Tackling the trilemma: The experts make their case

Utilities have for a number of years now been understood to face a trilemma of resilience, affordability and sustainability. Whilst all of these needs must be met, what should be the short-term priority as the UK faces constraints on energy supplies, a cost-of-living crisis and the growing effects of climate change? Three industry experts put forward the case for each during an Oxford-style debate at Utility Week Forum.

Prior to the debate delegates were asked to vote in a poll which pillar of the trilemma utilities should be prioritising, with sustainability coming out as the clear favourite.

First poll (pre presentations)

• Affordability 21%
• Sustainability and the drive to net zero 56%
• Resilience and longevity 23%

First up and making the case for resilience was Steve Giddings, regulation manager at Tideway.

After defining resilience as “the ability to cope with, and recover from, disruption”, Giddings outlined how factors such as climate change, population growth, the fallout from the pandemic and war in Ukraine can contribute to significant and dramatic disruption to customers, the environment and services .

Companies, he said, “need to think about the bigger picture” and achieve both operational and financial resilience.

He said: “Energy suppliers need the capability to react to disruptions in performance.. Organisations need the financial capability and the financial strength. And I emphasise that, they need the financial strength to enable their financial innovations to avoid, cope with and recover from disruption.”

For Giddings, ensuring resilience in the face of global turbulence is vital and he referenced how projects such as the Thames Tideway super sewer, as well as interconnectors between the UK and the continent, are all examples of major projects which are helping this.

Furthermore, he argued, smart meters are tools for resilience and will help companies in the energy sector with demand side management, as well as give incentives to customers to look after their own resilience.

“Resilience is critical to the delivery for customers of a reliable, safe, economic and environmentally friendly energy, water and wastewater sector both now and in the future… but we need to also consider its relationship with sustainability and affordability,” he said in his closing statement.

Affordability

The second speaker was former Ofwat chief executive and currently Octopus Energy’s director of regulation and economics, Rachel Fletcher, set out why it is affordability which needs attention in the short term.

She began by presenting stark figures about the impact of fuel poverty on consumers, with an estimated 13,000 dying due to a lack of heat every year, while an estimated 66% of households could be pushed into fuel poverty if prices reach £4,200 early next year. Furthermore, she pointed to the fact that about 1 billion people globally do not have access to any electricity.

“Because we’re talking about an essential service here, this is absolutely a political showstopper, really, to making progress in decarbonisation. We’re seeing this bubbling to the surface during the COP discussions as well.

“But we’re seeing it as well close at hand in our own country with a government that is focused on the short term affordability issues with limited scope to deal with some of our longer term decarbonisation objectives.”

Vital to the net zero transition is customer participation, “and we’re only going to get customer participation if we make it affordable for people to decarbonise,” said Fletcher.

She highlighted how 30% of UK carbon emissions come from domestic heat and road transport and that this will need to be halved by 2035.

“That means, we’ve all been told, no one will be able to buy a new internal combustion engine (ICE) vehicle from 2030. And we’ve also been told that the government has got an ambition to put 600,000 heat pumps in a year by 2030 and 1.9 million a year by 2035. That’s about 300 times more heat pumps being installed every year than is currently happening.

“That’s a lot of change in our houses, a lot of change in how we use electricity and how we heat our homes. We’ve got to keep this affordable, or else people will just not participate in this transition at all and we won’t meet our targets.”

Fletcher said the most important point, however, is that utilities can make the transition affordable for consumers and highlighted how the global cost of onshore wind has fallen to 15% of what it was in 2009. She further pointed to how technologies such as electric vehicles (EVs) are becoming cheaper.

Costs can be driven down further by tapping into battery technology, as well as EVs and electric heating, as part of a flexible system, she added.

“It is estimated that our overall system could be costing nearly £17 billion less a year through tapping into this flexibility, with about £5 billion of that coming from customer and demand side flexibility. These are affordability measures, cost saving measures, through thinking differently, that can benefit every single customer in this country.”

Finally, there is an opportunity to create innovative customer propositions.

“It’s been talked a bit about already today but generally as a sector, we need to be much more focused on how we make it easy for customers to save money to be part of supporting a low carbon energy system,” said Fletcher, who added that the “gamification” of energy saving tips helped Octopus customers to save around 12% on their gas bill last year.

Sustainability

The third and final speaker was Gordon Reid, general manager zero emissions at Scottish Water, who made the case for sustainability. He warned how the sector only has a finite amount of resources to draw from and that they therefore must be used sustainably.

He said: “So as utilities, we have a lot of long term assets. We’re custodians of these assets for future customers but we use a lot of resources to build and maintain these assets. However, there’s not an infinite amount of resources out there… we’ve only got the one planet, yet in the UK we consume the resources equivalent to multiple planets and this approach is leading to climate change.

“So as well as being custodians of assets, we also have a wider role as custodians of the planet for future generations.”

Like Giddings, he too stressed the threats posed by global factors and said these must be addressed.

“But,” he added, “sustainability must not be deprioritised. In many ways, it is the only answer to these and other challenges. And let’s be clear, if we think that delivering climate change mitigation is difficult and expensive, it’s going to pale into insignificance next to the costs of climate change adaptation, with its environmental, economic and human costs.”

Despite the doom and gloom, Reid urged delegates not to despair but stressed we must act now.

He said: “We can deliver a sustainable future, progress emissions reduction and help to address some of the wider challenges that we have. And I would suggest that it’s a straightforward approach, which is to put sustainability at the heart of what you do in your organisation.”

The first step on this journey is for companies to understand their emissions and while he acknowledged that it was good that many organisations are now publishing their operational emissions footprints, it is not enough to just focus on reducing energy consumption and travel.

“How does your organisation operate? What does it buy, what does it manufacture, how does it build and invest and what materials does it use?” he asked.

“We all need to look across our wider impact and find ways to influence partners and supply chains and suppliers to do better. If you understand your emissions, you can start doing something about it.”

Not only will this have environmental benefits, he said, but it will also prove financially beneficial.

“Focusing on carbon leads to innovation and new thinking. And building net zero into your decision making process as an organisation is a key step. Focusing as well on reusing the assets you already have, repurposing or extending the asset lives is also lower cost and getting more from the carbon that has already been expended on them,” he added.

To embed change, companies must demonstrate leadership on the issue. By way of example, Reid pointed to how a focus 30 years ago on health and safety has resulted in “great progress” in changing behaviours and that this was all driven by leadership.

“We need to do the same with carbon although, sadly, we don’t have 30 years to make the difference,” he said.

While decarbonisation is important, Reid argued that there is “no use” in supplying customers with green energy if they are still losing large amounts of it through poor insulation. Energy efficiency, therefore, must be addressed.

In his closing statement, Reid said addressing customer affordability and service resilience are key current challenges. But, he said, “addressing them sustainably will help deliver them and address the existential threat of climate change”.

Following the debate, Fletcher’s case for affordability saw support for this option increase by 10 percentage points to 31%, while resilience took a slight dip to 19%. Despite a fall of six percentage points to 50%, Reid’s arguments for sustainability kept this issue in the top spot.