In this article Jort will tell you more about the current inflation and how you can help yourself guard against it.
Can you tell us something about your studies, your career and how you started working at Essent?
I studied business economics in Rotterdam. I did four internships during my studies, which is not common. I wanted the combination of theory and practice. During the last internship, at the Ministry of Finance, I asked for a structural function. Then I combined two years of my first job with my studies, which I would not recommend anyone. You cannot do your study just in the evening hours. After I worked for four years as a management consultant , I have been finance director at the State Lottery for two years. There I sold ‘the chance of luck’ and now I sell energy. The energy sector is the best sector that exists, it is my opinion for already ten years: every day is different. When you look at the developments in the last decade; so many changes are not at any other market taking place. Actually, you can say: the only continuity is the high volatility of market developments.
What is the earning model of Essent?
We can separate it into three elements. The first element is the production process where we make power and heat and purchase gas. The second element is the sales side; we sell gas, electricity and heat as well as services to our customers. The third element of our business model is trade. Here are the production and sale together: the objective is to optimize the entire energy chain.
What important or special items are on the balance sheet of Essent?
An important item contains the Essent power plants. Another is the purchase contract. As you’ve probably put contracts for the next ten years than it is today, the value of which is also on the balance sheet. In other words: as for the next decade gas supplies have been purchased and the price of gas on the market falls below the contracted price, then the value of the gas contract is negative. Due to this mandatory reporting to all stakeholders, the organization’s risk profile has become much more transparent.
The government has obliged to change of audit every seven years. What do you think of this?
I’m a big supporter of this. You can use an accountant for multiple purposes. Some colleagues see no added value and consider the role of the auditor only if compliance with a legal obligation. I use my accountant emphatically as second line of defense. An accountant has an objective, fact-based view, partly enforced by law and regulations. It is incredibly important to your organization to have all this. An objective third, a party who, with more distant from the details, looks sharp at the extent to which the organization is in control. After several years, however, you create a relationship with the auditor and it may get too much ‘understanding’ problems in the field of business. The danger is that you are somewhat milder than in your rating. If you change every seven years, then there will be a fresh look. This is very important for the survival of the organization.
Jan Hommen, former CEO of ING provides chaos by these regulations. Companies will at the same time change their accountants and not every accountant is specialized in each industry. Do you see these problems for Essent?
No, not at all. Although I ascribe a key role to accountants for the management of the organization, the auditor has no role in increasing my earning power. Our own people develop the quality of our earnings. The auditor does not contribute to this. He or she only checks my judgment, but I do not sail blindly at this.
What great and significant risks identified Essent for itself? What do you do to avoid these risks and how do you cover these risks?
I see two major risks: changes in laws and regulations and also unhappy customers. The client determines whether we can earn our bread in this sector. We will also do everything possible to predict the expectations of our customers well, and then live up to these expectations. When you look at regulations we are regarded as a thought leader in the field of energy. We must take our social responsibility to the knowledge we have to share with politicians, for example to help the Netherlands to develop an energy policy for years to come. We are also working with our customers every day. Only a satisfied customer will stay with us and pay his or her account. We do this with customer satisfaction surveys and our strategy to keep energy bills as low as possible. We do this by supporting customers with all kinds of products and services to be as efficiently as possible with energy. From the adage: an unused kilowatt-hour is the most durable!
What happens to the retained earnings of Essent?
We are continually working to its short and long-term success. Here you have to find a balance. How much do I invest of every dollar I earn today in the day of tomorrow? In addition, we look to our stakeholders. So do I give a portion to the employees, shareholders, and debt providers or do I invest with it? We pay off now on the large investments on plants in the past, and on the other hand we look at how we can achieve transition to a sustainable society.
With the Energy Agreement should in 2020 14% of energy be produced from renewable energy sources. What does Essent to achieve this goal?
