Steve Holliday: What utilities can learn from telecomms

Steve Holliday, National Grid’s former chief executive and now chair of Cityfibre, urges more joined-up thinking between telecommunications and energy companies to meet net-zero targets. He also gives his view on the future for National Grid and the lack of policy to incentivise storage. Denise Chevin reports

It’s roughly five years since Steve Holliday stepped down from his high-profile role running National Grid. But he’s been clocking up a few column inches of late as the non-executive chairman of CityFibre, a post he took up in 2019.

And while he’s very much flag waving for the digital infrastructure challenger today – including pointing out that the poor quality of picture over Zoom at my end would be vastly improved by fibre optic connections – Holliday is happy to return to his old stomping ground of networks and net zero.

As he says, there’s a lot the two sectors have in common. Besides, he is still President of the Energy Institute and non-executive chairman of battery storage specialist Zenobe so energy is still foremost in his thoughts.

Our conversation ranges from the lack of policy to incentivise storage, his concerns that splitting the Energy System Operator (ESO) from National Grid might lead to higher costs for customers, and why it’s getting more important policy wise to think holistically about all types of infrastructure – especially digital infrastructure.

“You can’t think about these things in silos anymore.  Previously disconnected industries, energy and transport and house construction, all completely intermesh now. And cutting across all of that is fibre. So, from a strategic perspective, I hope to bring some of that thinking.”

Holliday makes the point highlighted in a recent report “What does tomorrow look like” from the Infrastructure Forum, which CityFibre sponsored alongside UK Power Networks, that the zero-carbon transition won’t be delivered at the speed that we need it without full fibre. “Full fibre,” he stresses, “not the copper-based hybrids that exist in the UK at the moment.”

He explains: “So much of the smart homes and energy systems technology of the future is going to be completely reliant on high-speed communications. And the report makes that point in flashing lights, that all the other conversations are totally predicated on us getting this full fibre in place nationwide over the next four to five years.

“And CityFibre is playing a huge part in that. It’s great to be working in a ‘challenger’ firm. We’re already number three in the market, alongside BT Openreach and Virgin.”

The challenger brand has a £4 billion investment programme to bring fibre to about a third of the country and is currently targeting 8 million homes and 800,000 businesses in 285 cities and towns and villages. It is also hoping to be involved in the government’s plans to roll out broadband to other rural areas which could bring its reach up to 10-12 million homes.

CityFibre’s business model is to make the initial investment itself and then sign up service providers including TalkTalk and Vodafone. “So, it’s a utilities sort of business. We are the shipper of data,” he says. There are currently 25 contractors working for CityFibre rolling out the programme, including building 250,000 access points for 5G.

He draws comparison with his time at National Grid, which he ran for almost a decade to 2016. “It’s still infrastructure, which I’ve been around for a long time. It’s exciting infrastructure, because it’s building brand new infrastructure, as opposed to refurbishing old gear.”

What could water and energy sectors learn from telecoms? “There are differences. We’re trying to build as much of our network as possible without digging up the streets, which requires us to use existing infrastructure – that’s part of the emerging regulation in the UK. Ofcom has required Openreach to allow others to access their poles and ducts.

“There’s no parallel there, because in the electricity and gas sector, the infrastructure is generally a single monopoly. Whereas consumers will have a choice, on some streets, who provides their data network”

It’s a natural segue to talk more widely about national infrastructure policy and just how effective he thinks it is at the moment. Generally speaking, it’s a thumbs up from Holliday on the overall direction, but he understandably points to the missing details.

“The ambition on cars is great, but there’s quite a lot of infrastructure to put in place before that is a reality, both on the electric system and on the fibre system. There remain some questions over whether we’ve got the right regulatory incentives. And there’s a lack of clarity about where the investment actually goes. Although we need more power production capacity today we’ve got spare capacity a lot of the time, this requires us to be smarter about when you use it. However, at a local level, there’s new infrastructure to put in place.”

Then there’s the whole issue around heat – which a lot of people would argue that we’ve ignored for a decade. But have we left it too late?

Holliday chooses his words carefully. “There is no question that acting on generation first makes sense. It’s absolutely right to green up the energy supply system first and foremost. And transport was always going to be easier than heat.

“People are waking up to the heat problem now. If there is a lost opportunity, it’s that we could have put some new construction requirements in place earlier.”

He’s talking about government rowing back on its policy in 2015 to require new homes to be net zero.

