Jane Gray and Suzanne Heneghan report on the issues that animated utility leaders at Utility Week Congress 2019.

With big names and big issues on the agenda, Utility Week Congress 2019 was always set to throw out some critical insight and controversy – and it didn’t disappoint.

Across the two days, speaker keynotes and panel debates triggered a flurry of news stories and even more gossip in the conference networking breaks on issues from renewables payments to water efficiency, and from Dermot Nolan’s regrets to the threat to Ireland’s Single Electricity Market of a no deal Brexit.

Unsurprisingly, though, it was climate change and the implications of the UK’s net zero emissions commitment for utility strategies that dominated presentations and discussion on and off the stage. And within this it was the challenge of decarbonising heat that hopped into the hot seat.

Heat is the hot topic

We are all now well aware that, within the enormous headline challenge of tackling climate change, decarbonisation of heat is a pressing concern; what was notable at Utility Week Congress was that the electrification lobby was out in force to advocate heat pumps over green gas as the primary route to slashing heat-related carbon emissions.

On a big-hitting panel debate that saw representation from five utility chief executives, support for electrifying heat was strong. And later the same day, Clare Duffy, head of network development at vertically integrated Irish utility ESB, added her backing to the electrification pathway.

Most strident on the issue was Octopus Energy chief executive Greg Jackson, who frankly admitted that he would rather stop selling gas altogether and “rampage towards greener electricity for heating”.

Jackson struck a lively, combative stance against advocates for green gas, calling for a competition to see whether electricity or gas could deliver emissions benefits quickest. He was backed by Eon chief executive Michael Lewis – well known as a believer in heat pumps. While he said he hoped hydrogen networks would play an important role in providing large-scale energy storage to optimise renewables, Lewis repeated his view that “full electrification” was the best solution to driving carbon out of the equation for heating homes.

Paul Stapleton, managing director of Northern Ireland Energy Networks, added a more cautious but nonetheless positive outlook for the role of heat pumps in decarbonising heat in NI. In an environment where only around 30 per cent of customers are currently connected to the gas grid, and oil-based heating is prevalent, he said there is a significant opportunity to connect more customers in close proximity to the existing gas network. But he also indicated that he did not believe a bigger extension of the gas grid – even a significantly greened one – would be the logical next step. Instead, heat pumps should play a major role in allowing the NI population to “leapfrog” gas technology and adopt low carbon heating options.

A defence for green gas and hydrogen options for heat did not come until the second day of Congress when Cadent’s director of West Midlands Network, Kate Jones, warned that electrification would place an impossible burden on the distribution grid.

She added her view that “you’d have to do something like building a nuclear power station every 25 miles around the coast of Britain in order to be able to supply the demand [through electrification] … I just can’t see it.”

But even with her pro-green gas solutions stance, Jones was alert to the strength of support for electrification and acknowledged that big questions lie over the future of major gas schemes such as the iron mains replacement programme. She urged the Treasury to decide what it wants from the gas network in the future and to make an informed decision one way or another about whether to commit further billions of public funds to completing this programme, which still has ten years and thousands of miles left to run.

This gas versus electricity debate is not a new thing. But with an increased urgency behind the need to drive down heat-related carbon emissions, there is a new level of advocacy emerging in both camps. And from the electrification lobby at least, a new level of competitive energy.

Jane Gray, content director

Key moments from Day 1

• BEIS and Defra senior civil servants set out the imperative for combating climate change

• Utility chief executives from across the sector promised to work harder and faster to adapt for a net zero emissions and climate stressed future – but called on citizens to step up too

• Ofwat CEO denied PR19 draft determinations undermine company resilience plans and called for a national campaign on water demand reduction

• Ofgem CEO revealed the regulator has asked for changes to the Renewables Obligation payment structure as small suppliers struggle – he also admitted to regrets from his tenure at the head of the energy regulator.

