Utility Week Top Stories of 2022

From meltdown in energy retail to hosepipe bans, wholesale market reform, the future of the gas grid and some high-profile policy U-turns, there was no shortage of talking points in 2022. Utility Week editor James Wallin explores what our members have been reading about over the past year and the topics to look out for in 2023.

Talking about the ‘highlights’ of 2022 is probably inappropriate after a year that was, quite frankly, pretty miserable.

It is hard to remember a time when both energy and water companies were so relentlessly exposed to public scrutiny. They have born the brunt of anger about rising bills, pollution of our waterways and the resilience of supply.

However, as one of our last comment pieces of the year points out, optimism is not just necessary, it is essential as we head into 2023. Utilities companies are the gateway to decarbonisation for the UK. They also have an important role as custodians of the environment, which includes helping customers to play their part in protecting it.

So, while there was an inevitable sense of rubber-necking in some of our best-read stories of the year, there is also a sense that adversity has only hardened the sector’s role to fulfil its potential in the years to come.

In no particular order, here are some of the key stories Utility Week members were clicking on in 2022 and the themes that can be drawn from them.

‘No nasty surprises’ in ED2

The scale of investment into the country’s electricity distribution network was a theme right throughout the year, beginning with former regulator Maxine Frerk’s take on the business plans. While the debate may have moved on, Frerk’s comments about the sheer weight of the submissions (in her estimation amounting to roughly 30,000 pages) and whether this is really the basis for agile regulation remain highly relevant.

The price control for the distribution network operators (DNOs) established a familiar narrative, with Ofgem delivering a “tougher than expected” draft determination – cutting 17% of expenditure from the plans, before mollifying the networks with a less severe haircut in November’s final determination. Reaction so far has been relatively muted with analysts suggesting Ofgem has done enough to avoid the level of opposition it saw in the T2 and GD2 price controls but also concerns that the abundance of uncertainty mechanisms leaves a lot to sort out between 2023 and 2028.

Degrees of separation: The future of DSOs

One of the big topics in discussing in ED2 was the approach to distribution system operation (DSO) functions, and how separate they should be from DNOs. Tom Grimwood looked at the different approaches being taken so far by the different networks and the future models Ofgem is considering.

Is it already too late for PR24?

Moving onto the price controls for the water sector and it seems unlikely that the kind of accord seen in electricity distribution will be replicated in PR24. This was another evolving story that Utility Week covered throughout the year, starting with a landmark report on the sector’s hopes and fears for the next AMP and ending with Ofwat’s final methodology.

In February, a roundtable of senior figures from the sector warned it was “already too late” for PR24 to represent the kind of radical departure from the current framework that is needed to make long-term goals achievable. They cautioned that a simple evolution of PR19 was not enough and that a more radical approach was sorely needed.

Fast forward 10 months and the mood of the sector does not seem to have lightened, with one commentator saying the final methodology for the price control “feels like a move to more regulation and more centralised decision-making”.

BEIS unveils biggest market shake-up for decades

Launching its Review of Electricity Market Arrangements (REMA) in July, the government made it clear it was “keeping most options on the table” on wholesale market reform. This included introducing locational pricing and having separate markets for firm and variable power. Reaction to the review varied from applause that government was finally taking this fiendishly difficult and technical topic seriously, to despair that politicians simply didn’t know what they were getting themselves in to.

Since the publication of the document, the government has undergone several identity crises which have coloured the likely direction it will take on reforming the electricity system. However, it has pledged to issue its response next year.

Time for an Energy Reset

Space prevents me from listing all of the twists and turns of the beleaguered energy retail sector in 2022. However, we began the year with our Energy Reset campaign calling for fundamental reform of the market, and we end the year doing largely the same. Despite this there has been real progress this year and both Rishi Sunak and Liz Truss deserve credit for meaningful action on mitigating the impacts of rising bills on customers. However, there is still no clear plan for targeting this support at those that need it most. Meanwhile, the retail sector remains divided and at constant loggerheads with the regulator.

One green shoot of optimism, however, is the success of the National Grid Electricity System Operator (ESO)’s demand flexibility service. Unleashing the potential of demand-side response is essential to ensuring security of supply on the path to net zero. However, as many commentators have pointed out, it is complementary to – and not a substitute for – accelerated investment in renewable generation and the necessary energy infrastructure.

Connecting the dots

An underlying theme throughout our coverage on the electricity distribution network, the retail market and wholesale market reform has been the very urgent need to speed up connections. This is true both at a distribution level, where an influx of low-carbon technologies must be accommodated over the coming decades and at transmission scale. The shocking revelation from Orsted that it was told it would have to wait 12 years for a grid connection for an offshore wind farm illustrates the scale of the problem.

I expect this issue to come further to the fore in our coverage during 2023.

The future of gas

Another topic that continually bubbles underneath energy sector discussion every year is the future of the gas network. With a government decision due on the future of hydrogen for heating in just three years’ time, the race is on for gas companies to make their case that their networks have a future use. To that end there were several notable projects and announcements in 2022, including the hydrogen village and town projects and the successful completion of the UK’s first trial of blending hydrogen with natural gas on the public network.

However, the most high profile gas story on Utility Week this year was the announcement by National Grid of the sale of a majority stake in its gas transmission business. The deal is due to complete in January, with a re-branding likely. An honourable mention should also go to this analysis of the future role of blue hydrogen.

Making every drop count

Research conducted by CCW at the end of 2022 surprised me by revealing that the majority of customers were not actually outraged by the hosepipe bans this summer because they believed this was an annual occurrence. This jars both with the screaming headlines in the tabloids but also the fact that the usage restrictions put in place this year were the first in a decade. While the bans attracted predictably negative coverage there are some signs that the high profile has helped customers to think differently about their water usage.

The same research covered off another prominent topic in the form of combined sewer overflows (CSOs). Again, the findings were thought-provoking, suggesting that consumers will never fully engage with the details of CSOs and that what is needed from the water sector is a “single, simple message which challenges the narrative around storm overflows”.

Financial resilience

As mentioned at the outset, utilities companies have found themselves in the headlines for all the wrong reasons in 2022. Time and time again, this came back to their financial arrangements – whether that be the resilience to weather a turbulent energy retail market, the perception of spike profits not being shared or executive pay and dividends not adequately linked to performance.

One of our top-read stories of the year was former Ofwat chairman Jonson Cox talking at Utility Week Forum in November about the challenges of shoring up the finances of Southern Water. He described the company’s recent history as “a stark example, in what is meant to be a stable sector, of a very material wipe-out of equity value for poor performance”.

What will 2023 bring?

These are just some of the topics Utility Week has delved into over the past 12 months and is by no means exhaustive. Looking forward to the next year, inevitably many of these themes – not least the trilemma of sustainability, affordability and resilience – will continue to dominate and be tested further. Hopefully with more political stability will come greater coherence in both the direction for net zero but also a clearer message from government on what it wants utilities regulators to achieve. Without these two crucial elements of clarity real progress simply will not be possible.

But before we embark on that journey, all of us at Utility Week want to pay respect to the dedication of staff across the utilities sector who will be keeping the power and water flowing during the festive break. For those who are downing tools, we wish you a merry Christmas and a happy new year, and we look forwarding to seeing you again from 3 January.