Regional Growth and Utilities: Speaking with a Northern accent

The national talk around regional growth has so far focused mainly on the transport sector, but Northern Powerhouse Partnership’s Henri Murison knows the role of energy and water companies will be just as critical for economic rebalancing and capability, as Suzanne Heneghan reports.

Henri Murison is a busy man – I can hear him rushing about in the background, trying to grab some lunch as he takes our midday phone call.

Because the chief executive of the Northern Powerhouse Partnership (NPP) – a high-profile consortium representing the voice of business leaders across the North – increasingly finds himself in demand.

National focus on the region has intensified following December’s general election result, with the landslide Conservative victory sparking a redrawing of the policy map by a government determined to protect its new “blue wall” in Labour’s former northern heartlands.

It seems the North of England now lies at the heart of a radical political agenda, aimed at levelling-up the UK and creating a fairer deal for its businesses and communities. Consequently, those organisations committed to enabling that economic rebalancing – not least the region’s energy and water companies – are right in the mix as well.

“A lot of the businesses we want to grow, that are going to drive economic rebalancing, are customers or stakeholders – of organisations that are in the utility sector,” says Murison.

“From an NPP perspective, we’re particularly interested in where we’ve got leading capability and where we, specifically, can leverage some of the big infrastructure organisations that exist within the utility sector that can support economic rebalancing. I think there definitely is a value in that and there are opportunities for that to happen more.”

Speaking up for utilities

Yet with transport hogging the spotlight in this huge regional growth story (including the east to west “Northern Crossrail” and HS2), it feels the key role of utilities, particularly energy businesses, has fallen under the radar, I point out. Is that all about to change?

“They [energy companies] have always had an important role in the economy because, clearly, the energy sector is relatively economically more important to the North of England than it is to the South,” says Murison. But he accepts that this message “does get lost a bit”, even though the North has been a quiet, stoic leader in the energy space.

“For decades we’ve provided baseload for the whole country. And you look at economic assets like Drax [the biomass and coal-fired power station in North Yorkshire run by Andy Koss, a founder board member of the NPP], that was providing one in ten of every gigawatt on the grid for years.”

Many of Drax’s neighbours in that corridor of coal-fired power stations have gone, and key nuclear assets like Sellafield are coming towards the end of their natural life and will need replacing. Yet this all points to how energy has been central to the North’s economic story and one of its major successes, says Murison, who adds: “Energy is a key part of our past, but it’s also a key part of our future.”

It’s the reason why energy is cited as one of the four drivers for the Northern economy in the NPP’s Independent Economic Review – the seminal economic work used by government to drive thinking and planning.

Meanwhile, some further work commissioned by the partnership from economic development consultants, Steer, reveals that by 2050 the North could potentially generate an extra trillion of economic value to the UK.

Leading the power charge

Clearly this won’t all be down to the energy utility companies alone, but does Murison think the industry appreciates its key future role and is sufficiently prepared to be a driver for such ambitious regional plans?

“Yes, and the reason I know is that we have close relationships with them. In energy terms the North isn’t behind, we’re ahead. And we should be ahead in energy because it’s one of the things we’re good at.

“The challenge is that in order to grow the economy, we need to take that fact and turn it into an even greater opportunity. In order to succeed in the global race, we’re going to have to capitalise on our leadership position and our strength in energy.”

Murison points to how work on this by strategic utility companies within the region has been under way for a long while – such as that done by Northern Powergrid’s chief executive Phil Jones, in helping lead a review by an energy task force into the North. NPP is developing that work and will this year publish an “energy industrial strategy for the North”.

He also points to how Northern Gas Networks has “led the way on hydrogen”, driving the national debate. “If it wasn’t for their chief executive [Mark Horsley] and the work done on H21 [a suite of gas industry projects designed to support conversion of the UK gas networks to carry 100 per cent hydrogen], I don’t think hydrogen would be anywhere on the government’s agenda.”

If hydrogen is adopted as a key part of the country’s decarbonisation of heat agenda (alongside ground-source heat pumps and district heating systems), Murison says: “I’m absolutely sure that the hydrogen rollout would be led from the North – in terms of where it will be used first and where it will have the biggest impact.”

It’s the type of rationale that seems core to Northern Powerhouse ambitions. Indeed, NPP’s thinking around energy as a key driver has seen it consider, along with maximising the use of hydrogen, various energy-based growth scenarios being led by the North. Others include developing small modular reactors (SMRs), and grasping the opportunities presented by carbon capture use, transport and storage.

