Utility Week

28 | JANUARY 2022 | UTILITY WEEK Business transformation Download report Moving beyond zero carbon As utilities mobilise to help the UK decarbonise by 2050, what scope is there for the net-zero carbon experience to provide a model for transformation in other business areas? T he government's commitment to achieving net-zero greenhouse gas emissions across the UK economy by 2050 is forcing enormous change on all sectors as companies move to support the national mission through decarbonisation of their own assets, operations and services. Utilities are no exception – indeed they have a pivotal role to play with energy net- works and retailers shouldering responsibil- ity for decarbonising the way we heat and power our homes and industries, as well as the way we move ourselves from A to B. Meanwhile, water companies must reduce emissions from treating and distributing an ever-scarcer, life-dependent resource to a growing population. But while huge focus has recently been placed on the aspirations and actions of large organisations and industries in sup- porting a net-zero carbon transition, in truth the business transformation agenda entailed in creating a more sustainable future goes far beyond the reduction of either direct or indi- rect emissions. For future markets to function in a way which is zero carbon and resource efficient, but where high service levels are unim- peachable, accessible and affordable for all, utilities must dig deeper and push transfor- mation across disciplines and into business model fundamentals. To find out more about how utilities are responding to this broad-ranging and com- plex challenge, Utility Week partnered with global technology consultancy and ser- vices firm TCS to conduct a unique piece of research with industry leaders. Our survey quizzed senior representatives of energy and water utilities about the magnitude and scope of their organisational commitments to net zero, but also the ways in which they feel decarbonisation provides a platform for wider business change. We also sought to uncover which rising challenges in their operating environments – mostly either direct or indirect consequences of climate change – are causing them most worry in terms of threats to future profitabil- ity or resilience. Reassuringly, our survey confirmed that almost all organisations in the utilities sector have committed themselves to achieving net zero emissions by 2050 or sooner – though not all have bound themselves to decarboni- sation goals for scope three emissions, that is, emissions associated with supply chains and customers. This reflects a certain lack of confidence among many organisations in their ability to support the added complexi- ties involved in measuring and influencing scope three emissions while questions over how to deliver on scope one and two commit- ments remain live. It also reflects a perceived lack of availability in alternative materials, as commentary later in this report shows. In terms of those most and least likely to have written scope three emissions com- mitments into their net-zero mission state- ments, energy retailers – whose net-zero role hinges heavily on their ability to influence consumer behaviours – showed leadership, while the water sector lagged behind with just 36% of respondents reporting commit- ments to tackle scope three emissions. When it comes to the confidence of utili- ties in meeting their existing commitments, the vast majority say they are "somewhat" confident with around 6% admitting to a greater degree of pessimism. Significant portions of the research report are dedicated to exploring some of the fac- tors that cause so many leaders to qualify their confidence about meeting their targets. Unsurprisingly, policy and regulatory factors stand out as the most common root cause for doubt. Energy retailers were especially vehe- ment on this point with strong statements submitted to the survey about the ways in which current frameworks are preventing the kind of market innovation needed to unlock the potential of consumers to participate in decarbonisation. Following close on these external fac- tors, however, there were a variety of internal organisational challenges that our respond- ents were worried could impede the delivery of net-zero carbon goals. Topping the list of these were the availability of funds to invest in relevant digital technologies, a lack of rigorous reporting and measurement frame- works for carbon in assets and operations, and a lack of confidence that internal pro- cess change will happen in a timely way. Interestingly, while the availability of funds for technology investment was high- lighted as a potential barrier to delivery of net-zero goals, most respondents also said Key takeaways 90% of utilities have committed to achieving net-zero carbon emissions by 2050 or sooner. 60% of utilities' decarbonisation commitments include scope three emissions, with energy retailers most likely to be tackling scope three and water companies least likely. 79% of utilities are "somewhat" confident about successfully delivering their organisational decarbonisation commitments in a timely and cost effective way. Counteractive regulatory and policy regimes were the number one factor perceived to be putting decarbonisation ambitions at risk. 48% are concerned that a lack of funds for investment in supporting technologies will hamper delivery of decarbonisation. However, over 85% of respondents say budgets for investing in decarbonisation have remained steady throughout the pandemic. Just short of 80% say that non-financial resources to support decarbonisation have remained steady. 65% of industry leaders recognise the scope for their organisation's response to the net-zero carbon emissions challenge to offer lessons that could help add pace and ambition to change programmes in other business areas.

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