to it and even visited their premises in London earlier in the month. I came across one of their recent publications 'What Should Companies be responsible for?'. It is meant as a discussion piece to stimulate debate. The old school answer would be 'to make money for shareholders' but, I believe, as apparently does the ICAEW, that life isn't that simple any more. It proposes four responsibillties.

1. Achieving a business purpose. I agree that this is fundamental and in my old life that purpose was 'to provide the energy people need in a reliable and sustainable way'. The article puts it this way

" A company needs to achieve a business purpose which stakeholders can understand. It may be, in the case of a retail bank, to offer financial services suitable for its customers or, in the case of an energy company, to supply energy on a reliable and sustainable basis. Stakeholders including employees, customers, suppliers and lenders, as well as shareholders, all expect companies to achieve their business purpose. Serving its purpose effectively generally enables a company to generate continuing profits and value for shareholders. However, generating profits and shareholder value is not in itself a sufficient business purpose for a company."

2. Behaving in a socially acceptable way. Of course the definition of what is socially acceptable changes but businesses have to have regard to accepted norms and standards but business also has to take a longer term view than the media or politicians might.

3. Meeting legal and regulatory requirements. Enough said.

4. Stating how responsibilities are met. I would prefer being transparent and being prepared to be held to account but the sentiment is the same.

It is good to see accountants going beyond the numbers and tackling some difficult philosophical issues and their list is a good starter for four.

Science and soda.

We had the second 2020 Climate Group lecture last week. This one was on the science around climate change. We had two boffins, Stephen Belcher from the Met Office and James Curran from SEPA, who did an excellent job in explaining the current scientific views and evidence on climate change. For example a lot of work is now being done to understand what climate change means for the occurrence of extreme weather events. The one event illustrated was the heat wave of 2003 where the statistical analysis suggests it was twice as likely to happen now than it was before the industrial era. The general consensus was that we can expect extreme weather events, like heat waves and floods to happen more regularly. This seems to be true anecdotally but it was good to hear it being backed up by experts.

I'm afraid that I brought the evening to a close with a slightly more mundane illustration. The increasing layer of greenhouse gases means we are trapping more energy in the atmosphere. And if you want to know what happens when you put more energy into a volatile system, try giving a toddler some Irn Bru! 

Thank you for the music

Contrary to popular belief I do occasionally read books with a lighter theme.  I have just finished one I really enjoyed. It's called 'The People's Songs' by Stuart Maconie and the sub title, 'The Story of Modern Britain in 50 Records' really does explain what the book does. Starting with 'We'll  meet again' it describes our history since World War Two through popular music. It really was the history of my life with its own soundtrack. A few of the chapters, each one is about a specific song and theme, really stuck home. Describing the industrial unrest in the late 1970s and early 1980s using 'Part of the Union'  by the Strawbs, the Cold War with 'Two Tribes'  by Frankie goes to Hollywood and the dawn of New Labour with 'Things can only get better' may seem obvious but they are still really vivid memories.

The book also brought other things to mind like David Bowie's appearance on Top of the Pops on 6 July 1972 when his performance of 'Starman' was genuinely ground breaking or Elvis Cotello's evocative song, Shipbuilding, about the Falklands war. Those chapters reminded me strongly about school and university respectively. He didn't mention 'Rip it up' by Orange Juice which was being played around the time I did my finals and seemed to foretell a nightmare exam which, fortunately, never came. 

The book as a whole does remind you of how big a part music plays in both our lives and our memories. We all enjoy coming up with lists of songs and Maconie's list of ones to describe our recent history is a good one.

It's all in the game

Sometimes I am lucky enough to be invited to interesting dinners and this week was one of those happy occasions. The group of about a dozen was a mixture of senior businessmen and women and some elite athletes. They included a wheelchair racer, an Olympic hockey player, a gold medal winning rower and Gianluca Vialli, the ex Chelsea player and manager. What made it an interesting evening and one that went on longer than expected was that we were discussing the lessons to be learned between sports and business and it was very much a two way debate. Over three hours we covered things like:

-creating the time and space for the really important decisions which also needs the ability to step back and reflect. This was from Vialli who had learned the lesson from Sir Alex Ferguson but it reminded me of similar advice I was given as a young CEO.

-the mental attitude of the players in a team; be it sport or business, can make all the difference between good performance and winning performance.

-how do you tackle poor performance. Of course in sport, performance measurement is relentless but what about poor behavioural performance?

-the difference between strategy and tactics, particularly the ability to change tactics in the middle of a game or race depending on the circumstances or the actions of the competition.

