Tom Palmer, our managing consultant, discusses our recent success of achieving a bronze award for consulting from the Financial Times for the second year running.
Last week we discovered that for the second year running we have been rated in the top 20 Management Consultants for Energy, Utilities and Environment in a survey-based ranking conducted by Statista and featuring in the Financial Times.
Globally our consulting practice is now 16 strong, 11 of which focus on the GB market with a wide variety of experience and practice across flexibility, renewables, retail supply, trading and risk management, finance and policy design. They are supported by a deep pool of analysts who are in the energy markets each day. The entire team are humbled but delighted that market players rate us as highly as they do and this recognition is a powerful motivator for us to continue to work as hard as we can to maintain trust and build relationships, helping them navigate a rapidly changing sector.
In fact, the award inevitably had me and the team looking back on the year and the work we are most proud to have been asked to do. When we did so it really became obvious how the big trends in the sector have driven some of the significant projects that we have undertaken. This alignment between sector evolution and our ability to partner our customers as they ride the waves of change is something that we are most proud of, particularly as these waves are bigger now than ever before.
Don't Stop Believing
One of the areas of activity worth focusing on is market consolidation. It is tempting to think that this has been a phenomenon just in the retail supply markets. It is true that we have been incredibly active supporting voluntary, sizeable and strategically significant market driven consolidation events this year through our consulting work building off 15 years of experience in the GB retail markets. But this isn’t the whole story of M&A in the GB energy sector.
In the supply chains to retailers such as smart metering, there has been some interesting activity as businesses seek to scale up to meet the ongoing demand for smart meter roll-out, and position for possible moves into adjacent service or infra markets that might emerge from the drive for net zero. In this spirit, we were proud to have acted as the energy market vendor due diligence advisor on Foresight Metering’s sale to Arcus Infrastructure partners.
In generation and storage, there has been continued secondary market activity in renewable and flexible assets, where we have been busy providing buy-side advice and evaluation of value streams and regulatory/policy risks. We have supported renewable developers with the future revenue stream opportunities around co-location, network reforms, value at risk and route to market support.
Eye of the Tiger
The evolution of financing models has also been area for change in the last year. As we transition from largely subsidised assets and associated financing models to more merchant opportunities, the thought process of investors is having to change.
For assets like batteries or peaking plants the extrinsic drivers of value, basically being driven by market-wide relationships between supply and demand rather than individual and inherent asset characteristics, has meant investors having to consider markets that were hitherto uninteresting to them. This includes getting a more detailed understanding of the balancing mechanism, national and even regional flexibility services, the capacity market, trading their own power or participation in newer offtake structures such as Virtual Power Plants.
At the same time, even for mature renewable assets, the increasing reliance on less certain wholesale power price projections has meant a greater focus on underlying drivers of cashflow, including locational factors, network charging impacts and detailed intricacies of power purchase agreements previously passed over as “noise”. Even for CfD assets, given that prices are now so low, the projects are much more sensitive to some of these variables than they once were.
We have been very active in supporting investors over the last year. The more complex the opportunity, the more we shine. Work that stands out for us here is the energy market advisory work we conducted for Zenobe on their ground-breaking debt raise with Santander for their battery storage portfolio. This was an exciting project where we enjoyed helping a key customer move themselves and the market forward. We will now build on our work with investors through a new financing net zero forum that we are launching at the end of March.
Ain't No Mountain High Enough
Another area we have supported in is policy and regulatory change. Here, Brexit has inevitably slowed the pace of big required changes such as the White Paper – leaving a coherent over-arching narrative around the route-map to net zero somewhat lacking - but beneath that there has been silos of really quite detailed work being pursued by the government, code bodies and market stakeholders.
Much of the focus has been examining new instruments, structures and ways of working that will be necessary to accommodate the deep changes net zero demands. Again, we are proud to have played an important part in these debates. The work we conducted on carbon, capture, usage and storage (CCUS) CfD design for BEIS was deeply challenging but immensely rewarding, and we hope will create a solid foundation for the government as they come to consider how to support power CCUS in their upcoming net zero strategy.
Similarly, we really enjoyed the work we conducted in partnership with Elexon around models for reorganisation of our code and governance structure in order to rationalise, improve access and transparency. These are intellectual areas that we have long occupied but to find opportunities to clearly articulate ideas that will help shift thinking, with the support of decision-making bodies and reputable market stakeholders, has been amazing.
Additionally, innovation has been an area we have excelled in. There has been an intangible but very significant change in the value of innovation as a currency in the energy markets over the last couple of years.
Almost ubiquitously there is a now a real desire for innovation to be a means to an end, rather than an end in itself. It is much more focused on developing scalable models that can really change the industry, rather than an activity undertaken as a regulatory requirement. Again, net zero has levered up the importance of innovation, particularly around networks where DNOs are moving through gears as they develop more DSO type characteristics. This has been spurred by Ofgem’s focus on decarbonisation and value for money, but also by their own motivations to re-imagine their role in the markets.
We have been active in supporting DNOs across a range of activities and we were also really pleased to have contributed two out of the four proposals taken forward for funding from the ESO Open Innovation event in November 2019.
Elsewhere, we have also focused on how we can support smart cities, securing key roles on consortia for two programmes in this arena.
No Sleep Till Brooklyn
Heading up the team here is certainly exciting. There is no sign that the energy markets will settle down any time soon.
The trends alluded to above will spill over into this year and will most likely be supplemented by new forces emerging out of the promised white paper and COP26, with heat, CCUS and hydrogen gathering varying degrees of critical mass in terms of activity.
This political activity will be underpinned, turbo-charged and pulled through by the relentless pursuit by our customers of opportunity and growth, and we certainly look forward to partnering them as they continue that journey in 2020.