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As part of our Build Back Better series, Utility Week speaks to SSE chief executive Alistair Phillips-Davies. He argues that longer-term thinking is needed from government and Ofgem to create true value for consumers from net-zero investment. He also warns that the UK needs to build up its supply chain or risk becoming an international laggard.
Alistair Phillips-Davies is speaking to Utility Week on the back of a call with Boris Johnson to discuss the role of the energy sector in building back better.
SSE’s chief executive says the prime minister was “very engaged” with the topic and can clearly see the benefits of embedding the net-zero transition within the economic recovery.
Johnson certainly has no shortage of options when it comes to Phillips-Davies’ list of immediate steps that can be taken on the path to 2050.
These have already been summarised in SSE’s “greenprint” which has five key planks:
- Getting the mechanisms in place to build a net-zero power system by 2040 – namely a robust carbon pricing strategy and an evolution of Contracts for Difference (CfD) to stimulate long-term investment in renewables
- Strategic investment ahead of need in energy networks
- A “clean industrial revolution” – based around the development of hydrogen and carbon capture and storage infrastructure (CCS)
- Leading the charge on electric vehicles – including urgent action on decarbonising corporate transport fleets
- Creating green jobs through decarbonisation of heat
Exploring these themes in details, Phillips-Davies continually returns to the need for long-term thinking and crucially to ensure the UK builds the supply chains necessary to support this work and that net-zero costs are considered in the whole rather than over the lifetime of a price control or Parliament.
As the head of a generation, transmission and distribution company, on the eve of a new set of price controls, it is of course in Phillips-Davies interest to accentuate the positive of greater investment.
But, he points out that the country is not operating in isolation on decarbonisation and needs to ensure that the necessary funding and skills are not lost through delay.
“I think we will see more and more countries competing for supply chain here”, he warns. “And I’m worried that the cost could go up.”
He adds: “We need to build up that supply chain earlier rather than winning highly competitive auctions based on having things lined up from around the world.”
Phillips-Davies says showing ambition now is a “win-win” for the UK, adding: “It’s a real pivotal moment for government. If they ensure there is strong carbon pricing and drive legislation sensibly on things like CfDs then we have a lot of pent-up demand from global finance.
“Investing in green infrastructure is attractive to the market and there are companies that want to do it. The pump has been primed and the opportunity in the economy is there, from home insulation to more aggressive rollout of Electric Vehicle (EV) infrastructure.”
Regulation must move with the times
As well as having clear sight of the policy framework to support investment in the future, Phillips-Davies reiterates his view that regulation also needs to look to the future.
SSE’s transmission business saw around a third of its requested totex allowance of £2.4 billion for the T2 price control shaved off in Ofgem’s draft determinations. The regulator also proposes applying the maximum £32 million penalty to the company under its Business Plan Incentive programme.
Phillips-Davies acknowledges the principle of regulation driving down costs for consumers but argues that at this critical juncture it cannot be the only measure of success.
“Ofgem needs to acknowledge net zero through the price controls and in everything else it’s putting out there.
“The regulator may need to have some additional guidance from government that is enshrined within its objectives, which is slightly longer term.
“I worry that whatever the best cost is for consumers in the next year or two is not going to drive the best cost for consumers over the next 15.
“If we miss the opportunity now, we may well pay a much heavier price later.
“Delaying is not zero cost. While we would encourage having flexibility in the mechanisms, we need to commit to enough baseline plan now.”
It is equally important that a “bottom-up” approach to net-zero pathways is adopted, he argues.
“My view is that the networks themselves and the local authorities that we work with in those areas are best placed to kick this process off.
“You can deal with the constraints that each area faces in a much more localized and focused way at the moment. We should be helping to facilitate ways for local authorities to get the flexibility that they need.
“You may then go to a more centralized system when you’ve seen what happens and what works.
“But to immediately set up something tries to deal with 26 million individual connections and thousands of villages and particular areas of towns which have their own issues seems to be a big mistake to me. The danger is that we spend enormous amounts of time trying to establish that rather than actually getting on with delivering something.”
Phillips-Davies, who joined SSE in 2012 and became chief executive in 2013, cannot be accused of simply offering warm words on decarbonisation, having committed his own company to stretching science-based targets aligned to the 2016 Paris Agreement. During his tenure, SSE’s share of renewable generation has increased by c47 per cent – to 10.7 terrawatt hours. He has also overseen the transformation of the company from a traditional vertically-integrated member of the big six to a dedicated generator and network operator, with the sale of the retail business to Ovo earlier this year.
Leading on the world stage
With the COP26 climate conference being held in Glasgow in just over a year’s time, the UK has a unique opportunity to show leadership through its actions on tackling climate change.
For Phillips-Davies, there are immediate opportunities to seize momentum on EV infrastructure, hydrogen and CCS.
“The UK has a unique opportunity on CCS because it’s got access to all of that offshore storage capability to start hydrogen that way.
“I think that will prove to be cost advantaged initially. I would hope we can get a couple of power stations announced at or around COP26, and ultimately we can turn those into hydrogen power stations by, for example, retrofitting burners. Then you can use the CCS capability of the plants to go into industrial processes which will be far harder to decarbonize later on.”
Finding the right mechanism to enable this will be fundamental, he says, and would probably follow the CfD model. Again, he warns against balking at the upfront costs of these projects, pointing to the wider benefits in terms creating “firm, dispatchable and importantly, flexible power which is ultimately cheaper than nuclear”.
On the EV rollout, he says urgent action is needed now to reassure consumers they can look beyond combustion engines.
He cautions that lessons need to be learnt from the broadband rollout to ensure no areas are left behind and that networks can be a galvanising force in ensuring local authorities across their patch are heading in the same direction.
All of this means mass job creation and Phillips-Davies believes this will be the key message for the industry to communicate to government and the wider public.
“The government wants to stimulate the economy. For every job we create we tend to create five to ten elsewhere. Those jobs tend to be more inclusive and diverse because they are not generally in big cities.
“As an industry we have a lot of the answers, we have the plans and we are ready to get to work.”
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