-the importance of post performance review. How many businesses would sit down the day after a Board meeting with a video analyst going over every discussion and every decision?

And the evening started off with an interesting aside. One of the other guests was someone I had worked with in the early 1990s and we hadn't seen each other for over twenty years. She recognised me but I had to be given some pretty heavy clues, a sign of a fading memory perhaps! 

Reflections on a career in Energy

At Brokers  conference of investors I attended earlier in the week, in my speech I  took a more reflective stance than normal and looked back at a career of nearly 25 years in the Energy Industry. I first considered it as an industry back in 1988 when I was offered a secondment to the old Department of Energy. A lot of change has happened over those 25 years and if privatisation was the birth of the industry Then I believe there have been four phases in its life so far. 

1.  A blissful and happy childhood from 1990 to 1994 mainly marked by a search for identity and the beginnings  of a more commercial approach to life.

2. A troubled teenage existence. It started with a vengeance on 14 December 1994 with the hostile Trafalgar House bid for Northern Electric. The next ten years saw every variety of corporate transaction with some assets changing hands on a regular basis. As well as M & A hormones running wild this era also saw competition emerge in all parts of the energy supply industry and network price regulation settled down.

3. At some point in the mid 2000s the industry started to resemble a young adult with new pressures and responsibilities. I named four; decarbonisation, affordability, security of supply and economic head winds. These combined to bring the industry crashing back into the political spotlight and it was not a comfortable place to be.

4. This pressure lead to the inevitable mid life crisis and we seem to be stuck in this mode. Some of the features of that crisis include a lack of political philosophy underpinning the industry and the direction of policy, a stasis as far as building generation plant is concerned, the lack of an honest debate about energy prices and a breakdown in trust between customers and suppliers and also between investors and companies on one hand and politicians and regulators on the other.

This is a sad state of affairs because energy is the lifeblood of a modern economy and the current mid life crisis could have serious consequences if it continues for much longer.

So I guess I was both more reflective and more pessimistic than usual. 

An injection of energy

After a couple of months away from both the city and the energy industry, this week I attended a brokers conference on European and UK energy, mainly because I had agreed to speak. It gave me a fresh injection of energy related information. I will address my address later but thought I'd set out some things that grabbed my attention from other speakers.

The first talk was from Anne-Sophie Corbeau from the IEA who looked at the global gas market. I missed the first part of what she said but was struck by how global the gas market is but how local some of the issues and questions are. For example, Australia is building seven different LNG plants but will they all start up on time and where will that gas go? The US is experiencing a boom in shale gas production which has pushed prices down. Will the US start exporting significant gas? Will domestic US demand increase? Will US prices stay low? Her view was that shale gas in Europe would not be material over the next five years. There is a lot of optimism in the promises from the industry but it is likely to be more difficult and take longer to see large production volumes. I wonder if thats right? China is the big swing factor with by far the fastest growth in demand (estimated to be over ten times the volume increase that might come from Europe) pulling in one direction and the prospects for Chinese shale gas production potentially pulling in the other. Which way will the pendulum swing?

The second speaker was Stuart Ffoulkes who is an expert on the German generation market. I'm afraid I didn't pay full attention given my lack of knowledge on Germanic energy issues but a couple of sound items caught my attention. Firstly, apparently, the German approach to energy efficiency is that no German child should know what a draught is by 2020. Secondly, the best way to see whether German power plants have actually closed is to read the blogs of train spotters to see what coal hauling trains are being decommissioned or watch for YouTube videos of chimneys being blown up.

Then it was the turn of a panel who discussed the future of electricity capacity markets in Europe. For some reason the analogy that seem to dominate the session was 'stripes on a zebra'. I pointed out that there are two species of zebra, the grevy and the plains and they don't interbreed. There is a real danger of the same happening with capacity markets in different countries.

Here is a gratuitous picture of a grevy zebra I took this summer.

The last speaker who wasn't me was Nick Winser. He pointed out the enormous transformation in the UK gas market in the last ten years with over fifty percent now being imported. He also explained the UK's approach to decarbonisation in a way I hadn't heard before. We are transforming the electricity sector from a carbon intensity of around 500 grams of carbon dioxide per kilowatt hour of energy produced to an intensity of less than 100 grams and then we intend to migrate the heat and transport sectors to electricity to get them down for their current levels of around 200 to 300 grams per Kwh. It makes the order of action clear and also illustrates the scale of the task facing the electricity industry.