Murison envisages a multi-track approach to the innovation that will be needed in some development areas. “From a utilities perspective, we’re not saying if you want all of this innovation to happen then it will be within a regulated asset base (RAB). You don’t necessarily need a RAB to do all this. But you will have to create new regulated asset bases. For example, we think there is a good case for treating and distributing captured carbon as essentially a utility role. It will require us to use RABs and create new utilities to do that.

“There are a number of key decisions the government needs to make in the run-up to the Budget that will have a defining impact on whether we can rebalance the British economy or not – and many of them are in energy.”

The ‘Greater North”

The North produces a significant chunk of the UK’s electricity, more than half of it renewable, alongside Scotland, says Murison, who talks easily about the concept of a “Greater North”.

The reference, he explains, is to regional links via the so-called Borderlands Initiative, a project aimed at overcoming political and cross-border differences to provide opportunities for the overall area’s economy. It takes in a large patch, straddling the Scottish border regions, Northumberland, Carlisle, and parts of Cumbria. There is economic capital, for instance, for the south of Scotland in Carlisle, in the same way that North Wales is a key part of the nuclear industry for the North West.

“There are lots of examples where the Northern Powerhouse doesn’t just talk about England, it’s about the North as an economic actor,” says the NPP’s CEO. The collaboration on offshore wind between the Energy Systems Catapult in the North East of England and Scotland is another strong example.

“It is about intensifying our links globally, but also to our neighbours, and making those meaningful decisions work.”

Time for action – and support

With utilities already collaborating on regional growth issues, are they being hamstrung by delayed infrastructure decisions on transport, I ask Murison? Do they need to hold back in some areas of their own future business strategy until the connectivity picture becomes clearer?

It’s a question that brings an emphatic “No”. “Absolutely not. We would use the rough estimate that, for that one trillion pounds [of the likely economic value of Northern growth, as identified by Steer], probably only £1 out of every £10 will be demonstrated and generated by connectivity.”

Because while connectivity may underpin growth in the North, with large travel-to-work areas needed to expand the economy to become more like London and the South East, transport is far from the whole story.

“Transport is an enabler for our economy rather than a direct leading specialism. If you build Northern Powerhouse Rail, you build HS2, you improve links – such as building mass transit systems like Manchester has done with its Metrolink – that gives you the travel-to-work area.

“But that’s still only 10 per cent of the value, £100 billion [of potential economic growth]. If you want to get to the trillion, you need to do industrial strategy, including energy, and do it properly.”

So, what more can utilities do then, to grasp the benefits of this brave new world of rapid regional growth, particularly with the UK’s decarbonisation agenda and net zero coming up the inside track ever faster?

“I think we need to be careful not to overload utilities with doing the transition,” says Murison. “Also, the investment that needs to happen will often be happening outside of the asset base that’s regulated, outside of Ofgem’s influence – although Ofgem needs to use its regulatory functions to empower utilities in the North to enable innovation.”

He continues: “It [Ofgem] will need to be cognisant of these growth opportunities (such as for CCUS, hydrogen and an awful lot of electrification), which at the same time will require us to create new utility infrastructure. All of these challenges are going to have massive implications for the utility sector.

“And because the North of England is going to lead the way in many of these technologies, it means our utilities will be using, hopefully, the freedom the regulator will give them… to be an enabler much more readily.

“There will be private sector businesses wanting the opportunity to share in the advantages this will create for disruption, and for enabling lower-cost solutions. It’s not all about loading costs onto the infrastructure base.”

Power in numbers

While the regional growth narrative is unlikely to harm Northern utilities’ case in their price review talks with the regulator, it’s not something the NPP would ever get embroiled with.

The organisation may represent the business voice of the North of England to government, but it also works to deliver projects and opportunities that don’t require its support at all.

“We are committed to rebalancing the economy of the country by making the North the success it can be, without talking down or doing down the South. But we don’t lobby for any one business – that’s not our purpose. We lobby on behalf of the North’s interests. We listen to businesses – including utilities – to help inform what the North’s interests are. And clearly all of the utility sector, because they are regulated businesses, are more than able to tell their own story. They don’t need our help.”

Nonetheless, proffering an overall view, and one not related to any specific company, Murison says there does appear to be “a disconnect” between how Ofgem is seeking to approach price reviews and the need for the North of England to develop its economy. “We need to be taking long-term decisions, rather than, bluntly, simply trying to reduce bills,” he adds.

