Energetik is born
Part Two - The challenges facing councils who want to set up and run their own enterprises
Alan Sitkin, Senior Lecturer, Regents University London
The first blog in this series established a rationale for state entrepreneurship as well as the principles determining which sectors of activity are conducive to this approach. The two sectors where this type of initiative materialised for the London Borough of Enfield’s 2010-18 Administration were housing and clean energy. Because I had responsibility for the latter, it is the case study underpinning the rest of this series.
Before telling the story of Energetik, the heat-from-waste company that we founded at Enfield Council, a context should be set. As explained previously, our starting point was the understanding that in times of austerity, entrepreneurship is the only way for a public body to achieve certain long-term, structural objectives.
We already accepted that any interventions would be have to be characterised by low risk, because taxpayer's money was at stake, but also low return, to avoid crowding out or, conversely, duplicating private initiatives. Lastly, we had also had to consider the Council's capability for running the activity - or for recruiting specialists to do so on our behalf.
In 2014, before deciding to incorporate the Lee Valley Heating Network (our first working title for the project); we cut our teeth on a different project initially conceptualised by my predecessor in Cabinet but which I then strongly supported. Enfield borough, being on the edges of the Green Belt, had once been a thriving food growing centre serving all of London. There were still remnants of this industry next door in Epping Forest, but most production had been offshored to Spain and Holland (or to Thanet in Kent).
Our prime motivation was to bring agricultural employment back to Enfield but this had the added benefit of resonating well with a wider national critique of food miles and growing support for market gardening. We hooked up with the GLA and ultimately won a £600k "Garden Enfield" grant, some of which went to urban farming, some to wine-growing - and some to a very expensive business plan commissioned to determine whether the Council might reopen its old tomato greenhouses.
Due to price volatility and the risk of blight, the answer was no, we shouldn’t pursue our idea. Meaning that we had paid consultancies a lot of taxpayer money just to find out we were wasting that money. With private investment, this kind of pay-to-play cost is expected and accepted. But explaining it in a political context can be very difficult. The criticism we got is an often forgotten but very real obstacle for would-be state entrepreneurs.
Despite this, the Administration decided to move on to our second idea, born out of a “circular economy” paradigm I had worked on in 2010-14 in my capacity as Sustainability Scrutiny Chair. The most glaring example of an Enfield-based activity that could benefit from a new closed loop, “cradle-to-cradle” approach was the enormous chimney stack on our Edmonton North London Waste plant, visible from miles around and spewing into the sky plumes of hot (albeit largely clean) vapour. My idea was the simplest thing possible: why not capture this waste heat and sell it?
The Council commissioned another expensive business plan but this time the results were very different. Following up on a technology that had long been successfully implemented by municipalities across Europe – something I corroborated during a private visit to Hamburg – we were told that Enfield Council had a very reasonable hope of creating a viable “district heating” business. Senior councillors and officers alike felt tremendous excitement the day those results came through. Yet our work had only just begun.
The next task was to broaden political support for a project involving a massive upfront capital outlay of ca £58million. This was to cover the initial combined heat and power units, the company’s administrative infrastructure - but above all the energy centre and piping that would deliver from the Edmonton waste plant to the new houses we were building across the North Circular at Meridian Water.
It is a seminal principle in environmental economics that green investments’ long payback periods are justified by their substantial life cycle benefits, i.e. long-term outcomes justify short-term costs. But this is a great challenge in a public sector environment, if only because a four-year electoral cycle is a disincentive for any venture defined by benefits that only become apparent in the distant future.
Despite these obstacles, we were able to convince almost all councillors that the proposed venture was in line with our party’s winning manifesto, hence that the Council should proceed. Our argument became particularly convincing once politicians realised that the project would be financed by relatively abundant (and ring-fenced) capital funding and not eat into Enfield’s increasingly sparse revenue grants. Of course, funding was only one of several risks that the Council faced with this new venture.
The series’ next two blogs blog will uncover the internal and external obstacles faced during the project’s preparation and implementations stages, as well as the steps taken to avoid them.