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Interview

with Tony Cooper, CEO, Energetics

31.01.2011 / Energyboardroom

Energetics as a management consultancy is unique in kind with its exclusive focus on integrated business solutions for a low carbon economy. Mr. Cooper, you have been CEO since 2006 and oversaw Energetics’ transformation from an engineering house to a management consultancy. What drove that change and what were the main organizational attributes that you wanted this company to take on?

TC: Energetics has been around for 26 years and I have been the CEO since April 2006. Whilst we are still predominantly engineers at heart, the breadth and depth of our advisory work requires a range of professional skills in the organization.

The shift from a traditional engineering firm to a management consultancy was part of our evolution as an organization in order to better represent the type of advisory work that was specific to climate change and resource efficiency. To that end, Energetics is a broad church. We are engineers – predominantly chemical but also electrical and mechanical – economists, lawyers, scientists, and technologists to name a few professions. It is the breadth of those skills and competencies that enables Energetics to provide a very holistic approach.

Being a management consultancy we needed our brand to reflect Energetics’ solutions-based offering. The logo incorporating the ‘ball of energy’ was launched in 2009, which represents the coming together of our diverse range of expertise and people.

Given your operational uniqueness, who, if anyone, do you classify as your core competitors?

TC: At the moment we do not think that there is anyone quite like us, given the breadth of advice that we provide.

Unlike a large accounting firm which provides tax, audit, and advisory services across a range of industries, or an engineering firm, we specifically advise businesses on the steps they need to take to transform as Australia moves towards a low carbon economy.

Energetics’ target market is essentially large consumers of energy which are traditionally stock-exchange listed companies. We also provide advice to government at a federal level in the area of policy and program development often specific to small and medium sized enterprises or mass market companies in a residential context.

We provide advisory services to larger energy users on the procurement of commodities: electricity, gas, distillate, and LPG in both wholesale and contract markets. Energetics has a financial services license to provide advice, generally for businesses using commodities for direct inputs – miners, bankers, or retailers. Having helped them buy commodities on the best terms and conditions in forward markets we then help them use less of those commodities in their existing facilities – in a brownfields or greenfields context. We help our clients lower their energy intensity and associated greenhouse footprints across their operations.

Organisations which consume a lot of energy have many opportunities to look at their business model in terms of what a low carbon economy means to them. There is upside in revisiting the way they conduct their business or reflecting on the type of business that they are in, and the risks that may arise. From a reputational positioning perspective it creates an opportunity for them to consider how they respond.

Lastly, we manage very large information datasets and build capacities within organizations to take control and manage the transition to a low carbon economy along a continuum.

Energetics is very much a set of expert hands that help businesses transition.

Specifically regarding competitors, other companies assist large corporations to meet their reporting needs, and help them understand their energy intensity. The large accounting firms will advise on public reporting around greenhouse gases, but they do not offer advisory work in helping large organizations procure commodities. Similarly, traditional engineering firms that look at helping businesses use less energy in a specific process, is more akin to building roads and bridges than attesting to the veracity of the numbers that are put into the public domain which a business analyst will ultimately look at and compare against other organizations.

While Energetics does have direct competitors in individual service spaces, we see ourselves as very uniquely placed in the provision of those services in the holistic sense.

MS: The fact that Energetics delivers all of those services means that we have an enhanced offering. Having process improvements integrated with carbon market information means that we at Energetics have a different position and perspective when negotiating an energy contract – we can integrate demand management programs with forward contracts in the context of reducing peak demand through on site demand management, which reduces the forecast peak and thus direct energy costs.

We work on both sides of the fence.

With our access to information, verification, and reporting, Energetics’ consultants are able to see all of the data and can tell someone who is going into the market on a certain forecast if they are forecasting the wrong numbers. To give an example, we have seen quite significant mismatches between production forecasts and energy scheduling prepared by different parts of the same company. Because Energetics works across all parts of this matrix we are able to pick up these sorts of errors. We do not have competitors in the larger sense because no one else integrates the information the way that we do.

Shortly after you began as CEO came the global financial crisis (GFC) which created a lot of “green shoots” for green industry. However, in the Australian context the recession was short lived and the recovery was quick, thanks to continuous Asian growth. How did things play out for Energetics?

