New kid on the block: an interview with Peter Emery
Peter Emery, chief executive of Electricity North West, talks to Network about industry innovation structures and DNO reward.
7th September 2016 by Networks
Regulation and innovation are not easy bedfellows. One is synonymous with control, caution and intervention. The other conjures thoughts of risk-takers and rule-breakers, dreamers and entrepreneurs.
The challenge being laid before the UK’s regulated energy networks, with their regional monopolies and risk-averse investors, to innovate more and more ambitiously is therefore far from straightforward.
“One of the challenges for me, and I’m sure it will be a question our shareholders ask us often is, how can we bank the cheque for this [innovation work] for Electricity North West?”
In recent years, as the requirement for significant investment and change to the established energy system has become clearer, UK DNOs have moved to embrace new funding streams for innovation.
Projects looking at ways to support the connection of more forms of intermittent renewable generation, predict and prevent faults, find novel ways to get more out of existing assets, and so on, are proliferating.
But despite all this activity, there’s no denying networks – especially at a distribution level – come in for considerable flak from impatient advocates of transformation. They are criticised as slow moving and cautious. Some have even suggested that they, and the regulator, actively obstruct innovations which might lead to significant departures from the market status quo – ideas which might require a serious rethink of DNO business models.
Peter Emery, the recently installed chief executive at Electricity North West (ENW), observes the tussle of market and regulatory forces with interest and – as a newcomer to the world of regulated monopolies – with an objective eye.
He joined ENW from Drax in May this year and before that he worked at oil and gas giant Exxon Mobil.
Preparing for winter
Emergy joined ENW after a tough winter. Read about his lessons learned from Storm Desmond here.
Moving to ENW from these firms, in highly competitive markets, Emery admits he’s “never worked in anything quite like” the networks industry. “It’s very much a hybrid of government and industry in collaboration, but also, industry in competition.”
Despite being the “new kid on the block”, however, Emery has already formed views about how innovation is, and could be, supported within this hybrid environment.
Collaboration and partnership for better innovation
“The good thing about the DNO structure is that we can drive innovation, but we can also enable it for others,” says Emery as he welcomes Network to ENW’s central Manchester offices.
Explaining his thinking, Emery says that current funding structures incentivise DNOs to help private sector entrepreneurs, with ambitious storage solutions or new types of embedded generation, to connect to the network in a way – and at a pace – which would not otherwise be possible.
Thanks to the innovation emphasis in the RIIO regulatory structure, “we can get them on the system quickly” in an environment that “accelerates and de-risks innovation – to an extent” and which is “technology agnostic”.
Once new partners are on the system, “we can work with them to understand what benefits there are for the customer – and whether we can lower our costs in the process”, says Emery.
All that said, however, Emery is also starting to form ideas about how innovation relationships and deployment could be improved – and about how networks could or should be allowed to reap rewards for their innovation activities.
First, Emery is positive about the recent interest shown by Ofgem in the role of third parties in innovation projects and how to endow them with greater influence.
Read on for Emery’s views on partnership and innovation as well as network return on innovation efforts….
Working on the premise that “competition is good” Emery thinks that actions to encourage more collaboration with both small and large technology partners would increase the vision and broaden the knowledge base behind innovation projects.
In short, private sector influence in network innovation, either in collaboration or via “arm’s length” projects, “delivers better results and is more interesting and exciting for our people”.
It also tends to bring in an international perspective and experience which DNOs are unlikely to be able to bring to bear alone, Emery adds.
“I think that government funding is working well and I think it is moving the industry forward quickly and we are very keen participants in that. But there might be other ways to bring more funding to bear and to increase the pace of innovation.”
He points to ENW’s recent experience working with Schneider Electric on a new control system to enable smarter management of its network as an example.
This collaboration is a reflection of ENW’s relatively bold approach to innovation in a DNO context, says Emery. “It shows that this DNO is willing to go it alone,” he states. “Every other DNO uses a GE platform – so we are sticking our necks out here.”
But, more importantly, a close working relationship with Schneider in development and tailoring of the system has given ENW access to a much bigger pool of new ideas and experience.
“Schneider brings a lot to the party because it can leverage learnings from other sectors and regions,” says Emery. The system is due to go live in 2018 and will “help us manage [decentralised] technologies over the next 10-20 years”.
With this positive experience – and a range of other successful collaborative projects – under its belt, Emery says broadening ENW’s innovation partnerships and doing more to forge mutually beneficial links with parallel sectors is a key challenge going forward.
There are opportunities under ENW’s nose in Manchester, for instance, where Emery knows “there’s an awful lot going on to develop new ways of working. Ideas for new networks – private networks – and decentralised power,” as well as electrified transport and novel heat projects.
