A tale of two consultancies: the evolution of the Panorama wind report

  • 05 Mar 2012, 18:00
  • Ros Donald
  • KPMG consultant most closely linked to unpublished report has resigned
  • Consultancy that published today's report has substantial nuclear advisory business

A Swedish energy and infrastructure consultancy has announced the launch of a report claiming the UK government could save £34 billion and still reach carbon reduction targets - if it invested less in renewable energy and focused on new nuclear and gas projects.

The report appears to be based on research which AF-Mercados, part of Swedish energy and infrastructure consultancy AF Group, originally did in collaboration with KPMG - one of the firms that advises the government on energy matters.

In November, an unpublished KPMG report with the same headline conclusion was trailed in the press, but never released. KPMG subsequently distanced itself from the draft findings. We have learned today that the KPMG consultant most closely involved with that report has since resigned.

Both consultancies are pretty serious players in the energy sector - so why did they take such different directions in their treatment of this study?

The study

AF-Mercados said in the Sunday Times yesterday that it was going to release the report today under the title Powerful Targets - although we have not yet seen it published independently.

The report puts forward three scenarios for the future of the UK energy sector, exploring different options for cutting carbon emissions. The one AF highlights would, it says, meet the UK's target of cutting CO2 emissions by 34 per cent of 1990 levels by 2020 - but not a pledge to increase renewable energy use.

The report appears to be based on work the consultancy completed with KPMG last year for an report titled Thinking about the Affordable, which remains unpublished. A KPMG spokesperson confirmed to Carbon Brief that this was initially a joint project with AF, although the Sunday Times suggests that KPMG commissioned AF to carry out the work.

The KPMG report became controversial even in its draft form. The BBC's Panorama programme, What's really fuelling energy bills in Britain?, cited the same £34 billion figure as AF led with today.  The programme came in for criticism for relying on the unpublished report, which KPMG subsequently decided to abandon.

KPMG's turnaround and the resignation of Mark Powell

KPMG walked away from the study in February because, it said, the findings were too susceptible to misinterpretation. "The assumptions and parameters used in the model produced large swings in the financial outcomes", it told the press.

Today, a KPMG spokesperson told Carbon Brief that the KPMG partner responsible for the report, head of power and utilities Mark Powell, left the consultancy voluntarily some time after November last year when the study was originally due to be released.

In the press release for the original report, Powell was quoted saying:

"Taking a clinical, economist's view of hitting our carbon reduction targets for the least cost shows that we can reach our goal for less - a lot less.  However, in order to do this, the most expensive forms of renewable energies - particularly offshore wind - need to be scaled back in the generation mix."

AF consult - an "independent perspective"?  

The Sunday Times article suggests KPMG was scared off publishing the report due to pressure from wind groups who saw leaked copies of the report. It quotes AF Consult, in contrast, saying that it wanted to:

"publish the analysis in the interests of presenting an 'independent' perspective in a debate 'led by groups with vested interests'."

 In response to media requests for information about who funded the work, AF has said it received no third-party backing. It has not personally responded to our requests for comment.

It's worth bearing in mind, however, that AF-Mercados's parent company AF Group is a Swedish-based consulting firm that advises on industrial processes, infrastructure projects and IT.  AF has extensive energy operations in the energy sector and particularly in advising on nuclear facilities. According to AF Group's annual report:

"[AF's] Energy Division offers technical consulting services for the energy sector. It has operations in many areas of the world, and is a market leader in the Nordic region, Switzerland and the Baltic countries. It enjoys a strong standing in various fields of expertise, particularly nuclear power, where it is a world leader among independent consulting companies."

2011 was not the best of years for AF's energy division. "The accident at one of Japan's nuclear power plants and the increasing strength of the Swiss franc had a significant impact on the division's earnings," the annual report says. AF Group's interest in the nuclear industry - which AF-Mercados fails to mention in the report - might put the findings of the report in a new light.

Discussing the report's findings

The UK's Department for Energy and Climate Change (DECC) has responded robustly to the report, saying there are several problems with its findings, and that the "report's assumptions are so flawed the conclusions are near pointless."

We had a look at the scenario AF is pushing - scenario two - and it relies on several assumptions, as DECC have also noted in a blog post. Notable among these is that the scenario relies on heavily ramping up new nuclear builds. "In this scenario over 20 GW of new nuclear is built by 2030, and nearly 40 GW by 2050," the report says.

Scenario two may be cheap, but it suggests that the UK should focus on just two fuel sources, gas and nuclear, rather than diversifying supply to cope with relevant (and hardly impossible) unknowns like rising gas prices or delayed nuclear build.

Anyway, by this point the findings of the report have taken a back seat to the increasingly convoluted circumstances surrounding its release.

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