Utility Week

UTILITY WEEK | SEPTEMBER 2021 | 19 Policy & Regulation Interview I n the space of just over a decade, Ovo Energy has grown from a start-up with big ambitions to Great Britain's third-largest energy supplier. Its journey is a perfect example of the rapid transfor- mation in a sector that was still dominated by the big six when Ovo signed its first customer in 2009. We now find ourselves in a world where the market share of "large" energy suppliers is expected to dip below 50 per cent as soon as next year. As well as presenting a threat to the incumbent retailers, Ovo and its peers have forced them to adopt a different approach. Everyone is a disruptor now and the need to be seen as a leader in energy tech and on green credentials is the new battlefield. However, there are concerns that the ambition of this new breed of energy retailers could be stymied by a regulatory framework that many see as adopting an analogue approach in a digital world. As Ovo Energy's chief financial officer, Bill Castell, puts it: "The sector has to be allowed to make fair returns so that we can innovate and create these exciting new projects that will underpin net zero." Castell is a veteran of regulated industries. The former CFO at Virgin Media also spent several years in finance, holding a number of senior roles at Barclays. He believes there are lessons that can be learned for utilities (a word he is, by the way, not that keen on). "Ofgem has done a great job over the past 10 years in terms of creating competitive markets, focusing on the customer and protecting vulnerable consumers. Now I think it's about adapting and pivoting towards net zero. Pivoting doesn't mean A or B, it's A and B, and probably beyond. "The UK historically has led the way with renewa- bles. Now it's a question of the customer being part of this new journey because decarbonisation of the home is going to be fundamental. "That same customer is a bill-payer, a taxpayer and a voter. So, everyone has a vested interest to pivot. "There are things we can learn from other industries. At Virgin Media there was the Broadband Britain initia- tive and Ofcom changed its profile to regulation by giv- ing a longer time frame. BT was allowed to charge com- petitive prices, but not without a limit on pricing, for the broadband rollout. And it was given at least a 10-year horizon of consistency. So this judgement is there for 10 years and that allows investment decisions to made over the right time horizons. That system recognises the investment the companies need to put in." As an example of a successful model in financial ser- vices that could feasibly be introduced in energy, Castell points to capital ratios, which would ensure sufficient underlying capital to support businesses going forward. He says: "That's something the regulator is looking at with its credit balance review. I think more can be done on that just to stabilise the market." He believes Ofgem must evolve its approach as we move to a world not just of pure energy supply but also of energy-as-a-service. However, he does not see this as posing any threat to Ofgem's core objective of protect- ing customers. "You absolutely can have that affordable pricing, look aœer the vulnerable but add in that time horizon that gives investors the confidence to back net zero," he says. But there is no time to lose, he warns, adding that energy retailers need to be unleashed to roll out the products and services that underpin decarbonisation. "We still have time to do this, but it is running out. When the electric vehicle rollout starts to reach critical mass and half-hourly billing settlements are becoming a reality, we need to already be on the journey and not waking up too late." So, where to start on future-proofing the energy retail sector? Castell is supportive of the price cap but urges the government to start seeing the sector as part of the solution, not the problem. "The price cap went a long way to ensure some historic concerns about the market were addressed, that prevented loyal customers being penalised. However, we have to be open about the fact suppliers aren't making huge margins. The price cap going up reflects the cost of the commodity. It's up to us to make sure customers understand their bills, what goes into them and when the price cap goes up, what is causing that." James Wallin, editor "The sector has to be allowed to make fair returns." Bill Castell, CHIEF FINANCIAL OFFICER, OVO ENERGY For James Wallin's full interview with Bill Castell, visit https://utilityweek.co.uk

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