Executive interview: Richard Slark of Pöyry Energy Consulting
20-Nov-08
Pöyry's renewable energy director talks to Erin Gill
The sound of drilling could be heard faintly throughout my recent meeting with Richard Slark. As our conversation developed, I learned that this drilling is one of many signs that business is booming for the Finland-based group's energy consulting division - workmen are fitting out the floor above its existing Oxford office so the team can move upstairs to larger premises. What is more, senior managers of the energy consulting division – which operates across Europe, including eastern Europe, Russia and Turkey – have been instructed to increase staff numbers from 250 to 300 by the end of 2009. Despite deteriorating economic conditions in the UK and other parts of Europe, Pöyry Energy Consulting is clearly on a roll.
“It would be incredibly naive to think that the worsening economic climate won’t affect us, or that it won’t affect the energy and environment sector more broadly. I’m sure it will,” says Mr Slark. “But at the moment we’ve never been busier. Our renewables consulting business has been growing for the last ten years, but it’s mushroomed in the last two. It’s been great to be involved both in work on new projects – assisting in the financing process, getting projects off the ground – and also be involved in work that focuses on operational issues, how renewable generation projects operate commercially on a day-to-day basis, and how to integrate them into the electricity system.”
His view is that the energy sector probably does not need to worry too much about the impact of recession because it is widely regarded as one of the most recession-proof areas of the economy, but restrictions on access to capital may eventually create problems. “I suspect the biggest impact on the renewable energy sector will come from the credit crunch, rather than recession. The issue will be lack of access to capital and finance, and the implications that may have on the pace of restructuring within the industry,” he says. “There’s isn’t a shortage of money in the industry at the moment. There are a large number of energy industry participants – oil and gas companies and utilities – with very strong balance sheets, but if lack of liquidity in the banking sector carries on for too long it could create difficulties.”
Whatever the future may hold, for now times are good. While the vast majority of Pöyry’s employees are engineers, with many focused on the group’s traditional area of strength, forestry and the pulp and paper industry, it is the firm's energy consulting arm that has been making waves recently. Figures showing the turnover growth of Pöyry’s energy consulting business separate from its larger energy business, which includes engineering-led projects, are not available. However, it is thought that energy consulting was a significant factor in the 14.3% increase in net sales reported for the group’s overall energy division for the first three quarters of this year (Environment Analyst, 24-Oct-08).
With 15 offices in Europe and plans to increase the volume of work it already does in countries such as Turkey and Russia, one of the most striking things about Pöyry Energy Consulting’s client base is its diversity. Although most of its clients are energy industry private sector organisations, the consultancy also works for governments and their agencies as well as environmental NGOs such as Greenpeace, WWF and Friends of the Earth. “I like the variety of the work we do and our broad client base,” says MR Slark. “We don’t have just one or two large clients; our ten biggest account for less than a third of our revenue. There’s so much variety and that’s always been something that has kept me interested.”
Energy market analysis
Although he revels in the variety of the consulting work he and his colleagues undertake, Mr Slark is nevertheless a specialist rather than a generalist, a man focused on the operational intricacies of energy markets across Europe and how renewable energy can be integrated into them. With a first degree in economics, followed by a masters in environmental management, he “stumbled into the energy sector almost by accident”. Looking for an interesting first job, ideally with an environmental element, he struggled to find work in a difficult graduate employment market and took the first reasonable offer that came his way. It turned out to be a job with energy regulator Ofgem, then called Offer.
A few years later he joined ILEX Energy Consulting, staying with the company after it was acquired by Pöyry in 2003, and for the last five he has led the renewables division of Pöyry’s energy consulting business.
