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UTILITY WEEK | 28Th FEbrUarY - 6Th March 2014 | 21 Finance & Investmenti I n the early 20th Century, a British electrical engineer by the name of Charles Hesterman Merz made a breakthrough in the generation and distribution of electricity in the industrial heartland of the North East of England. His innovation was to introduce the first high- voltage three-phase AC electricity supply system in Great Britain, thereby extending the distance that power could be distributed to a distance of several miles. By 1912 the Newcastle-upon-Tyne Electric Supply Company (Nesco), which had been founded by his father, John Theodore Merz, had adopted the system and become the largest integrated power network in Europe. Merz then went one step further and sacrificed his exist- ing infrastructure and altered the fre- quency of the dis- tribution network to 50 Hertz from 40 Hertz. In doing so, Nesco set the standard for distribution of power across the UK and became the template for National Grid. As the government and power utilities today set about rebuilding our power sector, perhaps they should look back to the paradigm shi introduced by Charles Merz in distribution and supply. Rather than incentiv- ise new plant with expensive support mechanisms, we should relinquish our insular approach and think about a resilient, sustainable and more economic pan-Euro- pean grid. Just as Nesco provided the building blocks for our National Grid from its modest home base of distrib- uting electricity to just one half of the city of Newcastle, maybe it is time that the UK grid becomes a structural part of the pan-European network. To that extent, projects such as IceLink, a 1,000km undersea cable which will be able to import up to 1.2GW of geothermal energy from Iceland, and the Energy Bridge with Ireland, which will be able to import up to 5,000MW of Irish onshore wind, are achieving credibil- ity. I would venture further: why not a link between the UK and Norway to import excess hydro? And another from Bilbao to Southampton to import idle CCGT in Spain, fired by Algerian gas. Perhaps it is time to make the next strategic shi in our thinking and we should embrace Lord Kelvin's statement that electricity in the future "will be beyond anything we can conceive today". Nigel Robinson, head of power, Investec Power and Infrastructure Finance "I do not know the limits of electricity, but it will be beyond anything we can conceive today" – Lord Kelvin, 1901 Investor view Nigel Robinson "We think about a resilient, pan- European grid" build Hinkley Point C project, Centrica is at least benefiting substantially from its share of the revenues from existing UK nuclear power plants. However, its CCGT plants are running at very low levels for a technology that was once thought to be ideal for baseload. Moreo- ver, spark spreads are – and may remain – dire. Support for offshore wind, once the great white hope of the Department of Energy and Climate Change (Decc), now seems to be waning, despite generous subsidy levels. Centrica itself has recently announced its exit from the Race Bank project. To what extent Centrica espouses UK generation as a core investment opportunity is uncertain. Recently, it has been more out (think, new nuclear-build and Race Bank) than in. In his results presentation, Centrica chief executive Sam Laidlaw stated that "the prospect of political intervention has dam- aged investment confidence". Hardly com- forting words for Decc, which is relying on members of the big six to ramp up their UK investment budgets. Third, the North American market undoubtedly holds various attractions for Centrica despite its recent offloading of three power plants in Texas, with a combined capacity of 1,295MW, for £420 million on the back of low margins. Evidence of its ongo- ing transatlantic commitment is confirmed by the purchase of a package of gas and oil assets in Canada from Suncor in partnership with Qatargas. Overall, Centrica now expects its total production of gas and liquids volumes in 2014 to amount to 85 million barrels of oil equivalent. It is a significant amount. Undoubtedly, the next three years will be pivotal for Centrica. But it will unques- tionably remain in the gas sector. The big questions are whether its UK gas business avoids a BAA-like dismemberment, whether it retains a worthwhile foothold in UK power generation, and the extent to which it invests further in the North Sea and North America. Nigel Hawkins is a director of Nigel Hawkins Associates, which undertakes investment and policy research -6% Operating profit for residential energy supply down to £571m -6% british Gas total operating profit down to £1,030m -19% Operating profit for the supply of energy and services to business down to £141m -2% number of residential energy customer ac- counts down to 15,256 +23% Operating profit for in- ternational gas explo- ration and production up to £1,155m +6% Total operating profit for centrica Energy up to £1,326m -29% Operating profit for centrica Storage down to £63m The biG nUmberS FOr briTiSh GaS The biG nUmberS FOr cenTrica 400 380 360 340 320 300 1 Feb Feb 2014 1 Jun 1 Oct 1 Apr 1 Aug 1 Dec centrica share price Feb 2013 - Feb 2014