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UTILITY WEEK | 23rd - 29Th JanUarY 2015 | 21 Finance & Investment T he UK's energy system is historically centralised, but that is changing, driven by users wanting to take greater control of their energy, principally to manage their costs. These local actions – be they invest- ing in decentralised generation, efficiency measures or actively shiing energy demand – are individual deci- sions, hidden from view. However, a new report published by the renamed Association for Decentralised Energy seeks to quantify the cumulative value of all these discrete, individual actions. The results are staggering. The collective impact of all those individual decisions and investments is £37 billion in avoided business energy costs every year since 1980. Our annual gas imports would have been three times what they are today. That is 771 supertankers of avoided gas imports. The UK would also have needed to build 14 additional large power stations and our annual CO2 emissions would be higher by nearly half a billion tonnes. These demand-side investments have made the UK leaner, greener and more secure. It is only by seeing the enormous total value that we can fully understand the case for doing more at the local level. This is not about pitting one system against another. There are no silver bullets. It is about creating a system that can accommodate and value all options. To achieve this, we require a new way of thinking about the UK energy system. Not thinking of a system which dictates to the user, but thinking of one in which the user and producer are in partnership. By exploring all options equally we can find the best way to meet the UK's energy needs by managing both production and demand, and crucially, by cutting waste first. Using the government's own estimates, our report shows there are many more demand-side opportunities. By 2020, we could cut business energy costs by a further £5 billion and save enough power to run the London Underground for 30 years. A competitive, secure and low carbon energy economy is achievable, but only if we explore the options at all scales to help us get there. Tim Rotheray, director of the Association for Decen- tralised Energy Tim Rotheray's blog is available in full at: utilityweek.co.uk/blog "The collective impact of all the individual decisions and investments is £37 billion in avoided business energy costs every year since 1980." Industry view Tim Rotheray "By 2020, we could cut business energy costs by a further £5bn" of shareholder value maximisation. This is (arguably) okay in a truly competitive market where shareholders will ultimately pay the bill if they do not invest for the long term and where customers can boycott a service if they do not like the way it is being run. None of this is true for a monopoly public utility and therein lies the problem. Custom- ers have no choice and the firm cannot be allowed to fail. So is this just the market finding the most efficient funding model? It is certainly a reflection of private investors being afforded less transparency, less accountability, greater flexibility and therefore being able to operate more "efficiently" – unfortunately the last of these terms is used in a purely financial sense – that is, the business is not being run better or making better investment decisions, it is simply organising its finances in a way that makes more money for shareholders. Arguably the actions of the companies in question are nothing other than entirely rational given the rules of the game estab- lished through privatisation. Unfortunately, however, the game was inadvertently rigged, allowing them to generate profit from risks that they were taking on our behalves. Economists have a term that perfectly encapsulates the asymmetry of this situa- tion – moral hazard: a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. Difusing the bomb So how can we avoid the utility bomb? First, we must impose more transpar- ency on these firms. Then, as we have done with banks, we need to think in terms of capitalisation and establish "safe" param- eters within which these firms must be kept. Third, if the government is to effectively act as guarantor, it should be entitled to special rights that go along with this in the form of access to information or even voting rights on the board. In a capitalist world, much is funded by asset-backed borrowing, enabling invest- ment today to be funded by the promise of future income. Most of us buy our homes this way. But what are the limits of this? As homeowners, we do not want to lose our homes and this acts as a check on our behaviour. There is no such check for the private owners of utilities and nothing to dis- suade them from going too far. The result of going too far came to the housing market a few years ago and the world economy is still picking up the pieces. Toby Ashong, head of infrastructure, Boxwood "The analogy with the banking crisis is striking – if you think we need banks too much to let them fail, what do you think about water?" * Given the opportunity to respond, Thames Water said it took issue with this view, and had been investing heavily – £1.4 billion for 2015/16, more than the next two biggest water companies combined. It added that the Thames Tideway Tun- nel should have no bearing on Thames Water's finances because it is being built by a separately operated and regulated company, which is the preference of all stakeholders (government, Ofwat and Thames Water) because of the risk on day-to-day services and to ensure best value for its 15 million customers.