Utility Week

UTILITY WEEK | MAY 2023 | 13 Pan-utility D ecarbonisation targets are driving government policies worldwide, and the energy sector has a big part to play. Enabling the changes required to reduce CO2 emissions will mean both a signi cant expansion in low-carbon generation re• ect- ing a shi• from fossil fuel to renewable sources, and an increased demand for electricity based on a shi• towards electri cation for heat and transport. This is turn requires increased investment in the energy networks. How funding is provided and the areas in which it is focused varies, but a common theme is the need for investment to ensure the future reliability and resilience of energy networks. In Great Britain, energy industry regulator Ofgem has put decarbonisation at the heart of its current revenue-setting process for the electricity distribution utilities. This is re• ected in a signi cant emphasis on investing in networks for the future, with an increase in allowed revenues from previous periods as well as mechanisms to allow for amendments to funding as investment requirements change. In the US, recent federal packages have put a strong emphasis on network investment. Under the Infrastructure Investment and Jobs Act, around $13Šbillion has been made available over ve years under a range of di‹ erent programmes for projects to modernise and expand the US power grid. This includes a number of components speci cally focused on enhancing reliability and resilience. This funding augments a range of grid modernisation programmes already under way across all US states, although the levels of activity and areas of focus vary signi cantly. Whether it is central government funding, local initiatives, or decision making by independent energy regulators, the emphasis worldwide is the same. Leaders recognise the need to invest in network infrastructure to support decarbonisation goals. This should not be surprising, both the growth in renewables and the increased levels of electri cation mean a growing reliance on those networks for our future energy security. To be successful in meeting decarbonisation goals, the pace of change will likely need to accelerate. Networks need to be ready for that change if they are to provide the world class levels of reliability and resilience required to support the demands of users. This requires investment in the networks now, and is why an increase in initiatives such as those Great Britain and the US are a welcome sight. EXPERT VIEW GRANT MCEACHRAN, REGULATORY AFFAIRS DIRECTOR, S&C ELECTRIC Network investment is the key to successful decarbonisation "A common theme worldwide is the need for investment to ensure the reliability and resilience of energy networks." A sset management is at heart of everything gas and electricity network companies do to ensure their customers receive safe and reliable energy supplies at the most e" cient cost. Over time, changing generation and demand pro les have impacted network use, and new techniques and technology have created opportunities as consumers' needs and expectations have expanded. Asset management has evolved in response to these changes. Notably, network companies have adopted approaches underpinned by whole-lifecycle approaches and condition-based risk management. Regulation has also evolved through company measurement and incentives to achieve asset-management e" ciencies and to deliver performance bene ts to consumers. Ofgem's Network Asset Risk Metric framework, which sets the outputs and incentives that will apply to network companies in RIIO-2 for asset replacement and refurbishment, is a prime example. Now, network companies face a period of even greater change to enable the transition to net zero and to address climate change threats. In response, Ofgem is consulting on alternative options for network regulation to enable this. Individually and collectively these developments have implications for the future of asset management. The energy transition means the need for signi cant anticipatory network investment to support the assets needed for a net zero power system. A balance will be required between new investment, investment to refurbish existing assets, and investment in • exibility, including services from distributed energy resources. Increased digitalisation, which o‹ ers opportunities to optimise system planning, including creating digital models of the network, "digital twins", will also impact asset management. At the same time, asset management must respond to the threats posed by climate change. Responses will vary. At a technology level, there is a greater focus on automation, sensors, reclosers, and smart switchgear solutions to enable outage detection and quickly recover or recon gure the grid to provide power to the greatest number of customers. Also, climate change has impacted the economics of investment, with a trend toward undergrounding power lines, as evident in Florida in response to tropical storms and in Finland and Sweden in response to winter storms. Taken together, approaches to asset management will continue to evolve to address the threats networks face and to maximise the opportunities o‹ ered by the transition to net zero. Evolution will be key to delivering the reliable and resilient networks upon which energy customers are increasingly dependent. And it is critical that the outcome of Ofgem's consultation on network regulation supports that evolution. EXPERT VIEW GRANT MCEACHRAN, REGULATORY AFFAIRS DIRECTOR, S&C ELECTRIC The evolution of asset management AFFAIRS DIRECTOR, S&C ELECTRIC asset management Analysis Water companies resigned to licence reforms Ofwat's last attempt to make wrest power away from companies in 2012 resulted in a bitter stand-off . However today there seems to be little appetite for the fi ght. W ater companies appear resigned to accept changes to company licences that ensure per- formance is central to remuneration decisions. Through powers granted in the Environment Act, Ofwat will be able to modify company licences without consent of the company. This power is being wielded to stop dividend payments if the regulator believes the com- pany has insu" cient headroom. This was announced in February following years of discussions. Senior gures in the water industry have indicated to Utility Week that boards will not appeal against the changes, despite some ill-feeling towards them. Companies have until next month to ght Ofwat's decision by seeking an appeal through the Competition & Markets Authority, otherwise the changes to through. It brings to a close a controversial issue which began a decade ago when the Section 13 debacle led to a stand- o‹ between the water regulator and the sector, which was only resolved when new chairman Jonson Cox bro- kered a peace that postponed such a move. That agreement included the caveat of powers being granted to Ofwat at a later date, which is what the Envi- ronment Act 2021 July did. The changes now are similar to what was proposed in 2012, but sector insiders tell Utility Week that while a few may not be happy about the changes, it is unlikely we will see appeals to the CMA – which would be costly and potentially damaging to a company's reputation. The industry has been constantly under re from politicians and the media for years, with sewage making headlines weekly. Insiders suggest it would be foolhardy to appeal against a decision on remuneration at a time when anger over bonuses and dividends abounds. The relationship between regulator and companies is also much improved now than it was in 2012, an insider says. Many attribute previous problems of Section 13 in 2012 solely to the poor handling by Regina Finn and as those wounds healed, so did the relationship. Insiders add that water companies and the regulator are now in agreement that they need to pull together to rebuild public con dence and deliver resilient services. With so much to be done to address water supplies, pro- tect rivers, deliver environmental programmes there is no space for in- ghting. Ruth Williams, water correspondent

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