“It’s one of the challenges I face in this role – how to capitalise on that? How can we take advantage of what is a fairly receptive and fertile environment for change in order to develop our business?”
Which brings us to another area where Emery sees scope for change to industry innovation.
Banking the innovation cheque for ENW
While Emery is pro-collaboration and shared benefits, thoughts about what ENW specifically gets out of its proactive attitude to innovation are beginning to crop up more frequently.
“One of the challenges for me, and I’m sure it will be a question our shareholders ask us often is, how can we bank the cheque for this [innovation work] for Electricity North West?
Read on for Emery’s view on innovation funding and network returns…
“There’s no doubt, we are doing a lot of great work and it’s being shared effectively with industry, but how do we get the real credit for that?”
This seems to indicate that Emery would like to see reforms that allow DNOs to make returns on their innovation investments.
“I think it is something that we need to explore,” he confirms, “because the more successful you are… you want to do more of it. But,” he adds, “I am not a charity.”
Improving customer service
Emery says ENW is “relishing” the current trend towardsmore customer engagement.
As it looks to become more active in its network management it is finding that interfaces with customers – especially at an industrial and commercial level – are becoming more frequent. They also tend to be associated with exciting opportunities for demand-side response and the introduction of new contracts for network operation (rather than with more mundane service issues), and this is inspiring for ENW employees.
That said, and despite its strong performance on network reliability, Emery admits that ENW’s track record on customer satisfaction, as measured by Ofgem, is lacking.
“It’s a weakness. We need to interact with the customer more effectively – ironically, because we are one of the most reliable DNOs. We get less breakdowns and less fault interactions with customers – but that is not a measure of our customer service in as far as it’s measured by the regulator,” Emery observes.
“We get benefit for our reliability through the Cis [customer interruptions] and CMLs [customer minutes lost]… But we need to improve the way we interact with the customer when there is a fault. There’s no doubt about it.”
A couple of developments this year should help. First off, there’s the launch of the three-digit emergency number (105) for power outages. This should make it easier for customers to get in touch with their DNO when power failures occur.
Specific to ENW, another development is the go-live of a new cloud-based customer contact centre capable of delivering customised information to customers about their connection. The platform was initiated in August and can be scaled up and down to deal with variable contact requirements.
Such a move would more than likely mean that funding for innovation would have to come from company cash rather than customer bills. Is that something Emery would be happy to contemplate?
“That’s quite possible,” he agrees. “We are starting to have these conversations internally about what is the best way to fund these things. I think that government funding is working well and I think it is moving the industry forward quickly and we are very keen participants in that. But there might be other ways to bring more funding to bear and to increase the pace of innovation.”
It’s a challenging concept for the DNO community, and Emery says he has no idea whether other network chief executives are thinking in the same vein.
But, he observes, “with my background – you’d expect me to be asking those questions I would think”.
Emery’s not the only one with pro-market inclinations, however. In May, Ofgem’s chief executive, Dermot Nolan, told his audience at an industry exhibition and conference, Utility Week Live, that he would like to see more competition come into the UK energy network landscape.
He even suggested that regional monopolies might have disappeared 20 years hence.
Emery isn’t shaken by this radical suggestion. He shrugs “He [Dermot Nolan] has painted a picture of a scenario.
“That’s fine. I would expect our regulator to be pro-competition and to encourage that kind of thinking.
“In the short term, the current hybrid structure which supports industry-government collaboration as well as competition is helping to de-risk change and is delivering quickly.
“When you begin to imagine the endgame, you can start to think more about where you might go…But directionally, this country tends to like to put things to competition because markets are effective and tend to deliver lowest cost.”
Emery, then, is certainly an open-minded new leader for ENW. With his feet now comfortably under the table, he’s very aware of the looming challenge of winter weather, which did not treat the DNO kindly last year (see “Living Without Electricity). But he’s also set on proactively exploring the opportunities for ENW to become a fully-fledged local system operator.
In the coming months, that will mean full engagement with the Smart Systems call for evidence, shortly due for publication by Ofgem and the Department for Business, Energy and Industrial Strategy, as well as a continuation of internal investigations into “the likely envelope for the distribution system operator”.
It will also mean continued enthusiasm for innovation projects – especially at the interface with industrial and commercial customers who are pushing for the introduction of new contracts for demand side activity.
Returning, then, to those criticisms of DNOs as slow innovators and blockers of change, Emery is philosophical. “Are we innovating fast enough? Probably not – you will always want to go faster. But consider, too, that innovation is not linear – it’s doesn’t always progress at the same pace. You get periods when a lot of things are just getting into place. And then you get times when a lot of innovation and change happens very quickly, all at once.”
Such a phase, Emery implies, may be just around the corner.
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