TC: Energetics took a strategic decision to rebrand prior to the GFC. With the onset of the GFC we could have abandoned that initiative but we saw the repositioning of our brand, and the type of advice we provided, as holding us in good stead coming out the other side. Going into the GFC we were an organization that always benefitted from economic downturns. One of the great things that Energetics has always done well is help companies manage input costs.

What also helped Energetics transform and come out of the GFC as an organization was a significant increase in the underlying cost of energy in Australia. Whilst climate change and the need to manage CO2 emissions is still prevalent, the increase in underlying energy costs – specifically electricity as a corporate buy – is equally ongoing. The big impact being felt by our customers throughout the east coast of Australia arises from the money being put aside by electricity network companies to replace ageing infrastructure. Interestingly, in Australia there a lot of debate in the public domain about the level of investment that this country should be making in national broadband. However, that level of investment is dwarfed by the level of investment necessary for new electricity network infrastructure which is not being debated in a real sense. That surprises me.

Our best financial year from a top line was the year ending March 2009, and as of January 2011 we are already back above that on a comparative basis. At Energetics we are focused on the quality and caliber of our people, building great client relationships while securing a strong and profitable organization.

MS: One short-term effect that we saw specifically in the resources sector with the GFC were layoffs of human resources and site environmentalists; pretty much anyone not engaged in production. We had quite a short term burst of effort around National Greenhouse and Energy Reporting (NGER) because compliance requirements are so significant, yet the industry laid off many people associated with it.

Do you consider there to be a strong regulatory framework guiding carbon emissions reduction in Australia? With the collapse – twice – of emissions trading scheme legislation, yet fixed targets for lower emissions, to draw an analogy, it seems as if a car is driving towards its destination but without its headlights on.

TC: Decisions taken by government to establish a level playing field for businesses to report their level of energy intensity in greenhouse emissions, are a precursor to establishing a carbon tax or emissions trading scheme – whichever comes. It was a decision to have like-for-like information from which to determine whether a business might be trade exposed or have costs which could impact their business model once a price for carbon was established.

Most organizations understand that there is a real need for that level of mandatory reporting as a precursor to determining who should receive compensation and who should be incentivized.

Secondly, I think our clients on the Australian Stock Exchange accept that carbon is part of a forward business landscape. Although there was much disappointment with the Federal Labor government’s inability to obtain a very strong mandate for the Carbon Pollution Reduction Scheme (CPRS), people have not lost sight of the likelihood of a price on carbon. And despite the obvious disappointment that came out of Copenhagen for a broader global initiative, businesses that Energetics works with in Australia recognize that carbon pricing will be an eventuality. They are working to gain some level of understanding of the impact of carbon on their business through identifying risks as well realizing opportunities to secure competitive advantage.

MS: In some instances companies have come out and said that it is up to the private sector to lead, as we saw with BHP Billiton. The other recognition is that the companies that Energetics’ works with are not just Australian clients. Energetics is working with companies who are focused on the global context – BHP Billiton, ConocoPhillips, and Rio Tinto for example – who know that a price on carbon is coming, whether it is introduced first in Australia, the US, or Europe. They know that they have to be ready for a price on carbon.

What Energetics has found in working with global players is that the reporting standards in Australia are far more rigorous than in other jurisdictions. Other countries are learning from their experience here, especially when it comes to mandatory disclosure of uncertainty in inventories. We have covered all of the emissions-intensive trade-exposed submissions for LNG in Western Australia – the combination of carbon and financial information. That nexus makes Australia “peculiar” and at the forefront of reporting.

But is it reporting just for the sake of reporting? Reporting standards are strict, as you reference, and emissions reductions targets for the long-term are established. But what drives the agenda from reporting to final target?

MS: That also goes back to the program that you are delivering, which is responding strategically to climate change. In the main, compliance is an outcome, not an output. It is what happens through delivering a strategy. Yes, there is a focus on reporting because Australia is so far ahead of other jurisdictions globally. It has been an effort to get that data in place, and it is expensive.

But will the Carbon Pollution Reduction Scheme (CPRS) lead performance? No. If you look at the information that companies use to take big decisions, the big spread and variation is in energy price. Whether or not there is a carbon price is pretty much immaterial. The actual price of energy is not what is dominating, it is the variability. Yes, there will be a marginal increase in costs associated with carbon, but the big one is changes in energy prices.

