Water & Wastewater Treatment Magazine
Issue link: https://fhpublishing.uberflip.com/i/957171
THE DISRUPTION: BREXIT What's the deal: By this me next year, the UK will be on the verge of leaving the EU following last March's triggering of the Ar cle 50 withdrawal no ce. Brexit places a ques on mark over the UK's con nuing par cipa on in the EU's internal energy market (IEM), the Emissions Trading System and Euratom and has par cular ramifica ons for the development of the all-Ireland single energy market. Prime minister Theresa May said in her Mansion House speech this month that the government aims to protect the single energy market across Ireland and Northern Ireland, explore op ons for the UK's con nued par cipa on in the EU's IEM and maintain a 'close associa on' with Euratom. Why it ma ers: In our survey, Brexit caused most concern among supply-chain respondents (6 out of 10 on average). This is compared to energy genera on and retail respondents, who put it at 5.8 out of 10, water wholesalers and retail, who put it at 5.5 out of 10, and energy networks, who rated it 4.9 out of 10 on the disrup on scale. A key reason why the complexity and far-reaching impacts of Brexit may prove disrup ve for u li es is the amount of government me the issue consumes. The sheer volume of work involved within a limited mescale runs the risk of key technical requirements and impacts on regulatory and market mechanisms being overlooked or brushed aside. Top of the pile of u lity concerns in the Brexit process is the future of its rela onship with the IEM and the way in which the UK's growing interdependence with wider European energy networks will be managed in future. Brexit also looks set to end the UK's membership of Euratom, which currently governs the safeguarding of the UK's nuclear industry as well as cross-border movement of atomic labour and materials. THE DISRUPTION: POLITICAL INFLUENCE AND INTERVENTION What's the deal: A surge in populist poli cs over the past five years has prompted a corresponding rise in poli cal appe te for intervening in u li es markets. The impacts of this urge to intervene on behalf of consumers (and voters) have been most obvious and most heavily trailed in the energy retail market, where they have culminated in the introduc on of price caps to protect vulnerable customers and legisla on for wider price regula on affec ng default standard tariffs. However, in the past 12 months, water companies and energy networks have also begun to feel the effects of poli cal influence on the shape and tone of regulatory frameworks. The imminent PR19 price review has included a crackdown on investor returns, most notably via a reduced weighted average cost of capital. But environment secretary Michael Gove wants to push further forward with such measures and has promised to give Ofwat special powers to enforce a new era of financial responsibility and transparency at water companies. Why it ma ers: In our survey, policy change and uncertainty was rated 6.6 out of 10 on average, in terms of its poten al to disrupt. The energy genera on and retail sectors rated it most poten ally disrup ve, at an average ra ng of 6.9 out of 10. In recent research, available exclusively to U lity Week members, industry chief execu ves were clear they felt that a rising appe te for poli cal interven on in markets is significantly eroding the independence of economic regulators, with a poten ally deleterious effect on investor confidence. This view was most strongly expressed by leaders in the water and energy networks space, where the ire of public- spirited MPs and ministers is being most freshly felt. In the wake of sugges ons that the RIIO mid-point review could re-open revenue se lements, one gas network leader told U lity Week that Ofgem's increasing suscep bility to poli cal pressure to take rapid ac on against perceived market failures runs the risk of damaging the largely posi ve and effec ve regulatory approach established under the framework. Meanwhile, other respondents to the CEO Insight research said their regulatory regimes are no longer fit for purpose because they have become "too poli cised" or "increasingly intrusive, me consuming and lacking in confidence from poli cians and media." Chief execu ves were clear that a rising appe te for poli cal interven on in markets is significantly eroding the independence of economic regulators, with a poten ally deleterious effect on investor confidence P R E S E N T S 30 | APRIL 2018 | WWT | www.wwtonline.co.uk