Book review

‘Outsourcing energy management – saving energy and carbon through partnering’

Thomas Alvar Edison provides an excellent example of energy outsourcing - he sold lighting services, not light bulbs. James Watt and Matthew Boulton didn't sell steam engines; they gave them away (or put external condensers on existing Newcomen atmospheric engines) and earned their profit from commission on the coal saved.

In his new book on the subject Steven Fawkes traces the history of energy services in the UK market to 1966 when the National Coal Board formed Associated Heat Services to provide outsourced management of large boiler houses. Growth and consolidation since then has seen the emergence of major players such as Dalkia and Elyo.

Throughout its history, the energy services business has provoked an emotive response from professional energy managers, who may see energy service companies (ESCOs) as a threat to their livelihoods. This reviewer can remember when working as an energy manager himself in local government, wondering what advantage an outsider could conceivably have. Fawkes has an interesting take on this: if the ESCO buys the customer’s plant he will be obliged to take on the staff as well, and the energy manager will suddenly have better career prospects. If he or she wants to stay in energy management, working for an end user is a dead-end job, but an ESCO will provide a hierarchy to climb. “Monetisation” of energy assets – selling your boilerhouse for instance -- is also a powerful incentive to the employer. The book abounds in insights of this kind.

But will outsourcing save energy and carbon? It is all about risk, and some readers may be aware of deals that have gone wrong because the ESCO actually had no incentive to be efficient. Applying monitoring and targeting to the inputs and outputs of outsourced boilerhouses can reveal that avoidable waste and inefficiency still occur. But risk is not a ‘zero-sum’ game, and if risk is transferred to the party better able to manage it, then provided the incentive structure is rational, the outcome will be better than business-as-usual. Fawkes’s book has an important section which enumerates all the risks in outsourcing deals. In this and other respects it provides an indispensable catalogue of checklists. He has covered every angle.

There is more here than just checklists, however. The early chapters yield some fascinating material on climate change (which many of us know about) and the prospects for future high and unstable fuel prices as the world economy balances growing demand with diminishing new discoveries -- which many people don’t appreciate.

Twenty years ago, new books on energy management were appearing almost every month. Today it is a rarity: Steven Fawkes and Gower are to be congratulated. Like Edison, they aren’t selling a book – they are selling enlightenment.

Vilnis Vesma 25 April 2007