I will finish with one last quote from the conference. 'When politicians talk of market failure they usually mean the market isn't doing what I want'. How true. 

Should Governments go digital.

Wearing my 2020 hat I met IBM recently to discuss how the digital revolution is affecting public services. Their central thesis was that the agenda of most governments, at most levels, is on three things:

-cost efficiency. Austerity and value for money are hitting almost every country to varying degrees and the bigger the pressure, the greater the need for innovation in the provision of public services.

-transforming services. As digital revolutionises the customer experience in many different industries governments are finally joining in.

-revenue improvement. This is often simply about governments collecting all the taxes they currently levy rather than finding new taxes. 

All of these three are underpinned by three other things, security, job creation and environmental issues. 

It is clear to me that the changes brought about by the digital revolution can assist government in all three of its key agenda items. We all know that on line and digital transactions are significantly cheaper than traditional paper based systems. The State of Utah in the US is already offering over 1000 services on line and citizens get a slicker and better experience. In this last area I was staggered to learn that UK citizens owe the UK government around £25bn in unpaid levies, penalties and fines. Often this is as a result of a lack of joined up data. Many companies are trying to get a single view of the customer but no government has anything like a single view of the citizen.

I heard of some great examples which tend to be from medium sized cities in the 1 to 5 million population range or small countries (again in the same sort of size range). Here are a few.

1. The website dublinked has brought together business and the public sector to experiment with digital across the whole greater Dublin region. I went on line and planned a journey on public transport from a pub in the city centre to an office on the outskirts (I know most people would be interested in the opposite journey). It is an interesting example of the public sector using partnerships to pilot and trial things. 

2. In Lyon the municipal government has devolved a city wide traffic monitoring and prediction system. Most of our roads and streets are well monitored but Lyon have brought all that data together, used it to predict patterns up to an hour ahead and then made these predictions available to the travelling public. That allows you to make better decisions about when to leave and what route to take.

3. A lot of Cities around the world are using low cost chips to monitor whether public parking spaces are available. Some local governments  in the UK are just starting to move in this direction.

4. A Norwegian utility has teamed up with local government to use smart metering to keep vulnerable people in their homes for a year or two longer, reducing the burden on social services. The technology already exists to allow you to get a text if your aged parents don't boil a kettle for their morning cup of tea because they always do, don't they, and if they miss a morning something may be wrong.

5. IBM itself is using its Jeopardy playing computer, Watson, to assist in prescribing treatments for cancer patients. It searches vast amounts of data to give up to date and targeted advice both saving costs on unnecessary treatment and more importantly increasing the chances of successful outcomes. I intend to follow this one up given my involvement with the Maggies cancer charity. 

6. The city of Sunderland is focussing on the digital agenda and data to incubate social enterprise and create meaningful employment opportunities. 

I am convinced that by embracing the possibilities offered by all things digital then Governments can  make progress in all their key objectives and, as far as the 2020 group is concerned also reduce carbon emissions in a meaningful way. As a group we are starting to discuss how we could help Scotland do this. Any ideas welcome.

Even corporates can think laterally.

Last week I heard of one of the most bizarre diversifications I have ever come across.  I haven't been able to verify the truth of the story but, if true, it shows a remarkable level of imagination. Apparently, using the key competencies gained in building the metal frames for car seats a company in the West Midlands is now a large manufacturer of body piercing jewellry. A marvellous example of corporate lateral thinking.

A blog about bogs

In my role as Chairman of the 2020 group I attended a dinner on peat. Not normally the subject of meal time conversation, I know, but a vital and largely ignored topic. Peatlands are one of the worlds greatest natural stores of carbon but, in the past, man's activities have generally caused this landscape to degrade substantially. The UK, and Scotland in particular, has a lot of peatland with an estimated three million hectares or about 12% of the total UK land mass. That stores around three billion tonnes of carbon dioxide and could be absorbing another 3 million tonnes each year. However, all the sins of the past mean that the peatland is actually releasing about 10 million tonnes each year rather than storing more. That's a 13 million swing which is about 30% of Scotland's annual emissions. 

The experts reckon it would cost between £250 and £400 per hectare to restore the peat bogs to their former glory and then maintenance and monitoring would be about £4 to £5 each year. The carbon saving is around 4 tonnes per hectare per year. I reckon that gives a pretty low cost of reducing carbon. My maths suggest that over, say, a twenty year period the saving would be 80 tonnes at a total cost of up to £500 which is only just over £6 per tonne. 