“We’ve got to be careful that we don’t fall into the trap of saying ‘this one thing is the right answer.’ I think there’s going to be a number of solutions. With hydrogen, we need to be careful. Producing green hydrogen is high cost. And therefore, we want to apply that expensive fuel in areas where it’s most efficient, which may well be industrial areas, as opposed to completely re-plumbing all the heating systems around the UK.

“We’re used to thinking about ‘what’s the big solution?’ as opposed to having to incentivise different options in different parts of the country.

“In areas where you’ve got huge amounts of surplus wind energy, it’s not going to make any sense to use expensive hydrogen. So, this whole notion of designing from the bottom up rather than the top down is the most exciting change for the energy sector in a long time.”

Holliday observes that the basis of our systems today is predominantly still the way it always was although there is greater understanding of what is going to need to happen in the future.

“There’s a huge amount of uncertainty too. And the utilities industry has got much better at thinking about how future situations are going to play out, much to their credit.”

One area he’s not so charitable is utilities’ communication technology: “The backbone of fibre investment that is happening is happening for all sorts of businesses, schools, government, and of course our homes, yet we often overlook that it’s a very important part of the energy transition.

“If we are to successfully transition to localised energy grids then there’s no question that the capacity and the speed of communications are going to have to go up orders of magnitude from where they’ve been in the past, to manage a system in the way we envisage it working in the future. That’s going to require full fibre,” says Holliday

National Grid revisited

Holliday is complimentary about National Grid’s decision to sell its gas transmission stake and spend £7.8 billion buying Western Power Distribution. “If you look at where the energy is going to be coming from in our transport and heat systems, and the future is going to be electricity, so there’s a lot to do in that space, so the integration of that business makes an enormous amount of sense to me.”

But he’s more circumspect about government’s decision to enforce the separation of the ESO. “My word of warning always was be careful that you don’t lose the sharpness of commercial incentives ESO had. And I often commented ‘don’t confuse non-profit with efficiency.’ All that means is that all your costs are passed to consumers. And National Grid, because of the incentives, was always working hard to keep the costs to consumers very low.”

Another policy area that Holliday is not entirely happy with is the lack of incentives around storage. He’s witnessed the impact of this first hand as the non-executive chairman of Zenobe. The company was set up in 2017 to provide big batteries on the transmission system to help with demand-side response but that market has developed more slowly than many expected, he says.

“Zenobe pivoted really quickly into transportation, providing buses with batteries. So, buying the battery for the bus company, owning the battery, leasing it to the chassis owner, building the charging infrastructure in the depot. And they’re about a third of the market for buses in the UK now.

“The way that the batteries were de-rated in the capacity market was not a particularly great incentive for people who wanted to build large batteries for the transmission system.

“One of the great successes of the UK has been the way we’ve used incentives like the Renewable Obligation Certificates and then the Contracts for Difference to get the renewables business going in the UK, and then transitioning to a situation where those incentives aren’t required anymore because the cost has come down.”

Holliday sees a similar opportunity to incentivise storage. Once those mechanisms have helped bring down the costs, they can be removed. But as the level of intermittent energy ramps up – the goal is for 40GW of offshore wind ­- so will the need to provide much more flexibility on the demand side. National Grid’s Future Energy scenarios acknowledge that storage is part of the jigsaw with the expectation that between 2 and 6GW will be needed, some of which may come from hydrogen.

There is something to shout about, however. In April, Zenobe was contracted by National Grid to supply a 100MW battery at Capenhurst near Chester capable of supplying electricity to 100,000 homes for an hour at peak demand. “This will be a dynamic response battery, the first of its service anywhere in the world,” he says.

The next 10 years will be critical in reaching net zero goals. “If we don’t start to get the trajectory right in the next 10 years, then hitting our 2050 targets will be very difficult.

“In the UK, we are building renewables at scale, and we’ve got to keep that journey going. There is a question on replacement of nuclear, which is another conversation” -he’s hopeful on small modular reactors. “With transportation, I think the path there is well set. We’re going to electrify it and we’ve got some strict targets in place for phasing out internal combustion engines, but the delivery of the infrastructure behind it has to be the priority.

“And then heat. We’ve got to get on the trajectory of making sure that we are moving ourselves away from a fossil fuel-based heating system in the next 15 or 20 years.

“All the bits of the jigsaw are there, we just need a little bit more joining up. But we’ve got a great structure in the UK with the Climate Change Committee. We’ve got an independent body that sits there and observes whether we’re hitting the targets that we’ve set for ourselves. That’s a unique structure in the world. That’s one of the best pieces of policy that we’ve put in place.”