Energy Bill has extensive experience working for suppliers, TPIs and other energy companies. Still employed in the industry, he writes exclusively for ELN on the energy issues of the day.
When I was growing up, we always played board games at Christmas. Monopoly was a favourite, particularly for my older sister who usually won. She understood the board and made sure she secured the best properties. Investing in the right property portfolio always trumps an emotional attachment to, say, the Electric Company.
There was a brief flurry of investment in the utilities sector in the late 1990s following privatisation. A lot of Britain’s power companies were taken over by foreign investors, some of whom remain in the market up to this day, with European energy giants forming half of the Big Six.
What led to overseas companies investing in Britain’s energy industry? Was it the world-leading skills of the people involved? Was it the opportunity to invest in best-in-class infrastructure? Fat chance! The numbers added up: there was a market presence and assets available to be bought at the right price.
Over the years, I’ve been a number cruncher on projects seeking investment. In all my dealings with investors and banks, their main concern has been ensuring the resulting cash flow will be sufficient to pay back the investment and interest.
You’d think this would be obvious but the reaction to a recent survey suggested otherwise. Apparently, British firms are struggling to secure bank loans to invest money in energy efficiency projects. According to Siemens and the Energy Institute, the results show that banks “don’t understand” energy efficiency. If you ask me, they’re coming at the problem the wrong way around.
The bottom line is that banks’ only interest is ensuring that the numbers stack up. Energy efficiency is a good goal for any company but the investment has to generate sufficient cash or savings to repay the loan if you’re going to get outside finance involved.
Monopoly has a simple discipline. Invest in the right properties, build your empire and eventually you’ll bankrupt your opponents. Likewise, securing a business loan for energy projects is just a numbers game. If you can make the sums add up so that the banks can be sure of recouping their loan, you’re most of the way to being a winner.