Utility Week

UTILITY WEEK | JUNE 2021 | 9 …and what they mean carbon costs and policy costs have been lev- ied in the system means it is better for the consumer to pick high-carbon rather than low-carbon options and that clearly needs to be addressed." Michael Lewis, chief executive, Eon UK: "To meet the prime minister's 600,000-a-year heat pump target in just seven years means we need to start making energy bills fairer for everyone now – making sure the right choice is also the cheaper choice." What it means The long-running debate over costs on energy bills feeds into the equally protracted rivalry between those who see electric as the future of heat and those who back hydrogen. This debate is analysed by David Blackman on p22, but the proportion of green taxes lev- ied on either side has been a long-running source of friction. There are increasing signs, reinforced by Capper's comments, that the government sees the need to remove some of these costs from electricity bills to spur take-up of heat pumps. What is less clear is where they will be shi‰ed. Any move to increase gas bills is incredibly politically sensitive and will inevi- tably be met with accusations that the poor- est are being hit hardest. Of course, ultimately the public pays wherever the costs lie, but moving them into general taxation seems the least con- troversial route. Polling has shown public support for the financial impact of the low carbon transition to be borne by those with the broadest shoulders via the taxes system. What to look out for As Utility Week goes to press, the Heat and Buildings Strategy is still imminent. The hope is that this will give clarity on the direc- tion of travel for decarbonised heat and the beginnings of a roadmap showing how tar- gets such as the 600,000 heat pump installa- tions a year by 2028 will be met. However, all eyes will be on the Treas- ury's analysis of paying for decarbonisation as well as the wider Net Zero Strategy due out this autumn. It is impossible to over-emphasise the importance of these blueprints. We are about to witness the first visible impact of the net zero process on the lives, and pockets, of consumers. There has to be a credible and joined-up explanation as to why this is nec- essary and what the transition timetable is. WWU's submission on the impact of the water appeals was in complete contrast to its fellow appellants. While WWU sees "no material bearing" of the previous findings, Scottish and Southern Electricity Networks said Ofgem's decision on the cost of equity was "untenable in the light of the CMA's findings". It highlights that while many of the grounds of appeal are common, these are very different businesses and the nuances of their argument are varied. How this will be marshalled into a united front is becoming increasingly difficult to see. Meanwhile, the elephant in the room for the appellants remains the acquisition of WPD for a 61 per cent premium to the latter's regulatory asset value (although the price also reflects a counter-sale to WPD's current owners). Ofgem has already seized on the very live example of how attractive the mar- ket is to investors and it will remain a diffi- cult question for all the appellants. which a whole host of different individuals and organisations keep warning about." Alan Turner, water resources manager, Kent County Council: "It can be a long period of time, 15 years or so, from agreeing on a new policy to actually having homes occupied by people using water to a higher standard." What this means Turner's comment shows how vital it is that this issue is not allowed to drag on. If the government remains committed to its post- Covid "build, build, build" mantra then we can expect to see plenty of new develop- ments springing up. It is essential they are not adding to an issue that water companies are already battling to keep under control. Waterwise is keen to get everyone talking about the problem but one of the issues is that there is very little pressure on develop- ers to reduce water demand. While the race to net zero is now encompassing all areas of society, the desperate need to cut water con- sumption simply isn't. This is why experts want the govern- ment to take the lead. One way it could do this is by ensuring the National Planning Policy Framework requires the considera- tion of water neutrality in areas with con- strained water resources, similar to flood risk "neutrality". Behavioural change is also key to making progress and water companies are already finding innovative ways to alert consumers about their water usage and how to reduce it. What to look out for Ofwat and the regulated water companies all now have their eyes on PR24 and what the priorities will be for the next price control. This period will see the sector deliver on an incredibly ambitious goal in seeking to reach net zero by 2030. Is the next step for the sec- tor to impose its own target for water neu- trality and publicly challenge government and developers to help achieve this hugely important milestone? The cost of capital is a key issue for networks Stay abreast of all the news, all of the time: www.utilityweek.co.uk What to look out for As Utility Week goes to press, clarification hearings are underway with the main ses- sions to take place over the summer. The CMA will then file its provisional determi- nations in August with its final decisions expected at the end of October. It is notable that this would see the debate come to its conclusion just as the COP26 starts. With three of the appellants acting as principal sponsors there is likely to be much talk about the investment needed to pave the way for net zero. Ofgem, which will be concurrently considering the business plans from distribution networks for ED2, will be keen to show it is not a blocker to that process while arguing to the CMA that it is right to ensure investors in electricity networks do not reap too great a decarbonisation dividend. What it means A key difference between the processes for the PR19 and RIIO2 appeals is that the CMA has insisted that common grounds of appeal are joined across appellants. This is signifi- cant given fault lines are already appearing in this united front.

• Cover