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UW June 2021 HR

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18 | JUNE 2021 | UTILITY WEEK Policy & Regulation Event Challenge and change Utility Week's Future Networks Conference was a forum for lively debate on topics from the tenets of net zero-friendly regulation to how networks should support local decarbonisation pathways and what responsibilities that have for stirring up public endorsement of the transition. Is the premium fetched by WPD signi cant? One of the most striking exchanges to take place between participants at the event however was an indirect one. Speaking on separate days, Ofgem's direc- tor of networks regulation, Akshay Kaul, and National Grid UK executive direc- tor Nicola Shaw o• ered starkly contrasting views on what conclusions should be drawn from the high premium to the RAV (regulated asset base) achieved in National Grid's acquisition of Western Power Distribution. Asked on the † rst day of the conference to comment on the unanimous deci- sion of transmission networks and the gas distribution sector to appeal their RIIO2 † nal determinations, Kaul defended the e• ectiveness and fairness of the networks regulatory regime and especially the proposed cost of equity. He said: "One indication that it is a very attractive regime at those levels is that we have had a major transaction in the market since the determinations were published in December with National Grid buying WPD – not for a small or modest pre- mium to their RAV but a whopping premium of about 60 per cent." He continued: "It suggests one of two things. Either the actual required rate of return for investors is considerably lower than the cost of equity we have set in RIIO2 or the outperformance that is expected by investors is considerably higher than the 25 basis points we assume. Either way it suggests the allowed returns we set at 4.3 per cent remain extremely attractive for investors." Asked to respond to these comments on day two of the event, Shaw rebu• ed them as "misleading". Shaw said there's lots that needs to be "separated out" within the WPD deal before leaping to conclusions about its implications. Shaw criticised Ofgem for displaying an inconsistent approach to its assessment of what is an appropriate cost of equity in the sector and emphasised that the move to buy WPD – which she recognised was "a very high-performing business" – was a strategic one which entails "lots of opportunity for growth." But she added: "It's also a linked transaction. So Akshay's focus on multi- ples of the RAV is slightly misleading because it's not just about that transaction, it's also about the sale of our Rhode Island business [Narragansett Electric Com- pany] to PPL [the current owner of WPD]." Shaw went on to reaž rm National Grid's reasons for lodging its CMA appeal, including its concerns about Ofgem's use of the so-called performance wedge. I t was a delight to participate alongside colleagues from across the energy sector in Utility Week's Future Networks Confer- ence and have the opportunity to share Hitachi ABB Power Grids' belief in the role of electricity as the backbone for our energy transition. We are currently involved in mul- tiple UK projects devoted to bringing about a• ordable and clean energy. It was really encouraging at the event to hear the aligned belief among industry lead- ers that the UK is at the forefront of inter- national thinking about how to bring about this just transition to net zero. However, there was also a common acknowledgement that the heavy li¤ ing is only just beginning. Indeed, concern was expressed that the pace needed to decarbonise our industry is far more rapid than many might imagine. The next ten years are crucial to enable the UK to get ahead of the curve. Deployment of today's available technology will enable us to achieve incremental but signi† cant change in terms of decarbonisation and I believe it is vital that we deploy current tech- nology now, with no regrets. The more signi† cant challenge will be the † nal stages of our journey to net zero, which will require investment, commitment and fundamental change. So, we must accelerate what is within the art of the possible today. What also rang out strongly from execu- tive speakers was their belief in digitali- sation as the only viable way to manage swelling system complexity. More renewa- bles means smart solutions to keep the grid stable. Digital technology has the power to help coordinate the interplay between renewables, shi¤ ing demands from IoT appliances and EVs, and the capabilities of the central grid. Investment in a smarter, more ¦ exible grid is vital if the UK is to be a true global leader in net zero. Finally, I want to note how fully I share the pride expressed by many participants in the part they are playing at this particular time in the energy sector's unfolding history. The 2020s is one of, if not the most, exciting eras I have experienced during my 40-year career. For anyone interested in engineering, digitalisation, energy, and decarbonisation, this is a great time to join our industry. Comment Ian Funnell CEO UK & Ireland, Hitachi ABB Power Grids "Net zero needs a smarter, more fl exible grid"

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