• Auto-switching and comparison site chief executive received a grilling on business model and impact on level playing field in the energy retail sector

• Water retailer chief executive Johanna Dow demanded wholesalers pick up the cost of correcting data errors from market opening

• Technology experts labelled open data the key to better utility operations, customer service and action against climate change

Key moments from Day 2

• Infrastructure and Projects Authority leader warned “no utility system is an island” and urged greater adoption of systems thinking as complexity of maintaining utilities resilience grows

• Panel debate highlighted need for standards in grid-edge devices to defend against cyber resilience threats

• Panel debate focussed on public willingness to pay for security of supply and investments in low probability-high risk resilience threats

• Pennon CFO shared new performance drivers emerging from growth in green finance

• Northern Ireland regulator chief executive expressed fears over “very real threat” of no deal Brexit to future of Ireland’s Single Electricity Market

• Customer service experts agreed cost of poor service increases with smart channel options

• Smart asset experts urged greater application of systems thinking to ensure utility networks do not focus on deploying smart devices in a “dumb” system.

• Vulnerable customers expert welcomed external evaluation and warned against industry marking its own homework.

Battle stations

Anyone unaware that utilities have a fight on their hands in the months and years ahead were left in no doubt of the scale of the challenge to come.

At a convening of both energy and water leaders at Utility Week Congress in Birmingham, there were no punches pulled, and some hard-hitting insights – including a rallying cry from Octopus Energy chief executive Greg Jackson that energy must now adopt a war-like mentality if it is to meet the demands ahead.

It’s easy to see why. After years of talk about transition and transformation, utilities now find themselves leading the nation’s emissions reduction efforts to meet the government’s target of net zero by 2050.

There was an acceptance among those attending that a new era was dawning, its striking features being an accent on new approaches, new business models and innovation, coupled with the growing power of consumers.

Day two speakers and panellists drilled into the previous day’s big picture visions around long-term sustainability, regulation and evolving technology by highlighting a raft of potential strategic and operational approaches industry might take towards achieving them.

Building sector-wide resilience, attracting the necessary finance and investment and driving more collaboration within industry to share the load, were the key focus points.

Suzanne Heneghan, Editor

Resilience

Delegates heard how 2019 has been a year that witnessed some of the biggest assaults on our country’s critical infrastructure in decades, brought on by extreme weather incidents and the increasingly complex architecture within which utilities operate.

Richard Ploszek, head of utilities at the Infrastructure and Projects Authority, pointed to the importance of considering the risks and opportunities of “interdependencies” within an increasingly fragmented resilience landscape, including the need for a greater understanding of security and provenance of data.

Infrastructure “cascade issues” were also picked up by Cadent’s Kate Jones, director of West Midlands Network, who shared with Congress the example of how the disintegration of part of the Whaley Bridge Dam in Derbyshire this summer also threatened one of their assets, requiring staff to be on standby throughout.

Meanwhile, Max Wigley, head of cyber consulting at Leonardo, cautioned: “As our networks get smarter it’s not going to be possible to separate the physical and virtual worlds, so we’re going to have to include cyber resilience around critical national infrastructure regulations. Although that brings huge opportunities.”

The industry’s skills shortage was a major concern for Iain McGuffog director of strategy and regulation at Bristol Water, who said: “I think it’s the biggest issue we face. Not just where the employees of the future are going to come from, it’s also about educating citizens and building an understanding about what we [utilities] do.”

Finance and investment

With such huge capital costs and great unknowns now upon us, ensuring investor and consumer buy-in has never been more crucial.

A panel featuring Pennon’s chief financial officer Susan Davy, the chief executive of Northern Ireland’s Utility Regulator Jenny Pyper, and UKPN’s finance director Jenny Harrison looked at the issue of corporate financial resilience, at a time not only of huge uncertainty but one where utilities know they need to go way beyond business as usual.

Davy pointed out how utilities’ sustainability and ESG (environmental, social and governance) credentials were an “absolute growth area” of interest for investors and a factor now wholly integrated into Pennon’s business plan.

While just two or three years ago, investors never tended to mention ESG, now it was one of the first questions she was asked about the company.

Evidence shows a focus on long-term sustainable outcomes can have an impact on shareholder returns, she said, adding: “Capital has a choice”.

“It’s all about aligning objectives with investors,” she said. “It’s about what we’re trying to do in the business and with our customers as well.”

Utility Regulator chief Jenny Pyper was a clear proponent of how a joined-up approach also brought financial assurance. “We think for utility companies, investors and consumers there is a certainty and predictability in knowing that, whatever the utility network, our basic approach to – and the regulated process around – price control, is basically going to be the same.

“We’ve had the ability of learning from three different sectors… We’re spending more time at the beginning of our price control review to get our approach right, so that there are as few surprises for the regulated enterprises as we can manage.”