He sees similarities between the challenges facing the energy sector when he began his career and those it faces today. “When I began it was a vibrant sector, with liberalisation of the industry ushering in a whole new era. I can see parallels to the situation we face today. The sector is going through another great change, not liberalisation this time but decarbonisation. This will be tough, but it’s happening at the right time. The electricity sector in the UK needs massive reinvestment anyway and we now have the opportunity for most of that reinvestment to be in low-carbon, primarily renewable-based, technology. But the challenges are not just about which technologies to choose. How do we integrate renewables into the system? What impact will they have on how the electricity system as a whole operates?”
A seemingly endless series of questions arise, now that decarbonisation of the electricity sector is increasingly accepted as a given. Last year’s decision by the European Council to set a 20% renewable electricity generation target for 2020, followed by the UK government’s acceptance earlier this autumn that an 80% cut in national greenhouse gas emissions will be necessary by 2050 has focused minds within the energy industry, and Richard Slark is clearly excited. “We’re able to do such interesting work, whether it’s with the UK government or NGOs on policy, with regulators on market rules or, predominantly, with industry participants who are considering what the implications of decarbonisation will be for the way they run their businesses, how they invest, and how they operate their assets.”
Unlike many other consultancies operating within the energy field, Pöyry’s work is not focused on engineering issues. Its consultants do not advise corporate clients on how to reduce office- or industrial-based energy demand but instead focus on energy companies’ investment strategies or on how changes to the energy market might affect a particular client’s fortunes. For instance, how might energy markets in the UK, Poland, Italy or Romania develop, and how can clients best judge the financial viability of proposed energy projects?
When it comes to renewables, Mr Slark and his colleagues do a lot of financial due diligence work focusing on the revenue streams available to renewable generators from electricity markets and green certificates. “Even in countries where renewable support is provided through a feed-in tariff with very little market risk,” he says, “ we are increasingly being asked to look at the tail-end of a project's life, trying to determine the commercial viability of a project once it no longer receives financial support from the state.”
With each EU member state employing a different set of rules for renewables and a different range of financial incentives or subsidies, it can be a complex task to assess the financial viability of a proposed renewable generation project.
The UK is a strong market for Pöyry’s renewables consultancy offering, partly because it is a market-based regulatory system – those within it must make judgements about the future value of renewable certificates and assets in a way that those operating in a country like Germany, with its more predictable tariff-based regulatory system, do not.
Rapid change
The complexity of markets is obviously something Richard Slark enjoys and he is pleased by what he sees as the energy industry’s new-found willingness to embrace change. “The energy industry itself is incredibly conservative. All the drivers for change have been from outside, not inside, the industry. However, it is capable of rapid change – think about the British ‘dash for gas’, which was accomplished in a very short time frame. That’s an inspirational example that can help us move to, perhaps, 30% wind generation in the next ten years. How do we adapt the industry to accommodate that change? For a long time, that was a question that was put in the ‘too difficult’ box, but we’re starting to see the industry open up and ask itself these big questions,” he says.
The energy consulting business also does work for the nuclear industry. “We work for EDF and British Energy as well as Greenpeace,” says Mr Slark. “As a consultant you can’t become drawn into whether something is a good or bad idea from your personal perspective. What you’re trying to do is answer the questions your client is asking.”
He acknowledges that many at Pöyry are likely to have personal views on particular technologies – “not just about nuclear, we’ve got views about coal, clean coal, gas” – and he admits to having “grappled with the nuclear question for the entire time I’ve been working in the industry. My wife has worked for UKAEA as an environmental manager on non-radiological issues, and obviously I understand the industry. Yet, I still struggle with the risk the nuclear industry poses in the event of a catastrophic failure. You can’t argue that the nuclear industry does not have both an economic and an environmental impact. At the same time, when you envisage a low-carbon future it is very difficult to see how that doesn’t involve new nuclear generation. The question is how much nuclear?”
Talk of nuclear versus renewables brings us back to his main theme, that Europe’s energy industry is on the brink of fundamental change and consultants like those at Pöyry are being called on to help shape its future. Mr Slark and his team are busier than they’ve ever been, but it’s likely there are even busier times ahead.
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