Do you think that Australia has the mettle and willingness to take the global lead in carbon mitigation? The lack of a strong emissions reduction legislation in the US, for example, can be interpreted as the country seeing the “business of climate change” as a risk. Other countries accept it as an opportunity. Where do you believe Australia falls in the continuum?

MS: You first have to define “Australia.” There are two discrete groups: civil society and industry. Industry – the really big exporters – employs a very small percentage of civil society. I would say that civil society definitely has the mettle, grit, and passion to have a carbon price. The challenge that industry faces is what happens between the first carbon market and the global carbon market and any potential loss of trade that is associated with it.

The super profits tax proposed last year drastically upset the resources industry. Framed in a different light, perhaps as an indirect carbon tax as opposed to reaching into industrial profits, could it have been more favorably accepted?

MS: There were some efforts to look at how income from a resources tax was to be allocated. Industry was interested in exploring how those monies could be used in a climate context. However, there was little appetite by policymakers to have that discussion.

TC: Somewhat of a sectoral divide existed in corporate Australia between those who do or do not have a global reach. CEOs of large banks in Australia were actively running business agendas to educate and support the establishment of a response to climate change. Other companies were more guarded as they had more risk.

Overall we work with organizations in industry segments and management teams which demonstrate an understanding of what a future low-carbon economy could be like. Their propensity to engage in government led policy initiatives and mandatory reporting drives that understanding. Most businesses are pleading for less regulation and less red tape. But in the context of what Australia did to establish disclosure of carbon emissions levels as a precursor to a CPRS, it served to bring everyone to the table, costly as reporting might be. You are only as good as the information on hand. It therefore makes for better policy decisions.

MS: One thing we at Energetics have discovered over the past three years of NGER reporting is just how poor the information set is on energy consumed internally for oil and gas. Very few oil and gas companies can tell you exactly how much they extract. They can tell you how much they export, but very few report in detail on how much gas they use running their own operations, which is a necessary precursor for any form of an emissions trading scheme. It has been interesting for both us and them to work it out.

Australia’s clean energy targets are clear: 20% renewable by 2020 and a 60% reduction in emissions from 2000 levels by 2050. What does the 2020 energy mix look like to you and what will underpin achievement of that 2050 target?

MS: I do not see much of a structural change in the market to deliver the 2020 target. The 2020 goal for renewables will be consistent with the current energy mix, with wind probably becoming more obvious in the market as well as solar and hopefully geothermal.

TC: Industry is taking substantial initiative. Woolworths, Australia’s largest food retailer, has set for itself a 40% reduction in CO2 emissions by 2015 of 2008 levels. The government is not forcing them to do that. Their leadership team understands that they are in the nexus between climate change and being the “fresh food people.” Likewise, Sydney Water – Australia’s largest water utility –has a target to be carbon neutral for its energy-related emissions by 2020. Last year they rolled out $60 million worth of mini-hydro and cogeneration facilities across their networks.

Both of these organizations have already started to introduce renewables into their supply chains. Woolworths has put up on-site wind generation and installed photovoltaic panels on petrol stations on the eastern seaboard. They are weaning themselves off of a carbon diet and incorporating other things where there are cost benefits and appropriate returns on investment.

MS: We are also seeing the desire for businesses to lock into future energy prices. The impetus will lead towards renewables as renewables do not expose you to a diesel spot market or to the variability that we see in the electricity market. That links to the LNG market since we see gas linked to diesel prices. People are going into renewables, despite being expensive now, because it gives certainty into longer term energy prices.

The 2050 question is interesting as it revolves around whether nuclear will come into Australia or not. I do not sense any political will for nuclear in Australia at the moment.

At Energetics you are engineers, scientists, lawyers, and technologists. What is the collective culture here across those professions that forms a common mission? Do you necessarily have to be “green” to work here?

TC: Energetics certainly has a passion for the environment, which is one of our company Values. People who work for Energetics have a desire to protect our climate and leave our planet in a better place than how they found it. However, you do not have to have spent six years at Greenpeace to get a job here. We realize that for the world to continue to turn companies need to be profitable and operate in a responsible way. We are all about assisting them conduct their business. If that is about increasing output and throughput, then we do that specifically with an eye on managing energy and carbon responsibly and using fewer resources.

