Utility Week

UTILITY WEEK | 28TH FEBRUARY - 5TH MARCH 2020 | 7 Policy & Regulation This week Ofwat to prohibit inter-company loans Any financial arrangements must serve the best interests of customers, says regulator's guidance Owat has confirmed it will prohibit water companies from entering any financial arrange- ment that does not serve the interests of its customers. Anglian, Thames, Southern and South Staffs have all begun unwinding legacy arrangements in support of the new guidance. The regulator consulted on the move last summer and has now published its guid- ance including prohibition of inter-company loans to the parent company without consent from Ofwat. Consent will be given only to companies that can prove arrangements are in the best interests of customers. Ofwat said the guidance set "a high bar". Companies that support the new arrangement include Anglian, which repaid its £1.6 billion inter- company loan; Thames, which has repaid £220 million of such a loan; Southern, which agreed settlement of £682 million of its inter-company loan; and South Staffs, which arranged early repayment of a £15 mil- lion inter-company loan before its contractual matu- rity date. Rachel Fletcher, chief executive of Ofwat, said the guiding idea behind the move was very simple, even if the technicalities were complex. "We won't let companies construct financial arrange- ments that are not in customers' interests or could com- promise the financial resilience of the water companies we all rely on. "Today marks another important step in our work to strengthen governance arrangements in the water sector, so everyone can have confidence that compa- nies are doing the right thing by the communities they serve." RW ELECTRICITY 2020 green light for subsidy-free project The Offshore Renewable Energy Catapult has predicted that the UK's first subsidy-free offshore wind project will be given the go-ahead during 2020. The latest contracts for differ- ence auction in September 2019 cleared at around £40/MWh – less than the government's fore- casts for capture prices over the early years of the agreements, suggesting that generators may initially be required to return money to consumers. With strike prices likely to continue falling, some develop- ers may see "potential upsides" in building projects on a mer- chant basis, said Tom Quinn, analysis and insight manager for ORE Catapult. "It does come with the chal- lenge that it might be harder to finance because of the higher risk involved compared to having that guaranteed strike price," he qualified. Gavin Smart, head of insights and analysis at ORE Catapult, highlighted the potential for developers to pursue hybrid projects, which have guaranteed revenues for some of their capac- ity but are otherwise operated on a merchant basis. "One of the things that's driving cost reductions is project scale, as well as turbine size and a lower cost of capital. "Projects getting bigger may be driving down the costs but it also means that if auctions are going to be capacity constrained as well as budget constrained then it might make more sense to bid in partial capacities to make sure you get it." ENERGY Template contracts for heat networks Triple Point Heat Networks, the manager of the government's £320 million Heat Networks Investment Project, has pub- lished a suite of 13 template contracts for use by anyone involved in setting up a district heating scheme. The work was commissioned by the Department for Business, Energy and Industrial Strategy. Contracts were dra¤ed by law firm Lux Nova Partners based on feedback from consultations. The contracts include energy centre lease, operation and maintenance and connection and supply agreements that can be tailored to fit each project. Triple Point Heat Networks said the contracts will help raise standards and reduce costs as more networks are rolled out as part of efforts to decarbon- ise energy systems. "We are confident that they will be of significant value, and that they will offer a useful starting point to contract creation and negotia- tion," the company said. The government recently awarded £40 million to seven projects as part of the Heat Networks Investment Project. It also unveiled proposals to grant developers powers to undertake street works in the same way as traditional utilities. Fletcher: 'Today marks another important step' Yorkshire Water is testing smart metering technology as part of its strategy to reduce leakage. The trial using Itron's Cyble technology remotely monitors water flow information and relays data to the company twice a day to identify when increases in demand are due to leakage and respond quickly. The company chose Sheffield WATER Yorkshire trials smart meters for leakage detection as the location for the two-year pilot based on its geography. Its hills will test the capabil- ity of the wireless solution for transferring flow data. Secondly, it is vulnerable to freeze-thaw events that increase challenges from leakage. Yorkshire's clean water net- work strategy manager, Adam Smith, said the trial showed the company's commitment to leak- age and service improvement. He said: "These new meters will hopefully help us find leaks and bursts a lot faster than previously, saving hundreds of thousands of litres of water in the process." The company was set a 15 per cent leakage reduction target by Ofwat in its PR19 final determination, which Yorkshire rejected and asked for an appeal to the Competition and Markets Authority. The company installed 40,000 acoustic loggers across the region in the summer and invested £50 million in leakage detection, including £4 million to replace customers' own supply pipes.

• Cover