Utility Week

Utility Week 5th June 2015

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22 | 5TH - 11TH JUNE 2015 | UTILITY WEEK Roundtable The Utility Death Spiral: Fact or Fiction? 12 May 2015 Finance & Investment Innovate to avoid the death spiral Networks must define future delivery systems E lectricity network operators were urged to embrace new technologies and adapt to an uncertain future at a round- table discussion hosted by Utility Week in partnership with Accenture. Attendees said electricity networks have significant responsibility to decide whether the utility "death spiral" will become a real- ity. It is their role, they said, to define the energy delivery system of the future. While few felt that a death spiral of con- sumer migration off grid and increasing technical weakness in unbalanced electric- ity networks would inevitably lead to the demise of traditional utilities, it was agreed that radical transformation lies ahead and that defensive action or denial of this will lead to diminished revenues and value potential for networks and suppliers alike. Changes to the networks are "happen- ing now and will continue to happen", said Ofgem associate partner in smarter grids and governance Andrew Burgess. "And it's not clear exactly which direction things will go in. They've got to change their businesses, but without a definite sense of how they might change." Simon Harrison, Mott MacDonald's group strategic development manager, emphasised the need for a system architect to offer a "for- ward-looking, whole systems view". Such a body should develop protocols to encourage the entire energy system to work together "from the highest voltage on the network to beyond the meter into the consumers' prem- ises", said Harrison. Advice from Electricite Reseau Distribu- tion France (ERDF), a subsidiary of EDF that manages 95 per cent of the electricity distri- bution network in France, echoed this view, saying that a centralised system is needed to manage a decentralised world. All the attendees agreed that the spectre of regulation hangs over the ability of net- works to innovate effectively for decentral- ised energy systems. There was a call for Ofgem to ensure current regulation does not get in the way of change and, looking to the future, to find new ways to drive innovation. Burgess suggested this would be a chal- lenge given that today's regime was "estab- Speaker quotes lished for a world that existed 10 or 20 years ago, but might not be fit for purpose in the future". Meanwhile others around the table were more forthright, censuring the current style of regulation as stifling, and declaring that networks are told to think differently, but "not too differently". It was pointed out that regulation should follow innovation. In most markets, innova- tion is led by commercial organisations that see an opportunity and take it, and the regu- lation comes later to make sure consumers get the overall benefit. The separation between suppliers and networks means the environment for inno- vation in the UK is "especially challenging", Harrison said. And although the distribution systems operator model should help, paral- lel drivers such as city-level strategies for energy and smart cities mean utilities will have to completely transform the way they operate. "We're only just beginning to see the potential impact of that," Harrison said. Having a different relationship with cus- tomers was flagged up as a way to address the challenges facing the network compa- nies, and to avoid the prospect of the death spiral scenario. Currently ingrained in the energy indus- try is a situation in which the supplier has the customer relationship and the network sits in the background. However, to adapt to the future, networks must start to have direct relationships with their customers – relationships that prevent them becoming low-value peripheries to independent energy communities. The conversation came full circle as del- egates reiterated the need to think about the entirety of a system that was designed on the assumption that the world would never change. The reality of a radically (and rapidly) changing world has resulted in the need to revisit the fundamentals of what is needed to keep the lights on. Utility Week editor Ellen Bennett wrapped up the discussion by asking the question: "What is the catalyst for change? Is it game-changing technology, is it the policy objectives, or is it what customers want or don't want?" "There's a huge uncertainty of what happens with pos- sible new entrants in electricity or energy supply. It's easy to imagine suppliers managing a home en- ergy system via a cus- tomer's internet con- nection, so the smart meter just ends up watching the match, not refereeing it. The network company won't know what's go- ing on and may have to over-invest." Simon Harrison group strategic development manager, Mott MacDonald "As a net- work com- pany you have a huge range of challenges and, to address a lot of those challenges we need to have a different relationship with our customer base. What we hear a lot of the time is that we need to be careful that there aren't any brakes on supplier- led innovation. Why does innovation need to be supplier-led? Particularly market innovation." Paul Bircham regulation director, Electricity North West

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