We are an open and encouraging organization that of course likes to have fun, but at the end of the day we are a business. Our staff and our shareholders realize that the more profitable we are, the more we can put back into their development, growing their careers and their skills.

MS: An extraordinary thing about Energetics employees is that majority of them hold at least two degrees. I think that is the type of person that Energetics attracts. In order to work in these places you have to understand more than a single narrow part of the world. This organization is full of passionate people who have an interest in instilling change and who want to use the way they think to bring about something new, better and different.

TC: We have 110 professionals in the organization, six with PhDs and thirty seven with Masters degrees. That level of education gives rise to business intelligence and broader thinking. But they are not just academics. Mary Stewart, for example, has spent a life in mining and industry. People who come to us from whatever discipline have exposure to business. If people do not have two degrees with honors, then they have one with an MBA.

Something else that we increasingly see in the transformation of this business is the nexus between energy and financial markets. The level of financial literacy in this firm is increasing and we are attracting more people who have spent substantial time with banks and investment houses.

Twenty-six years ago we were working on the factory floor helping companies improve their operational processes. Today, our discussions are increasingly at the board room level: boards want to talk in terms of numbers, return on investment, and incremental improvements for their business model.

MS: Another group of people I notice approaching us more is our clients. It is very satisfying to see our clients come to the other side of the fence wanting to work for us. Whenever I have interviewed someone out of a client company they have always commented on Energetics as a consultancy which has delivered excellence for them and for that reason they want to work for us.

TC: As the markets have matured, we have been a great source of talent for our customer base. Rio Tinto has 5-6 Energetics’ Alumni as do Woolworths. It is good to have your people spread out and the transfer of knowledge that results, which we are quite happy to support. It is obviously a reason why this organization has continued to invest heavily in the learning and development of our people.

MS: It is also good for us because the client buys our expertise and now does it in-house, forcing us to think of the next new thing Energetics can do for them.

Last year we interviewed a managing director of a junior exploration and production company who assessed that we live in the age of hydrocarbons which has given rise to the fastest, most remarkable developments in the history of mankind. You are speaking a lot about industrial nexuses that allow Energetics to succeed in its business. Is there an equivalent paradigm or philosophy that you can describe with regards to a low carbon economy as these nexuses grow larger?

TC: I often say to people joining our firm that they are at the beginning of a journey which will last the next 40-50 years. The move to a low-carbon economy will have the same transformative effect as the industrial revolution or the dot com boom. It will well and truly see out my professional career as well as graduates joining us today – and there are many opportunities. There is so much that is going to transform in the marketplace, most of which will come from businesses wanting provide better products and services, or looking for new approaches – on-site wind generation, or understanding what a target reduction in carbon intensity means for their business model, for example. These people are now moving to a different drum beat. We are not going to stop that.

Organizations working in oil and gas are no different. Their business models and how they think about what they do will increasingly change. If Australia can be one small link in the chain and a catalyst for the transformation to occur, then I believe you will see the name “Energetics” as thought leaders who brought some of that change to bear.

However, we are very focused on the Australasian market. Some of our clients are of course global players. If they want to apply our methodologies and processes, we are quite happy to extend our people and our reach to where they operate. But we do not seek to open an office in Moscow or Shanghai.

Another great thing about Energetics is that we have never believed that we have the answer to all problems. Therefore another aspect of our success is our willingness to partner with other learned advisors and work in tandem to deliver the best outcomes.

MS: I agree with Tony and add that we are moving out of the age of hydrocarbons and into the age of innovation. My background is in sustainability and I believe that there is richness in the human spirit and human innovation that will help us get somewhere useful in the long-term. That is why Australia is a good place to be – I think it is a more innovative economy than some of the larger, older ones.

TS: The one constant is change. We recently ran an induction for new starters in January, two of whom were returning from a year of maternity leave. They were amazed with the amount of change that occurred over just 12 months internally and with respect to the markets in which we operate. One of the defining things that our founder was very good at was picking the next wave. Something that Energetics does very well is look beyond the next horizon. We benefit heavily from having strong relationships with our clients, living and breathing the problems that they face, and trying to devise solutions. Most of our work starts with a blank sheet of paper, from which we can together bring about exciting changes which open up new possibilities.

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