Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/749133
8 | 11TH - 17TH NOVEMBER 2016 | UTILITY WEEK Interview of storage bid in to the EFR process but just 200MW was contracted. Furthermore, BEIS official Rachel Cooper raised doubts as to whether the EFR agreements will turn out to be profitable for their winners. With an average price of just £9.44 per megawatthour of EFR, Cooper said it appears the winners had bid in "at any cost", desperate to establish a foothold from which they might expand their role in the system. This is all very well for large storage providers which can afford to sign lossleading contracts, but doesn't it disadvantage smaller players? Pettigrew isn't visibly moved. "From the point of view of the SO, what we did was put a tender out. From a cus tomer perspective, it's a good thing, isn't it?" He continues: "I guess we were pleasantly surprised that we were able to get that service at a price which will probably save customers around £200 million against the alternative of having traditional generators do it." On the size the EFR tender and the length of the con tracts – which at four years has also provoked some criti cism from commentators, who point out storage sites will have a lifetime of at least 20 years – Pettigrew is clear that this first tender was a proof of concept. "We were trying to strike the right balance between giving contracts that, for the providers, were actually worthwhile, but not too long that we find three years in that its not meeting the needs – 200MW is a good number to test this." While Grid refines its relationship with largescale storage for system balancing, another dynamic is devel oping with storage at a much smaller, distributed scale. In July, at Utility Week's Energy Summit, Centrica chief executive Iain Conn delivered a warning that mas sive uptake of distributed generation, such as solar PV, combined with domesticscale energy storage, is likely to create "huge complexity in managing the grid system". "It is even possible," he said, "that distributed energy may increase to the point where it will challenge the eco nomics of the central grid and generating system. The grid could eventually become backup, swapping places with the traditional role hitherto assumed by distributed generation." Conn's words have been echoed by others, and sources have told Utility Week that the scope for this "historic shi" has recently prompted industry briefings at Number 10. Pettigrew, however, is doubtful. "The concept that storage and solar, in the short term, are going to reduce the vast majority of the use of the network is not some thing I've talked to Number 10 about because I don't think they would believe it. I certainly don't believe it," he says. "We are seeing significant reduction in the price of storage, but most of the scenarios that I've seen say that, optimistically, you're talking about three, maybe threeandahalf gigawatts by the early 2020s. Against the backdrop of how much generation there will be in the UK, it's not going to change the fact that the vast major ity of the energy will still flow through the networks." Pettigrew does admit, however, that the anticipated growth of energy storage and other decentralised energy technologies will affect the way in which electricity net works are financed in the UK. It is part of the reason he believes that a "fundamental" review of the network charging regime is needed "pretty soon". "We are encouraging Ofgem that this is the direction they should take," says Pettigrew. "A holistic look at charging rather than individual elements" – like embed ded benefits for distributed generators, which Ofgem has said are "distorting investment decisions and leading to inef ficient outcomes in the capacity market". Pettigrew does not refute Ofgem's con cerns here. He says: "I understand the drivers for the embedded benefit review – looking to make sure that it is equita ble in terms of making sure everyone who is using the network in some shape or form is paying their fair share. But I actually think that it would be more useful at some point, pretty soon, to take a more holistic look. Not just at the transmission charge and the distribution charge but at charging for networks generally." Ofgem had intended to issue a plan for amendments to the embedded benefits regime by the end of this year, but Pettigrew says a "rushed" review would be "problem atic" and has the potential to create disaffected "losers". "Anything that moves away from where we are today will mean winners and losers and therefore it needs to be done in a timely and sensible way to take all stakehold ers with you," he advises. Another milestone expected by the end of 2016 is a decision on the preferred bidder for a majority stake in National Grid's gas distribution business. Grid announced in late 2015 that it wanted to sell a controlling share in this arm in order to deliver shareholder benefits. In the wake of the EU referendum, however, with the emergence of a seemingly interventionist approach in national infrastructure deals from government, some have speculated that the sale might be derailed. Indeed, in September this year the GMB union called publicly for the prime minister to "halt" the auction process, which has reportedly attracted interest from Canadian, Austral ian and Chinese investment funds. Pettigrew plays down the likelihood of such an intru sion – though he does not rule it out. "We are very aware of what happened with Hinkley," he says, referring to the lastminute delay the govern ment imposed on EDF while it tinkered with security clauses. "We are aware of the conversation around the Enter prise Act. We'll watch how that develops with interest… [However] from our perspective the obligations on net works are very clearly set out," and Pettigrew is quietly confident that precedent implies foreign ownership of energy networks is something "the government has seen and been comfortable with". As the light fades outside Pettigrew's office windows and our interview wraps up, we return to the subject of his accession and the approach he will take to Grid's top job during such challenging times. When Pettigrew was first appointed, analysts expressed some anxiety about his relatively light executive experience. However, Petti grew is clear that his track record is exactly what makes him confident in his role. "I've seen National Grid continue to evolve and adapt over 25 years and that gives me confidence – it gives the organisation some comfort – that we can take a leading role in today's transformations," he says. "It's a very dif ferent business today than it was 25 years ago and it will be a very different business in 25 years' time. I know the organisation is very capable of making those changes because I have lived through them all." Of course, history doesn't always provide the best answers to unprecedented market disruptions, but that's not about to dent Pettigrew's deeprooted faith in his professional home. "Anything that moves away from where we are today will mean winners and losers and therefore it needs to be done in a timely and sensible way."