Utility Week

34 | JUNE 2023 | UTILITY WEEK Pan-utility Roundtable Heading for a car crash? Short-term thinking is driving poor asset investment decisions by utilities. Add in growing climate change threats, demand pressures and supply chain constraints and the future looks hazardous. So said sector leaders at a recent Utility Week debate. I t's been more than 20 years since Rail- track, the privatised operation responsible for running track, signalling and other rail infrastructure collapsed, forcing the govern- ment to take back control and create Network Rail. Fast-forward to 2023, and industry insid- ers believe it may take another "Railtrack moment" to sort out water sector infrastruc- ture. That was the candid assessment o ered by one water sector leader during a recent Utility Week roundtable debate, Future proof? Strategic Planning for Utilities, hosted in asso- ciation with Tata Consultancy Services. "The industry needs its Railtrack moment. When something goes wrong, and people are o water for weeks, or there are standpipes in the street, that's what will force the change," they said. Is the Railtrack comparison an exaggera- tion? Sticking to their guns, the asset strat- egy leader at Utility Week's event proposed that regulation driven by short-term objec- tives and outdated econometric models are to blame for mounting risks to resilience in the water sector: "There is no eye on risk. There is constant pressure on performance and cost, which means we are incentivised to take short-term decisions," they insisted. The situation in energy may not be much better. "Water and electricity have this in common: it's clear the regulation is high- risk," said one experienced leader at a large power distribution network. "It's not our intent, and it's not the regulator's intent. But there is risk in kicking everything down the road. That leads to short-term decisions." Handling uncertainty This regulatory paradigm is increasingly incompatible with the pressing need to unleash a torrent of infrastructure invest- ment, our attendees agreed. Across the energy and water sectors, an ageing asset base urgently needs to be refreshed, extended and adapted to meet the demands of climate change – from decarbonisation through to changing weather conditions and resource scarcity. New and revamped infra- structure must also be able to support new modes of consumption and encourage eŠ - ciency, said our experts. With speci‹ c resilience pressures – and appropriate solutions – being frustratingly hard to predict, however, our leaders argued that regulators have been reluctant to estab- lish frameworks that support "investment ahead of need" and have remained focused on controlling cost to consumers. The Thames Tideway supersewer pro- ject – though novel in its funding structure – is symptomatic of established regulatory thinking, said one senior water company representative. "The tunnel is basically a huge storm overŒ ow tank under the centre of London … and it's been right-sized. It's exactly the right size, which means that pretty much as soon as it is built, we will have to start building the next one. Instead of paying 120% of the cost to build one twice as big, we're going to pay 200% of the cost – all because we are so frightened of building something bigger than necessary." A fellow water sector leader agreed: "We could size a reservoir to have a 150 million litre capacity rather than 100 million litres a day, but that might not be an option even though it helps everyone. What I want to see is the option of 50% resilience added for about 16-20% extra cost – that should be the debate." Pitching in for energy, a senior regula- tory expert from a major power network commented: "The elephant in the room for energy and water resilience is growth, because all growth is going to require an electricity and water connection … The risk of having too much network is massively less than the risk of having too little." There was some acknowledgement that Ofgem had tried to handle the ambiguity over the speci‹ c size and shape of the energy system investments needed via the introduc- tion of uncertainty mechanisms in RIIO2 – and it was observed that Ofwat is mooting a similar move for the upcoming asset man- agement plan period. But our attendees were clear that uncer- tainty mechanisms are an unsatisfactory answer to the extent of investment that needs to be unlocked. "Uncertainty mecha- nisms are better than nothing," said one power network representative, "but it would "We are saying mains are going to last 600 or a thousand years, and clearly they are not. But the world I live in is, 'I can probably get away with it for fi ve years'. That's wrong."

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