Utility Week

UTILITY WEEK | JUNE 2023 | 35 Pan-utility be better to have stranded assets and get on with building out, because we all know the scale of what we need to do." Reducing demand won't do everything Clear thinking about e ective regulatory models for anticipatory investment is fur- ther muddled by growing expectations that demand management and exibility in the consumption of energy and water will miti- gate the need for infrastructure investment, our experts added. "We have a wonderful solution for the [infrastructure] growth problem in the water industry, which is that our regulators assume people will use less water," said one regula- tion director, sparking animated comments from their peers on the level of emphasis being placed on consumption reduction as a route to easing infrastructure pressures. While there was clear acknowledgment that tackling leakage and reducing demand are key resilience factors, some worried that these are seen as alternative to, rather than additions to infrastructure growth. Likewise, in energy demand exibility, although important, should not be seen as an alternative to investing in network growth. "Ultimately you need less grid if you are lopping peaks in demand," says the head of development at the electricity network. But, they added, this is in the context of try- ing to shi- 200-300% more energy around over the next 15-20 years. "We are talking about huge growth. At the moment, demand side response [DSR] is seen as some sort of panacea." An asset strategy leader from another power network agreed, commenting: "We've seen data on how much network you can avoid building thanks to DSR and exibility, and that may be the case over Ž ve years. But it's important to look longer term at whether that creates new issues and ultimately leads to higher costs." Replacement and renewal For water sector participants at this debate, while funding infrastructure growth was a key concern, the challenge of renewal for crumbling water mains was a pressing worry thanks to years of strategic sidelining. The asset strategy leaders at the table asserted that investment in water mains replacement has "gone o a cli over the past 20 years". "It's down to half a percent or 1%. We are saying mains are going to last 600 or 1,000 years, and clearly they are not. But the world I live in is, 'I can probably get away with it for Ž ve years'. That's wrong." Giving insights into their company's dra- business plan for PR24 price control, they added that the investment intentions are being built on awed foundations. "[It] doesn't take account of the fact that our energy costs have gone up from £20 million to £50 million in a year, or that our chemical costs have risen by 100s of percent in some cases. "The [regulatory] modelling doesn't re ect that; and if I want to get a decent determination, it means I need to cut what I do to Ž t Ofwat's model." The consequence? "The Ž rst thing we do is cut mains renewals, which is easy – we just say we'll do 10k instead of 20k. You can't see it, and you don't really know what state it's in – you have indicators at best. And there are some companies that are replac- ing less than a thousandth of their network each £year." This level of investment may be far too lit- tle to withstand future stresses and strains. One industry insider quotes Sir John Armitt, chair of the National Infrastructure Commis- sion, on HS2. "What sort of country are we living in where we are happy to invest £70 billion pounds to make the journey from London to Birmingham 20 minutes quicker on the train, but not two billion pounds to ensure southeast England has enough water?" It would help if the water industry had more standards that helped it manage risk, proposed our sector experts. "Standards are, frankly, shocking," said one water company regulation director. "The electricity industry has some standards which are helpful and which we don't have in the water industry. For example, there is a limit to the people you should serve from a single substation and if growth goes beyond that you need to build another. "We don't have that when it comes to ser- vice reservoirs: that once it goes beyond a certain level, you have to build another one. We have water quality standards – but not network standards." Overcoming supply chain scarcities All the standards in the world won't keep the lights on and water owing if there aren't the people and equipment to build new net- works. "Because we all need to be on the net- work, and demand is higher, there is much greater competition in the supply chain," says one power network head of asset strat- egy. "It's ramping up everywhere. What we thought might have been driven by Covid-19 in terms of lead times could get worse. We are at a point where if you require a trans- former, there is a two-year lead time, for example." Compared to Europe, the UK is not in a good position to seize supply chain avail- ability, agreed other participants. Again the ability to ag opportunities via approved anticipatory investment programmes is a key factor here our leaders agreed. "There are huge sums to invest but it doesn't give you good buying potential if you're at the back of the queue," commented one electricity sector representative adding: "You also need to buy in large volumes, because the supply chain cannot get its own suppliers in order without the large volumes other countries are ordering." But supply chain troubles cannot be solely blamed on cautious regulatory frame- works, our leaders admitted. Utilities need to work harder to make themselves attrac- tive clients, one water sector veteran argued. "Some of the big suppliers are walking away from us because we are terrible to do busi- ness with." Factor in skills gaps, exacerbated by Brexit, and the resilience of the supply chain is questionable. "We are in a global market and people don't have to work in the UK, they can go elsewhere. " Future shocks? Technology will help overcome some of these problems. For example, attendees agreed that digital twins can be "game changers" for resilient and e¬ cient infrastructure plan- ning as well as supporting targeted action on endemic network problems like leakage. But digital tools can only take the sec- tor so far. Without a bigger rethink of the way risk is accounted for in regulatory frameworks and the introduction of clearer standards for quantifying resilience our roundtable guests were clear that sorely needed investments in infrastructure will come too late or not at all. The asset strategy expert who drew the comparison with Railtrack is pessimistic about the prospect for achieving this gear change. "The industry is heading for a car crash." Ben Hargreaves, head of content in association with "[The Thames Tideway Tunnel has] 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." "Some of the big suppliers are walking away from us because we are terrible to do business with."

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