However, there is a problem and that is what the dinner was about. How do you create a market for this service so that people who want to pay to reduce carbon emissions can invest in peatland restoration as an alternative to other forms of sequestration such as forestry or as an alternative to high cost zero carbon energy? What value would businesses place on the carbon saved? Over  what time frame should investments be measured; I used twenty years in my simple example but for many businesses that is an eternity. So what is the right period? How do you ensure that the work is done properly and that claims of emission reductions are more than just greenwash? How do you resolve the competing land use claims? And all that before we got to dessert!

The International Union for the Conservation of Nature (IUCN) is drawing up a peatland code and the RSPB has some great case studies involving the Flow Country (the common name for the peat bogs of Caithness and Sutherland) but the reall prize is to get businesses involved to test out the processes  and bring market principles to bear. The challenge is, I believe, to turn Scotland's peat bogs from emitters to absorbers by 2020. It can be done but will need the collaboration of Government, business and civil society.

You say you want a revolution?

My latest reading material is the book 'The Third Industrial Revolution' by Jeremy Rifkin. His central thesis is that it is the combination of energy and communication that makes for a true 'Industrial Revoltion'.  The first Revolution was built on coal and railways, the second on oil, electricty and the car and the third, the one we are experiencing now, should, he argues, be based on distributed energy and digital communication. It is an interesting idea and certainly one that seems to make a lot of sense. Revolutions generally do involve a combination of factors and we are certainly seeing a lot of change affecting everything. The book focuses a lot on energy but the communication advances are, if any thing, more dramatic. 

A good summary of Rifkin's views on the current Revolution is as follows. "The Third Industrial Revolution is the last stage of the great industrial saga and the first stage of the emerging collaborative era rolled together. It represents an interregnum between two periods of economic history.....If the industrial era emphasised the values of discipline and hard work, the top down flow of authority, the importance of financial capital, the workings of the marketplace, and private property relations, the collaborative era is more about creative play, peer-to-peer interactivity, social capital, participation in open commons, and access to global networks."

He outlines five pillars of this third industrial revolution including shifting to renewable energy, using the Internet to transform power grids and electric and hybrid transport. I found the chapter on distributed capitalism particularly interesting as we are seeing a lot of innovation around business models. As he says "although we think of entrepreneurship as isolated commercial accomplishments- in the form of new inventions or business ideas- the truly great  entrepreneurial contributions are more systemic in nature. They occur when the business community comes to see how their individual commercial pursuits fit into a broader economic vision." 

Business can be a really positive force for change and innovation in energy and communications is central to that change. Time will tell whether it is a truly historic revolution.

Read all about it.

Energy is frequently in the news and the last couple of  days are no exception. I have just picked out a few topics that I particularly noticed.

Last week the Office of National Statistics put out some research that UK household  electricity consumption was down 24.7% in the last six years. Given that a few years ago many of us wasted a lot of energy and the amount of money being spent on energy efficiency in the last few years this should be seen as good news. However, it didnt stop some commentators using it as an excuse to bash the energy companies again. I also suspect that it means the size of average bills is overstated because Ofgems standard consumption figures tend to lag reality. I acknowledge that high prices are causing people real pain but if the response is to be more careful in the use of energy that is, generally, a positive thing both economically and environmentally. 

US energy exports have been booming in recent years. In 2011 the US became a net fuel exporter for the first time in neary two decades and between June  2011 and June 2012 petroleum and coal exports doubled again to over $110 billion and oil and gas exports were up over 60% in the same period. These two sectors occupied the top two slots in the export growth league table. This is just an example of how unconventional gas has changed the energy landscape in the US in quite a major way.   However, the US is different from the UK interms of geology and politics. I can't imagine the scenes we have seen in Balcombe happening in Texas!

An article in the Financial Times discusses the issue of resource nationalism by looking at Mexican oil. I didn't know that Mexico nationalised their oil industry 75 years ago under President Cardenas. Now the current President, Enrique Nieto, has talked openly about bringing in foreign capital and expertise, but on Mexican terms. The ownership, production and value of fossil fuel reserves is always a highly political issue and countries all over the world take a variety of approaches, partly depending on whether they have resources. In fact in many regions around the world the politics and economics of energy are the dominant issue. 

These three stories all show how central energy is to our modern life.

Deluges and debriefs

Last week I visited Calgary in Alberta for a Board meeting of the Wood Group. Earlier in the summer Calgary was hit by very severe floods which affected both down town and many suburbs. It is still a major talking point. Flow rates on the rivers that flow through the city were between five and ten times their normal levels and over 100,000 people were displaced during the height of the damage.

