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UTILITY WEEK | DECEMBER 2020 | 19 Policy & Regulation Finn says she was impressed by the resilience of the industry during the pandemic. As lockdown measures were introduced, the LCCC contacted all its generator projects to assess the likely impact. Out of 49 projects, 15 indicated they may need to access force majeure relief. However, to date only one project has required a time extension. Bigger and faster With the Covid conundrum overcome for now, LCCC turns to the small matter of next year's auction, which is set to have twice the capacity and be open to a wider pool of projects. Finn acknowledges that there was a clear desire for this to happen but also highlights the practical implications. "What industry tells me is that we need more auc- tions and they need to be bigger. That's a policy call but the basic equation is that if the auction is twice as big or twice as frequent, we would need to deal with greater complexity and more participants." A proposal on whether offshore wind should operate in its own distinct pot for the next CfD auction remains up in the air, but can this technology's success be rep- licated in other areas – such as marine technology projects? Finn says: "New technologies tend to be very expen- sive. Some will work, some won't, and allowing the market to determine which ones are going to succeed is very powerful. That's a really strong element of the UK approach – allowing the market to identify those technologies that are going to work and scaling them up. I don't see why that dynamic can't work with other technologies." Hydrogen potential There has also been speculation that the CfD model could help to stimulate a low-carbon hydrogen industry in the UK. A study, submitted by consultancy Frontier Econom- ics for BEIS in August, suggested that contracts like the CfD could either provide a premium on top of market revenue from the sale of low-carbon hydrogen or guaran- teed returns to producers through top-up payments. Finn says: "We are set up to deal with the power sec- tor – that is our core competency. But aware that net zero has to go way beyond one sector. "When you are encouraging investors into a new space, you are going to want a mechanism they are familiar with to give them confidence. "There's clearly potential for that mechanism to be used in other areas and we are already working with BEIS on the role of a CfD in CCS in the power sector. There's obvious parallels in that you can have CCS for the industrial sector. You could use a private law instru- ment in hydrogen. "There's certainly potential and there's certainly investor appetite for that type of thing but what we need to do is offer our learning to BEIS and to the wider gov- ernment. In so far as we could be made the counter-party to these things, then we need to make sure our business is ready to do what we're asked to. "Our job is to be nimble enough to be able to pivot to whatever is needed because it takes time to build the sys- tem and get things up and running." The evolution of economic regulation At the helm of Ofwat between 2006 and 2013 as its first chief executive, Finn's stint at the regulator will be overshadowed in the memories of many by controversy surrounding the "Section 13" licence modifications pro- posed at the time. But Finn's leadership also saw some important early steps towards the the arrival of a style of utilities regulation which is more focused on environ- mental benefit than pure economic modelling. She muses that the current conversations in the water sector around social contracts "were nowhere near the agenda when I joined Ofwat – and for that matter nor were sustainability and climate change". She adds: "It was really important to change the industry mindset from 'our job is to pour concrete and build reservoirs' to 'our job is to provide our customers with a good service and an environmentally sustainable service'. That was a big battle. Embedding consumer out- comes in the price control was a huge shi. They [compa- nies] were sceptical, they thought it was just outrageous, but we got there. I'm really pleased that the strategic agenda we set then has informed where we are now." Finn believes the UK has moved from an initial approach to regulation that focused on the technical sides to a second iteration concentrating on customer outcomes. She says we're now into "regulation 3.0", which needs to focus on a "more holistic model" that engages with the fairness debate and the distribution of benefits across geographies and social groups. "What we need now is regulators not so much setting targets as setting expectations and driving behaviour." However, she warns: "What they definitely shouldn't do is step in and try and take responsibility for running the businesses. It's really important not to cross that line because then you take away the incentive on the busi- ness to be responsible for its own delivery." Former Ofgem chief executive Dermot Nolan expressed the view in a recent interview with Utility Week that the energy regulator would benefit from statu- tory guidance from government to clarify its objectives in the face of the net zero task. He pointed to the success of charging guidance given to Ofwat in 2016. Finn agrees that "clarity from government is always helpful" in embedding net zero in Ofgem's decision- making, however: "Regulators have always had to change over time to take policy framework into consideration." Asked whether a separate body should be established to take charge of delivering net zero, she says: "You have to be careful of the proliferation of institutions in this sector. What is important is the role, the function of holding people to account for delivering net zero, rather than the institution itself." And, despite its need for further evolution, UK regula- tion is still held as an example across the globe. "I have been invited all over the world to speak about how it works and how it has developed. It's a real success story for the UK and I'm proud of my part in it," she says. James Wallin, digital editor "It was really important to change the [water] industry mindset from 'our job is to pour concrete and build reservoirs' to 'our job is to provide our customers with a good service'. The LCCC The Low Carbon Contracts Company and the Electricity Settlements Company are both private limited companies owned by BEIS. They were established to play key roles in the delivery of Electricity Market Reform, the biggest change to the electricity market since privatisation. As government- owned companies, LCCC and ESC are governed by framework documents setting out the shareholder relationship and their guiding principle.