“We need to be taking the right decisions for the country and for the North, and that means not making short-term decisions in the utility sector that are going to have an impact on long-term economic growth.”

Water

It seems the Cinderella figure at the regional growth party is the water industry. Does Murison agree, and what role does he see for water in this emerging story?

“The water industry is slightly separate – fundamentally the North has plenty of water and, economically speaking, it is high energy costs that are a big issue for our industrial base and energy-intensive industries.” (Those energy costs are not just utility costs, he says, but primarily tax and other issues.)

“Opportunities to do things differently with water, are not as high up the economic agenda. However, if you look at United Utilities’ recent projects to update its infrastructure and replace the transfer infrastructure that brings water into Manchester, these are huge capital projects.

“They are a key part of the mix in terms of the wider infrastructure sector, and investment in infrastructure is definitely one of the enablers of Northern growth because it will kick-start economic development.

“So, both water and the energy sector are key infrastructure businesses. And all infrastructure gives us the competitive edge we need to do well in the global race.”

Growing gains

The Conservative narrative around regional growth will have been welcome news for the partnership. The reality now seems to be that whoever is prime minister for the next five years and beyond, their electoral battleground will be the North of England.

“It’s good politics. It’s also been good economics, because it’s the right thing to do for the country. And it’s now a political necessity, in that you can’t win an election without having a proposition for the North.”

But this burgeoning Northern agenda hasn’t come out of nowhere, explains Murison. The Northern Powerhouse concept has been building momentum since it was announced five years ago, as a bid to grow the Northern economy by then-chancellor George Osborne – although the initiative did go quiet under Theresa May, whose premiership was largely distracted by Brexit.

Today, the independent Northern Powerhouse Partnership group is chaired by Osborne (who is no longer an MP). The organisation is keen to clarify that it non-political and 100 per cent funded by business.

Murison remembers a growing positivity in the North even in the days before the Northern Powerhouse came along. As someone working in the private sector at the time, it definitely felt, even then, like something was going to happen, he says.

In fact, it’s been a concept that, somewhat ironically given its role in election 2019, transcended politics, with Labour’s John Prescott championing the Northern Way initiative a decade ago.

“There has been a growing political consensus on this issue. What’s different now is that rather than being the view of a few visionaries who have understood the opportunity and are keen to make something happen, this is now an absolute political reality that everyone accepts.”

Murison quotes an analogy on this shift in the national perspective from the NPP’s vice-chair Jim O’Neill, who feels people in London are now “starting to speak with northern accents”.

I point to how as a result the NPP is attracting a lot of airtime. Does Murison think the regional growth narrative means we will be hearing more about other local collaborations, such as the Midlands Engine?

It seems this is not an apt comparison. “The reality is that the North of England is the only economy in the UK that could ever provide a counterweight to London.”

Birmingham’s economy looks both ways – to the North because of similarities in manufacturing, to London because it is becoming more and more a part of London’s orbit. The North of England is distant enough, and economically different enough, to provide another economic actor. “I have great respect for the Midlands Engine, and I know it does good work, but it’s a political construction. The Northern Powerhouse is an economic project that has now got political.

“The North’s is a more ambitious goal than wanting just to be prosperous in its own right. We are going to be equivalent to London – which is a different position altogether.”

Policy promise

I ask if having a Minister for the Northern Powerhouse and Local Growth, a post held by Rossendale and Darwen MP Jake Berry, is also a shot in the arm for the North’s objectives.

“Jake is a really good advocate, a positive force, and has done a lot of good,” says Murison. “Having a Northern voice at the Cabinet table is something we and newspapers like the Yorkshire Post, as part of the ‘Power up the North’ campaign, argued for. And I think securing that, alongside having powerful voices for the North, like Rishi Sunak, chief secretary to the Treasury, has ­definitely made a difference in this new government.”

I remind Murison how when we last met, in December, he had been on the podium at a pre-election Northern Powerhouse conference in Manchester. Election fever was in full swing and he had pledged to hold to account whichever political party got into Downing Street over their campaign promises to North.

So, is now the perfect opportunity for him to take them up on that? “If the Tories want their blue wall to continue standing, they need to put some foundations underneath it. And the Budget is their opportunity to do that.”

It seems it may be better to ask him again next month.