In common with many companies Wood Group start meetings with a safety moment and as you would expect this time the focus was on crisis management. The key message was that it is important to remember what you wish you had done before the event so that next time you are better prepared. It reminded me of the importance of proper debriefing after anything significant (good or bad) which I first heard from an ex member of the Red Arrows air display team. They do a proper debrief after every display even if its gone really well.  Frequently we don't capture lessons, take remedial action and therefore improve next time and, in business as in other walks of life, we should. 

Nice guys can finish first

I was forwarded an article from the New York Times (not my usual reading material) by Susan Dominus. It is about a new book called 'Give and Take' by a leading psychologist, Adam Grant, from Wharton University. The essence of the article is summarised in this paragraph. 

".Organizational psychology has long concerned itself with how to design work so that people will enjoy it and want to keep doing it. Traditionally the thinking has been that employers should appeal to workers’ more obvious forms of self-interest: financial incentives, yes, but also work that is inherently interesting or offers the possibility for career advancement. Grant’s research, which has generated broad interest in the study of relationships at work and will be published for the first time for a popular audience in his new book, “Give and Take,” starts with a premise that turns the thinking behind those theories on its head. The greatest untapped source of motivation, he argues, is a sense of service to others; focusing on the contribution of our work to other people’s lives has the potential to make us more productive than thinking about helping ourselves." 

The examples seem to be extreme but I would certainly agree that selfishness in a business environment is counterproductive and that trying to put others and the organisation before your own needs is both productive and rewarding. For example, before joining an organisation the better question is 'what can I do for it' rather than 'what can it do for me' 

The article can be found here:  http://www.nytimes.com/2013/03/31/magazine/is-giving-the-secret-to-getting-ahead.html?pagewanted=all&_r=1&. It will make you think.

Linknode. A first and unexpected step

When I stepped down from SSE earlier in the summer one thing I was interested in was getting involved in some small companies and my involvement in Linknode represents the first move in this direction. It is also, for those people who know me, an apparently strange first move. After all I am the person who never had a PC in their office, believes that using calculators in exams is really cheating and spent most of his career trying to reduce IT spend. So why do I now appear to have got religion and got involved in an app developer?

My journey started three years ago when I bought my first iPad. Suddenly here was a piece of technology I both 'got' and could work. It made my life easier and changed how I went about doing business. I even bought my wife one for Christmas I was so taken with it. As a result I started looking more deeply at the digital revolution we are experiencing. I have read about digital disruption and big data and have bought numerous apps that give me, at my fingertips, information I find useful. The journey continued a year ago when I launched and judged the Enviroapp competition for Scotland's 2020 climate group. Actually it was even my idea. The competition was to develop an app to improve SME engagement with sustainable development and there were six finalists. Linknode didn't win but I was really impressed with their idea.

I stayed in contact with Crispin and the team as they developed Ventus AR. It involves the powerful combination of location, visualisation and mobility to allow you to see what a proposed wind farm ( or indeed any other type of development) would actually look like from where you are standing and holding up your tablet computer. It beats the postively ancient static photo montage  on all counts. It's cheaper for the developer, better for the local community who can see what they really want and more reliable for planners. What's not to like. 

As these discussions continued, the idea of me taking a stake and becoming Linknode's first non exec emerged. I heard about some of their other ideas such as Historylens and got even more interested and so when I eventually left SSE it was easy to accept their offer.

So that's how a technophobe came to be invested in a technology company. I believe that digital is truly disruptive of many aspects of our modern life and wind farm development and planning are no exception. I hope to help Linknode develop its existing products as well as new ones allowing the creation of meaningful and sustainable jobs. Small, entrepreneurial companies are the lifeblood of our economy and if I can play a small part in helping some be successful that will be a source of pride and enjoyment.

A Remarkable Year

You can only judge how significant events in a single year are with the benefit of hindsight. I think we are now far enough away from 1776 to say it was a remarkably influential year. Three things all happened in that year which have really helped shape our modern world. In no particular order they were:

1. The American Declaration of Indepedence which built on the philosophy published by Thomas Paine in Common Sense earlier in the year. This marked the effective beginning of democratic government.

2. Adam Smith published his Wealth of Nations which is still one of the building blocks of economic thought and our reliance on markets.

3. The first two steam engines built by James Watt were commissioned marking the real start of the fossil fuel era.

These three themes of democracy, markets and fossil fuels still dominate Western life. I wonder how long that will remain the case.