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8 | 22ND - 28TH MAY 2015 | UTILITY WEEK Interview that when a DNO or IDNO puts pipes and cables into a developer's land "there are certain environmental indemnities that are required". McClymont says: "What we find with DNOs, up and down the country, is that if they are dealing with the customer they will take on some of these risks themselves. But in situations where an independent has won that job, we see them passing on indemnities to the independent in full – they don't take on any of the risk." In situations like this, because Energetics cannot back-end the risk and cost to the customer, they gener- ally end up losing that connection. "And the customer ends up going back to the DNO," explains McClaymont. When a DNO acts in this way, McClymont asserts that they are "using their monopoly power to effectively de- risk a project". "We take the view that within a commercial market- place, there is a degree of risk that everyone has to take. If you use your monopoly power to effectively eliminate risk and pass it on to somebody else, that is an abuse of your power." McClymont acknowledges that the SSE case may be different – "it may be some other abuse of their position which is not a breach of license" – but asked if we can expect to see other DNOs come under the same kind of scrutiny he replies: "My view is yes. It is becoming an issue as the marketplace starts to recover and house- building programmes start to accelerate." This uptick in construction activity is something Energetics has waited patiently for since the early days of the world economic crisis stunned developers of both residential and commercial sites. It marks the start of an aggressive campaign to gain market share, especially in the Midlands and southern England, regions where Ener- getics is less well known. Success in this ambition would build on solid growth at Energetics since McClymont joined in 2006. Back then, it was a regional connections company employing about 50 people with a turnover of about £5 million. Nine years on, 350 people work across the group – consisting of three main business units – and this year the firm is set to turn over £50 million. A turning point for the business came in 2013 when Energetics saw a 300 per cent year-on-year increase in the value of new contract awards and a revenue increase of 20.6 per cent. 2013 was also the year that Energetics was able to attract investment from Macquarie Group, a global investment bank that also holds a 26 per cent stake in Thames Water. "It makes a world of a difference knowing that you have secure investment behind you," says McClymont. "Things are much better now that they were before." Today, the main challenge still standing in the way of Energetics' growth ambitions is access to resources – experienced system designers, engineers and skilled craspeople. Investment security has brought new capability to tackle this risk by growing apprenticeships and train- ing programmes. But there's also acute awareness of the need to retain existing talent – particularly the chartered engineers that are so essential to the complex require- ments of Energetics' commercial and industrial projects such as Media City in Manchester. McClymont hopes that his gesture of commitment to all staff in the dark days of the recession, not to make any redundancies, will now bring returns in loyalty. From a technical point of view, the chang- ing dynamics of energy generation and con- sumption also pose quandaries for IDNOs, just as they do to their larger regulated cous- ins. "Most of our challenges come with the microgeneration space – we are seeing a lot more of that," says McClymont. "Now that gives us a bit of an issue, because when we design our networks, we design them taking in a degree of diversity so we don't over-engineer the network." Significant growth in microgeneration could blow that strategy out of the water because, he explains, "if every house on a development has a 5kW photovol- taic array on the roof, at the peak of the summer, when they're all out working and the kids are at school so they're not using anything, they are all pumping in 5kW to the network." While McClymont is up for the technical challenge of accommodating this multiplied and multi-vector loading, he wryly observes that "the irony here is, that in terms of cutting carbon and being environmentally friendly, we're actually putting more copper and aluminium into the ground" to accommodate micro-generation. And there's another key disincentive for enthusi- asm about the brave new world of decentralised energy generation. "Perhaps most importantly, at the moment, we don't earn any revenue when people use our net- work for generating back up. We only earn revenue going one way. "Feed-in tariffs reward the generator, which is under- standable because we want to incentivise people," McClymont continues. "But I think the regulatory model has to be challenged by the network operators, particu- larly the independents, because we are right at the sharp end of that. "We need the opportunity to earn some sort of rev- enue if we are responsible for operating, maintaining, repairing and replacing a network that is capable not only of carrying electricity to the customer but also capable of carrying energy from microgeneration back upstream again." "We don't earn any revenue when people use our network for generating back up. We only earn revenue going one way" Is RIIO fit for purpose? Utility Week met Bill McClymont following the release of a new Citizens Advice report which said monopoly networks are raking in unnecessarily high returns while failing to create customer value. Many Happy Returns? alleged that the RIIO price regime is partly to blame for this, arguing that rewarding companies for standing still and offer- ing an overly generous level of Wacc (weighted average cost of capital). What does Bill McClymont think about these arguments? "When you look at the number of metrics the regulator uses when calculat- ing the revenue that's allowable over what's now an eight-year price review – the CA report concentrated mainly on one aspect of those, the cost of capital and how subjective that figure is. "But when you look at the whole price review, there are a number of things that come into play including capital allowances, work programmes that they need capital to spend against. There's an awful lot that goes into the pot in order for the regulator to establish what is that static asset base, what are their costs, what sort of capital allowances have they been given, and what efficiency are we looking to drive." That said, McClymont believes it is "fair" to say the networks have been rewarded for standing still under RIIO. "If we just take the data as read, some of the returns that have been made exceed the expected return of the regulator. If I was being naive I would say the companies must have been super-efficient and put in a lot of initiatives to drive those figures, but the reality is that they are probably not."