Leader: Innovation culture change must be DNOs’ new year’s resolution

There was an appropriately festive “naughty or nice?” question hanging over UK distribution network operators (DNOs) as they awaited the results of Ofgem’s investigation into the value they have created through the use of regulated innovation funds since 2010.

The introduction of the £500 million Low Carbon Networks Fund (LCNF) was designed to break innovation inertia among DNOs who had become disinclined to invest in risky projects that offered no guarantee of regulatory reward. It recognised the pressing need for energy system innovation in the face of decarbonisation and decentralisation and it has been widely praised by network industry leaders as a game-changing development for the sector.

As a customer-funded mechanism, however, it is only right that Ofgem remained focused on the question of value for money generated by the LCNF for customers and reserved its right to withdraw funding if this proved to be unsatisfactory.

Networks heaved a sigh of relief, therefore, when the results of an independent review by consultancy PÖyry found that the benefits of network innovation investment do indeed seem substantial. If DNOs share knowledge effectively and move to adopt not just their own innovation findings but also those of their peers, PÖyry estimates net benefits for the UK of more than £8 billion.

This finding was embraced by the Energy Networks Association, which said it was proof of the innovation aptitude of its members. Perhaps, but DNOs – and gas network operators, since they also now have access to innovation funds – must resist the urge to indulge in too much self-congratulation. PÖyry made some other observations too, which offer less cause for celebration.

Despite predicting high potential benefits from innovation activity, PÖyry raised concerns about the maturity of innovation culture in network companies which, it said, has only increased to “moderate” level. Too many people in too many DNOs still do not believe that innovation is critical to the future of their business, the consultancy concluded.

Networks must find a way to address this cultural problem if they want to remain on Ofgem’s gift list for Christmases to come.

Congratulations to all our deserving finalists attending the Utility Week Awards on 12 December. Listings of winners will appear in next week’s issue.