Utility Week

UTILITY WEEK | JUNE 2023 | 15 Interview T he corner of London's Victoria where Tom Glover meets Utility Week is familiar turf for RWE's UK country chair. It is a stone's throw from the London office of Enron where Glover worked for a couple of years prior to the collapse of the Texas-based utility in the early noughties. However, for the last 20 years, following a short spell at Barclays, Glover has been at RWE, rising to his current role. And for the past two years, he has been exclusively focused on the UK business, which he previously com- bined with being chief commercial officer of the German energy giant's global renewable business. The worldwide role provided useful first-hand experi- ence in assessing how some of the radical reforms, which the UK government is contemplating through its Review of Electricity Market Arrangements (REMA), could work in practice. This is because working in RWE's global renewables business entailed spending a lot of time in Texas, the location of the company's biggest portfolio of onshore wind and a testbed for the concept of local marginal pricing (LMP), one of the key proposals in last year's REMA consultation for reforming the UK whole- sale market. Experience of working in the Lone Star State has made Glover a "little nervous" from an investor perspec- tive about introducing this reform, which essentially entails breaking up the wholesale market into a patch- work of local nodes or zones. "Theoretically" it's hard to argue against the concept underpinning LMP that optimising the system across more nodes delivers a better outcome, he says: "I'm a mathematician, so I can work out that bit." However, while the likes of the National Grid's Elec- tricity Systems Operator (ESO) are enthusiastic about LMP, Glover sees little groundswell of support on the generation and investment side of the industry. The modelling used by its advocates tends to "over- state" LMP's benefits, he says, particularly assumptions that demand and generation will relocate to take advan- tage of the cheaper power prices that a more localised system would yield. In practice, the location of generation is constrained by other factors such as how strong wind speeds are in a given place and whether it is possible to secure planning permission. There is evidence to show that big energy users with limited labour needs, like data centres and batteries, will relocate to seek out cheaper electricity, he acknowl- edges. However, the same isn't true for supermarkets, for example, which need to be close to their customers in existing centres of population. But perhaps the deal breaker, from Glover's perspec- tive, is how long the mooted break-up of the wholesale market would take to implement: time that the UK doesn't have if it wants to meet the government's target to decarbonise the electricity grid by the mid-2030s. "It would take five-plus years to implement LMP but we need to deploy all our renewables in the next 12 years to get to 2035," he says. The question Glover poses is whether the extra optimisation that localised pricing can deliver is worth the greater uncertainty that would result from renewa- bles investors not knowing the nature of the wholesale market they may be delivering their projects into. On the whole, the case for LMP is not "proven" and that stronger locational signals can equally well be delivered by tweaks to the ESO's Transmission Network Use of System (TNUOS) charging regime, which would be a "lot easier" to implement, he says: "We would go with evolution rather than revolution. "You don't need to change the whole system, you just need to say what's the bit that isn't quite working and just upgrade that bit. "Let's focus on getting the renewable energy deployed rather than getting every little, tiny bit right, which just takes ages." Uncertain times Given these concerns over the timetable for rolling out low-carbon generation, Glover is "disappointed" the government's recent response to last summer's REMA consultation leœ so many options still in contention, including LMP. "When you leave so many options on the table, that just gives investors uncertainty because they want to know is what [number] I put in my financial model." These concerns are compounded by the government's admission, in its recently published Energy Security Plan, that the myriad options in REMA won't be nar- rowed down until autumn. This is getting "very close" to the probable date of the general election, which is likely to be next year, he points out. Given the amount of "detailed" work that still needs to be done on REMA, this raises the spectre of no substantial decisions being taken on market reforms until the next Parliament. This would leave very little time for implementation continued overleaf

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