Peterborough’s John Harrison on renewable energy

John Harrison, Peterborough City Council’s Executive Director of Strategic Resources and Section 151 Officer, is responsible for managing the council’s £260 million budget and oversees the management of the council’s £360 million buildings and assets. John spoke to Room151 about the council’s investment in renewable energy.

Room151: You spoke at a treasury conference of ours recently where you mentioned your investment in renewables. Can you tell us a little about those?

John Harrison: To take a tep back, like a lot of other councils, we got burnt over Iceland and became very defensive in our investment strategy. We cut back to a very restricted counterparty list and at one stage were only invested with the DMO. At that point, recognising that our returns were very low, albeit that the security of our investments was very, very strong, we started to look at what else we could do with our money. We believed it was better using that money than borrowing and one of the areas we’ve particularly looked at is renewable energy. So, for example, we put solar panels on our roofs and the benefit of that is you have a government income stream for 25 years that will annually increase in line with inflation and if you’re actually using the energy you’ll make savings there too. Until recently, when the government changed the rules, the level of investment returns were fairly high but there’s a new consultation paper that will significantly reduce the amount of money you’ll get from renewables.

R151: And is this investment in renewables seen as part of your investment strategy within the treasury function?

JH: It’s an extension to it. The strategy covers the extent to which we invest or borrow. It’s more a question of if you’ve decided to invest rather than borrow then where’s the best place to put your capital investment, assuming everything else was going to be funded by some form of external borrowing.

R151: What are some of the benefits you get with your renewables investments?

JH: The advantage you’ve got, even under the new changes of rules, depending on the investment you put in, will be that you get free energy. Now that could be worth a small amount or a much larger amount depending on your view of what will happen to energy prices. So if you believe that the cost of energy is going to go up on average by 10% per annum over the next 10 years then you’re significantly tapping your exposure to energy price rises. I’m yet to find an adviser who’ll tell me that either a) energy prices are going to go down, or b) they’re going to go up by less than inflation.

R151: What specific renewable projects have you invested in?

JH: So, for example, we’ve put a 50kw scheme on top of the Town Hall and the energy generated is used at the Town Hall itself. In addition we looked at one of our major commercial properties to build a bigger scheme where we could generate electricity and sell it on for a profit. To do that sort of thing you need an Energy Services Company – we set one up specifically to enable us to trade energy. When you generate energy on a facility you have three choices: firstly, the facility can use it; secondly, you can export it to the National Grid and generate revenue and thirdly, under a Power Purchase Agreement, you can sell on the energy you’ve built up on the private market.

R151: Typically, councils are looking at banks, building societies, money market funds and the DMO when investing capital. This is quite a departure from what your peers are doing?

JH: It is. I think other councils may be doing it though and not realising the strong linkages between this and, say, investing in money market funds…In simple terms, if I’ve got £5m sitting in the bank and I’m getting 1%, if I’m lucky, I can decide to use that capital instead of borrowing and generate 5-6% return and making savings on the energy.

R151: How much of your capital has gone into renewables?

JH: At the moment less than a couple of million but there’s a further pipeline of schemes we’re working on at the moment.

R151: So it’s a relatively small percentage of the overall picture?

JH: At the moment yes but it could become greater and greater in time as the council looks for safer investments and better returns.

R151: So you’re continuing to invest despite the recent government changes?

JH: Yes, you’ve got to be careful how you structure schemes but if you’ve got an Energy Services Company you’ll probably get far greater margins than you would do without one. You’ve still got to make strong business cases and undertake some significant financial modelling but there’s still money to be made, I believe.

R151: Did you work closely with the private sector on these investments?

JH: Yes, we used a series of private sector advisers: I work with Pinsent Masons on the legal side, Davis Langdon, the engineering consultants and Deloitte for the financial modelling.

R151: So if renewables accounts for just a small percentage of treasury investments, how do you invest the rest of it?

JH: Very, very safely! We invest with other local authorities if they want to borrow short and a restricted number of banks.

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