Decarbonisation driving change at ENW
Electricity North West is putting decarbonisation at the heart of its plans. Alec Peachey spoke to chief executive Peter Emery about a number of subjects including the company's drive to reduce carbon emissions, regulation, infrastructure - and how they're performing against the backdrop of a strategic review that could lead to a sale of the business.
10th May 2019 by Networks
It’s business as usual. That’s the response I get from Emery when I ask him how challenging it is to run a business that he knows could be sold.
During our conversation the chief executive acknowledges that the company is undergoing a strategic review that could lead to a sale of the business.
Up to now, the distribution network operator has declined to comment on the rumours of a possible £2 billion sale of the company which were reported by sister publication Utility Week in December.
Speaking exclusively to Network Magazine, Emery said: “We are undergoing a strategic review. That is no secret. The challenge for me and my senior team is to manage that process efficiently and professionally whilst at the same time run the business as business as usual.
“What we’ve said is that the strategic review may lead to a sale of the business. At the end of the day we can’t control who buys our business, but what we can do is do the best job we can.”
Electricity North West is jointly owned by infrastructure investment funds managed by JP Morgan Asset Management and Colonial First State.
Emery confirmed that it is business as usual for the company which own, run and maintain the North West’s electricity network, connecting 2.4 million properties and five million people to the National Grid.
He added: “We’ve managed I think to ringfence resource to focus on the strategic review quite effectively without affecting the whole business. Depending on the outcome we will then manage it when we’re dealing with something concrete rather than speculation. I think so far we’ve managed to achieve that relatively well and we’ll see what happens.”
The man with a plan
At the end of March the network operator launched its transformative plan for decarbonising the region.
Entitled; ‘Leading the North West to Zero Carbon’, the plan was presented by Emery (pictured), at Manchester’s Green Summit.
The plan sets out how Electricity North West is investing £63.5 million over the next four years, to drive down its own carbon emissions and help businesses, customers and colleagues to do the same.
ENW will use this fund to drive energy initiatives working in partnership with Manchester City Council, the Greater Manchester Combined Authority and other councils and authorities, as well as the companies who are investing and innovating in this area.
Emery noted: “I think ever since Andy Burnham became Mayor of the Greater Manchester Combined Authority he has got two major agenda items. One is to decarbonise the combined authority and the second is to capitalise on digitisation.
“At the Green Summit last year what was quite interesting was they used the Tyndall Centre, which is part of Manchester University, to develop a science-based background to what objectives the combined authority ought to have for its low carbon target.
“From the first Green Summit in 2018 there was a basic business case for change and some shocking numbers coming out of the Centre about what we need to achieve. In the last 12 months up to the Green Summit this year we’ve started to do a lot of work, particularly at ENW, where we’ve put some embedded resource into the combined authority so we can understand where their thinking is going and what they want to achieve.
“In a way this is almost stakeholder engagement on steroids. Because almost 50 per cent of our entire load for ENW as a whole is in the Greater Manchester Combined Authority area. They are massive stakeholders for us so we need to understand what’s driving them and what their aspirations are. We need to try and respond to those and at times almost be a critical friend and challenge them to do more in some areas and less in others.”
Manchester city region’s bold ambition is to be carbon-neutral by 2038, 12 years’ ahead of the Government’s own target.
Emery says Electricity North West must play its part in helping the region to achieve this target. He continued: “Our role is two-fold. The first is to encourage people in the business community and our communities generally to decarbonise. We’ll make sure that the infrastructure in the north west does not slow down the pace of decarbonisation. Last, but not least, we’ll also put our own house in order. We’ll put in a plan to reduce our own carbon emissions to zero by 2038.”
The decarbonisation of transport will undoubtedly play a part in helping Manchester to realise this goal, but with huge growth predicted in sales of electric vehicles, Emery offers a note of caution.
“I think there’s a broader policy challenge here which we’re already starting to talk to Ofgem about. At the moment we do not invest in infrastructure until it is justified and needed. I think that has served the UK consumer well over the last 20-30 years because in a relatively flat environment with not much growth you can meet customer expectations on that basis and keep the cost down to a minimum.
“The challenge I think we’ve got going forward is if you’ve got dramatic growth in electricity demand. Even the most conservative forecasts look like peak demand could double and electricity load could treble with the switch out of fossil fuels to clean power for EVs and some heat. The pace of change is going to be a lot quicker and if all we do is respond to need at a time it’s required, we won’t be able to keep up. How do square the circle? You need to invest before the need crystalizes. That’s quite a change in approach, but it’s the only way we think you can keep up with demand and not slow the decarbonisation process down.”
Emery also talked about the importance of the second set of RIIO price controls, due to begin in 2023 for electricity distribution.
The regulator confirmed plans in July to lower the cost of equity range – the baseline rate of return which it considers necessary and sufficient to attract investment – from between six and seven per cent currently to between three and five per cent – the lowest level ever proposed for network price controls in Great Britain.
Emery added: “The concern I’ve got is that political pressures and also other lobby group pressures may encourage Ofgem to take a more low cost, low investment approach to RIIO2 than a slightly higher cost investment rich approach that reduces carbon emissions and customer costs in the medium term rather than the short-term. That’s what I’m worried about. We need a bit more vision as to how we’re going to deliver targets like 2038. We need to start acting now. Not just by focusing on reducing costs to the absolute minimum today, because we’ll miss an opportunity.”
Decarbonisation is never far from the surface during my conversation with Emery, who admits that he was surprised by the level of stakeholders who identified it as a key priority during a recent engagement event.
“Up until a few months ago we had a stakeholder engagement model. The information coming back from that was quite interesting. At the start of ED1 most of our customers and stakeholders were concerned about reliability and cost.
“At our major stakeholder engagement meeting that we had last year the priority for over 60 per cent of our stakeholders was to focus on low carbon first.
“That is a dramatic shift. We need to use that stakeholder input wisely in talking to Ofgem to deliver a convincing and comprehensive RIIO2 proposal when it’s time to do our ED2 plan.
“We were surprised at the pace of change. It almost within a 12-month period seemed to switch. I think the 60 per cent will move further, but it was the pace of that change that caught us by surprise. So much so that if we think of our basic commitments in RIIO ED1, there are some environmental commitments in there, but I wouldn’t say that it’s the centrepiece of the plan. I think for RIIO2 the decarbonisation agenda needs to be at the centrepiece of our plan.”
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