Against a backdrop of uncertainty, including the possibility of renationalisation, the panel noted some shifting of investor sentiment in recent months, with increased interest coming in from Europe and the rest of the world.

But UKPN’s Jenny Harrison said she hadn’t witnessed any signs of withdrawal of equity investment, adding: “And when it comes to debt investment, I think it’s all about how you manage your organisation.”

She said that while some regulatory and political factors were beyond a company’s control, “if a company is performing well, then I believe you will still have plenty of opportunities and interest in financing, and I truly feel that you are in a very good position to maintain that. I feel there are a lot of other companies that might struggle before we do.”

Smarter approach

No-one needs tell industry the dial has been turned up for utilities, thanks to burgeoning consumer expectation. And progress – such as providing omni-channel communications, or the opportunity to take more control of energy and water usage – is happening.

Yet the sector’s success at getting this message across feels far from “job done” territory.

A broad panel of industry leaders with expertise across water, energy and data revealed how, despite their own clear customer strategies, huge challenges still lie ahead if they are to ever emulate the seamless service of exemplar players, like Amazon.

From the beleaguered smart meter rollout, for example, to the opening of the water retail market, there was general acceptance that potential customer-enabling benefits of some vital industry programmes had so far been dogged by rollout issues or operational hurdles.

Chris Barlow, innovation director at Smart DCC, accepted that currently the day job may be 95 per cent focused on the smart meter rollout, but he said much strategic work was also being done around the new innovative customer offerings smart meters can bring, such as faster switching and interoperability. “I see the future as being very much customer proposition-driven, making energy simple, and very easy to consume.”

Three months into her post as MOSL chief executive, Sarah McMath said most of the participants in the water retail market would “not quite see it functioning as they would like it to”.

Two-and-a-half years on, savings are minimal (£8 million pounds against the £300 million cost of opening the market), and water efficiency hasn’t taken off. Meanwhile, while many would agree self-supply was functioning, smaller customers see little financial worth in switching.

Electralink insights expert Paul Linnane called for as much data as possible to be made available to as many players as possible. “We are hoping to work more with innovators, to provide data to them, so they can work out how to change the market.”

Chris Lovatt, residential managing director at Eon UK, said: “We see opportunities in the innovation happening. The challenge we have is for the mass market, with the average consumer still taking their cue from the media.”

Joining forces – the whole systems view of the business

What once may have been an industry dream must fast become a reality, said those panellists advocating a “whole system” view of energy and water strategy.

Collaboration, whether it be within the sector or with external agencies, can deliver game-changing service for customers and businesses – from driving efficiency to supporting and empowering those in the vulnerability space.

Edel Creery, head of communications and stakeholders at NIE Networks, talked of the benefits of partnership, citing how a customer engagement advisory panel involving representatives from NIE, the regulator, consumer and environmental groups, and government has helped not only its previous business planning but future direction.

“We feel we are making the building blocks for our next price control. Yes, we are improving service for customers today, but we are also looking to the future.”

“Partnership [with other agencies] enables us to leverage their very specific expertise. We are largely an organisation of engineers. This is ticking a whole lot of boxes at the same time, at a very low cost.”

Clive Bairsto, chief executive of trade association Street Works UK, pointed to the great wealth of infrastructure and environmental change arriving over the course of the next decade and the common challenges it will bring for health and safety – both for workforces and the public – as well as work quality, cost and speed.

But he also highlighted the environmental factors now arriving at a street works context, such as the disposal of more excavated spoil, the effect of disturbance on the PH balance of soil, the need for more electric vehicles to be involved in road restoration, and recycling.

“The whole climate change thing has two or three quite close pinch-points on street works, which is not really being picked up closely by contractors – or indeed utilities.”

Matt Cole, head of customer vulnerability at Npower, shared some thought-provoking messages for the energy sector on fuel poverty.

There are lots of people doing good things, he said, but not necessarily the right things or enough. “We’ve all got to start thinking differently.”

With energy companies not the first port of call for people who are very vulnerable, including those with cancer, Npower teamed up with Macmillan to recognise the impact on lives, earning potential and self-disconnection.

It discovered how 88 per cent of people who self-disconnect have children or long-term health conditions.

Half have a daily dilemma of whether to heat or eat, and would never contact an energy company for help.