Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/1290983
UTILITY WEEK | OCTOBER 2020 | 35 Operational Excellence be the first port of call for creative entrepre- neurs keen to shake up the status quo. "These companies by their nature absolutely have to ensure security of sup- ply," Cocker says. "They have to have great health and safety and that can lead to a risk averse culture. "It is a real culture change for some of these organisations to be more innovative. But that change, while also maintaining the focus on security of supply and health and safety, is essential if we're going to meet the challenge of net zero." Gray accepts there is some validity to stereo types of the sector being risk averse but adds: "If you look at the huge changes in the energy system over the past ten years, it's clear that this is an industry that is adapting and reshaping to the world around it. That fits squarely with the objectives of innovation." But how does a regulated sector provid- ing a lifeline service ever reconcile itself with one of the central tenets of innovation – the right to fail? For Cocker, this is a case of distinguishing between frontline areas where failure is sim- ply not an option and spaces where creative solutions can be trialled without impacting on the delivery of lifeline services. As an ex-regulator, Gray sees this as an important part of stimulating competitive processes in a monopoly environment. "In a competitive market, what happens most oen with innovation is that it fails. That also leads to a speed of progress – the man- tra is fail quickly, try again. "You have to be tolerant of failure, other- wise you're not testing the boundaries. But, what you must do is be careful that overall your programme is producing some positive net return for the consumer." Electricity and water can mix As the outgoing chair of Affinity Water, Cocker has been closely involved with the fledgling journey to embed innovation within the regulatory framework. He insists there is a genuine "forward thinking" from water company executives and an accept- ance that collaboration will drive the fastest pace and widest benefits from innovation. For Gray, who was in the vanguard of incorporating innovation into regulation in the energy sector, water is at the beginning of a long journey. "The water sector is nearer where we were in 2005. You need to look at that history and start at a modest level because what you are trying to do is build up capacity in the com- panies to handle innovation funds and work out good ways for it to be spent." Talk of regulation – and getting it right – leads us to the subject of Ofgem's recent dra determinations on the RIIO2 price con- trols for transmission, gas distribution and the electricity system operator. The regulator's first take on company business plans was met with howls of out- rage, with a common accusation that Ofgem was disincentivising investment in innova- tion to help the UK reach net zero. Gray says this has to be seen in a wider context and that over time tough regulation has been shown to stimulate efficiency, with networks continuing to see healthy returns. He adds that Ofgem is "faced with two objec- tives – to keep costs down and to keep the incentives going for investment in a green strategy". Cocker, meanwhile, has "concerns about the overall picture that came out from the dra determinations". "Does Ofgem's dra determination really address the current situation post-Covid of the absolute need to hit net zero, the need for improved environmental outcomes, the need to create jobs up and down the country, as well as balancing affordability? "I think there's more work to be done." Ones to watch Looking beyond the question of how innova- tion is funded, where is it best targeted? Cocker points to innovations during his time as chair that show the practical impact of innovation, including self-healing cables, Pollywood poles and the increasing use of drones. But significant challenges remain within the wider net zero conundrum – how best to decarbonise heat and transport chief among them. Gray insists that on a pure innovation basis, these overarching questions should not stand in the way of creating the building blocks for multiple outcomes. "I'd like to see at this stage, with 30 years to go, focus on what the main technological innovations need to be. So, rather than deter- mining the answer to, for example, home heating, we're still at the stage where we need to do a lot more research and develop- ment into the options. There's a lot of scope for science and technology to move on in the key areas – whether that's converting the gas grid to hydrogen or looking at heat pumps, or whatever – over the next 30 years." He adds: "If you just look at what has changed over the past ten years it makes it seem ridiculous that we could confidently predict what will happen over the next 30. We have to pave the way for many different outcomes." James Wallin, digital editor "[Utilities] by their nature absolutely have to ensure security of supply. They have to have great health and safety and that can lead to a risk averse culture." Tony Cocker, former chief executive of Eon UK "You have to be tolerant of failure, otherwise you're not testing the boundaries." David Gray, ex-chair Ofgem, and current chair EIC