Utility Week

UTILITY Week 17th October 2014

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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Page 7 of 31

E nergy network companies face an uphill challenge juggling the need to maintain a safe, reliable and secure network and managing the transition to a low-carbon future. On the supply side, for electricity trans- mission and distribution companies, this means connecting renewable, distributed and micro-generation. For gas networks, it means preparing for biogas and, further down the line, the hydrogen economy. On the demand side, emerging issues include: the smart meter rollout, which begins in earnest next year; the growth and possible clustering of electric vehicles; the erosion of demand for gas; and the rise of demand-side response initiatives. All this requires far greater consumer engagement and responsiveness than net- works are accustomed to. What is more, they need to deliver the whole package at a price customers – plus politicians and the national press – consider "fair". This is no walk in the park, especially with politicians' unflinching attention to cost of living issues as the 2015 general elec- tion nears, and public sentiment towards the energy sector at an all-time low. Ofgem's response to these challenges is RIIO (revenue=incentives+innovation+out- puts), a new model for setting network price controls, designed to cater for today's energy challenges (see box p11, RIIO in brief). Utility Week and Tata Consultancy Ser- vices set out to gauge how energy network companies view, are responding to, and pre- paring for the unprecedented challenges of the next few decades. We quizzed networks about both the regulatory changes introduced by RIIO and about the wider policies and trends that will require them to adapt and respond. A summary of the findings of this research is set out in this article. The full report can be downloaded at: http://bit.ly/1njeIRr Challenges to 2023 Utility Week and Tata Consultancy Services kicked off the research by asking energy networks about how they view the big ticket challenges ahead of them in the coming decade. Utility Week research 8 | 17th - 23rd OctOber 2014 | UtILItY WeeK 1. RIIO Although built on the previous RPI-X regime, RIIO poses new challenges and demands new ways of working. These are many and varied and come on top of the more familiar regulatory pres- sure requiring improved service and more efficient investment at a lower cost for the customer. Networks rated how challenging a num- ber of aspects of RIIO were, on a scale of 1 (not at all challenging) to 5 (extremely challenging). The complexity of RIIO's payback mecha- nism was considered the most challenging aspect of the new regime, with 67 per cent of respondents rating it 4 or 5 out of 5. The second most challenging aspect was considered to be the increase in regulatory reporting RIIO requires: 58 per cent gave this a 4 or 5 out of 5 rating. Half of all respond- ents, perhaps wisely, also felt challenged by the prospect of realising the pledges they made in their business plans on charges and benefits. Liam Lidstone, strategy manager at RIIO & network transformation Research from Utility Week and Tata Consultancy Services shows energy networks have got RIIO's message on customer centricity but need to wake up to other challenges. RIIO's cOmplexIty and RepORtIng Is cReatIng challenges In partnership with TCS On a scale of 1 to 5, how challenging are each of the following elements of RIIO for your business? Funding debt and equity vehicle proportions against fast and slow cash due to complexities in pay back mechanism, ie R=IIO Increase in regulatory reporting Realising the benefits and system charges pledged to Ofgem in business planning reports Change in incentive and penalty mechanism for standard of performance (for reliability quality connections and customer) Passing over the benefits of smart and low carbon to customers Change in Innovation Incentive Funding mechanism 67% 58% 50% 42% 42% 17% Challenging custOmeR centRIcIty Is the pRIORIty fOR cOnnectIOns busInesses 1 not at all challenging 2 3 4 5 extremely challenging What are the highest priorities for your connections business? Improving customer service and overall engagement throughout the connections process Significant IT investments to enhance existing or implement new IT capabilities (such as self-service, work scheduling, etc) Improving contractual and operational arrangements with contractors or service providers for cost- effective and timely delivery of connections Internal organisational changes to simplify and streamline the interdepartmental processes and interactions 1.3 3.2 3.4 3.5 3.7 Average ranking Enhancing the network planning and design capabilities for connecting distributed generation, biomethane, electric vehicles, etc 18% 42% 8% 50% 58% 33% 50% 42% 42% 17% 58% 25% 42% 17% 33% 17% 25% 17% 17% 33% 8% 17% 17% 25% 17% 42% 17% 33% 33% 8% 25% 8% 8% 75% 8% 8% 8% 25% 25% 25% 25% Ranked 1st Ranked 2nd Ranked 3rd Ranked 4th Ranked 5th

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