Energy firm earns more when less is used

An Engie technician inspecting a wind turbine at its wind farm in Radenac in Brittany, France. The firm is increasingly targeting contracts where it makes more money if it meets energy reduction goals. It is focusing on air cooling and heating, lighting a
An Engie technician inspecting a wind turbine at its wind farm in Radenac in Brittany, France. The firm is increasingly targeting contracts where it makes more money if it meets energy reduction goals. It is focusing on air cooling and heating, lighting and transportation as areas it can cut down on wasted energy at facilities and campuses it manages.PHOTO: REUTERS
Engie CEO Isabelle Kocher said profitability is now tied more to stable contracts and less to swings in commodity prices.
Engie CEO Isabelle Kocher said profitability is now tied more to stable contracts and less to swings in commodity prices.PHOTO: REUTERS

French giant Engie helps large users reduce bills and carbon emissions - and gets paid for it

The energy industry has long been predicated on selling more and more fuel to an increasingly power-hungry world.

France's Engie is betting its future on the opposite tack. The power and gas giant that supplied coal which fuelled the French Industrial Revolution and excavated the Suez Canal now sees its greatest potential for growth in helping large energy users like hospitals, schools and airports reduce their bills and carbon emissions, its chief executive officer Isabelle Kocher said in an interview in Singapore.

Engie's push for efficiency aligns it with demands in developed countries, where total energy use peaked in 2007 and has since fallen to levels not seen since the 1990s, according to the International Energy Agency.

The firm is increasingly targeting deals, like the one it signed with Ohio State University in the United States last year, where it makes more money if it meets energy-reduction goals, Ms Kocher said.

"More and more we do that - we invest in the site, we manage everything about energy. Effectively, we are a tech company," she added.

"We have an engagement to make the energy bill effectively decrease, and our own remuneration depends on that."

By focusing on business-to-business service deals and selling €15 billion (S$24.3 billion) of coal, oil and gas assets, the company's profitability is now tied more to stable contracts and less to wild swings in commodity prices, Ms Kocher said.

Engie and Axium Infrastructure US last year inked a US$1.16 billion (S$1.5 billion) deal with Ohio State to manage energy use at the Columbus school's 485-building campus for 50 years.

The companies promised to improve the school's energy efficiency by 25 per cent in the first 10 years, and the fee structure was designed to give financial incentives for energy conservation measures, Ohio State said in a statement.

Engie is targeting air cooling and heating, lighting and transportation as areas it can cut down on wasted energy at facilities and campuses it manages, Ms Kocher said. Engie can also implement micro-grids that take advantage of cheap renewable power investments to help reduce power purchases from the grid without risking reliability.

Energy efficiency has become big business.

Global investment in energy efficiency grew 9 per cent in 2016 to US$231 billion, according to the International Energy Agency.

Efficiency improvements implemented since 2000 wiped out about 12 per cent of global energy use in 2016, equivalent to all of the consumption in the European Union.

Engie has also been active on the mergers and acquisitions market.

It has bought 43 small and medium-sized companies in the past two years, Ms Kocher said, including ones that specialise in smart-charging for electric vehicles and building micro-grids.

A US$27 billion mega deal last week between German energy giants RWE and EON, which focused RWE on generating and trading power and EON on supplying 50 million energy customers across Europe, will not affect Engie's strategy, Ms Kocher said.

"I have been asked several times if I am tempted to buy big companies that are more classical, and I said no," she said. "I want companies that help me accelerate Engie's transformation. That's the point more than the size."

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A version of this article appeared in the print edition of The Straits Times on March 24, 2018, with the headline 'Energy firm earns more when less is used'. Print Edition | Subscribe