We keep doing what we’re doing. We are the largest energy producer in the Netherlands. We also have several initiatives: onshore wind, the largest wind park in the Netherlands and we examine developments for offshore wind. We investigate whether offshore wind is viable in the long term. It is very important to choose the right ‘entry point’: if you put a wind park, it will be there for thirty years. The question is therefore: is the current technology, the basis for the next few years if we expect there is a technological breakthrough in the short term? We support the energy agreement fully and assume that the targets from the agreement are met. Now everyone has put his signature and said that this is the direction that we are going. Is it already good for the Netherlands at this stage to say, “What, like, then?”. Let us first answer the question in another way: we will achieve the percentage of 14% because we made agreements with each other. More interesting is the other 86%. We are currently building the most efficient coal plant in Europe; I would say that with the same amount of fuel it is possible to generate more electricity. Along with this you reduce the emission of a particle of CO2 of the 86% tremendously. Emissions are being reduced by a third. Some years ago you could with one liter of petrol drive only ten kilometers, while some cars now drive forty kilometers with the same amount. If we are handling biomass next to all that, we can also produce green electricity in large quantities.
What do you think of nuclear power?
Nuclear power is a very efficient and one of the most cost-effective fuels. At the same time, the Dutch company indicated here to be less interested. In Germany there is also a political choice made about which we hold ourselves as energy company or rather where we support. In this type of discussion a personal opinion is not important. Importantly, the position of the company you work for, and whether it fits into the context in which we operate. Again, it is a tradeoff between 0% CO2 emissions versus a still unsolved problem of what the waste is.
Is there (still) future for solar and water energy?
Water energy in the Netherlands is difficult because there is such a little decline in the rivers. Sun is indeed an alternative source that is also actively supported by us. People who like this solar energy can also have this on their own roof. We are now, for example at FC Groningen, busy placing panels on the stadium roof. FC Groningen is now the ‘greenest’ club in the Netherlands. In recent years, the technique really improved for solar panels. Solar energy is important, durable and with new technology it can be even more durable. But, when the sun is not shining and the wind is not blowing, we have a problem in the Netherlands, because we need electricity. That is why it is so important that we have a few conventional power plants standing, such as gas and coal plants. The most sustainable energy is still energy unused. Remember that many people still underestimate how difficult it is to create and manage energy.
Nuon recently came into disrepute because it could not guarantee that the premium that customers pay for green power is invested in sustainable projects. Can you guarantee that this will actually happen?
We have been the largest producer of green energy for a long time because we make really green electricity. Our customers pay the price with no storage costs that this might entail. We also offer only one product at a premium price for which we ask, namely ‘wind 220 ‘, where it completely transparent and clear is how much we invest in the store price. We make our expectations true and satisfy our customers.
Power is green when it is generated by a renewable source. And you also know you’re getting green power because the amount of power you consume is generated elsewhere green. There is a difference between the physical energy from your electrical outlet and generating energy certificates and guarantees of origin. That is where auditors sign off.
Where will Essent focus on in the future regarding renewable energy?
The key is to save energy. Besides the fact that we are trying to entice customers to choose more and more green power, we also hope that they will use less. In addition, we are committed to decentralized energy production and innovations that have to do with it. It is for a reason we are involved in a project like PowerMatchingCity in Hoogkerk.
How do you see the economic crisis?
One side is that we are back to the actual values, such as the fact that there was air in the house prices that are now out. On the other hand, it turns out the importance of consumer confidence in the economy. Once trust is gone you come into a situation where you would have actually spending needed and precisely because that way, people will go into power save mode. My advice is to make agreements on some important issues on the long term with the state rather than a government or political party. Each political party brings another wind with laws and regulations along with it. As a result, a growing number of subsidies or other incentives negative stations of taxation are applied. Consumer confidence turns into distrust, which leads to not spending.
Do you have any wise lessons that you would like to convey to the Tilburg students?
It is a very simple ‘lesson’: ask for a clear explanation if you do not understand something! I’ve seen too many examples of loss of value in organizations, caused by management that simply did not dare to state that they could not fathom a particular proposal. This point is even more important with increasing speed in decision-making processes. Occasionally you have to call yourself to order and see what the basic assumptions of a proposal are, and you do not take the wrong decision because you do not have time to think through. A quick decision is easily made; a good decision is quite different.
This interview is translated from Dutch to English by the Editorial Board of Asset | Accounting & Finance.
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