How do you interpret WPD’s role in supporting a green recovery?
The pandemic briefly resulted in the downscaling of some of WPD’s physical works as we rightly focussed on essential works, including power cut repairs, in the early weeks of the UK lockdown.
As we resume our activities in a controlled and safe way, WPD has a responsibility to show leadership by getting our own major investment projects back up and running. At the same time, we must look to be 100 per cent available for our customers to help facilitate their ambitions to connect innovative energy solutions to the UK’s power grid. All of these customer-driven schemes will in turn of course create more jobs and skills opportunities in the supply chain that are so important to the UK’s wider recovery.
As the largest distribution network operator (DNOs), we have a responsibility to lead and I take this responsibility very seriously. For example, in the last 12 months WPD has spearheaded the UK’s largest roll-out of flexibility services, not just contracts signed, but with services being utilised and dispatched across our regions. As we’ve done this, we’ve created new platforms to improve the dispatching of these services and shared these with other DNOs for the benefit of all UK consumers. We have also looked beyond the industrial and commercial sectors by enabling domestic customers to provide flexibility services for the first time.
While there is uncertainty about the exact pace of change required within the energy sector, we will definitely see greater electrification and growth in electricity use, as we move forwards. The shift towards low-carbon transport and the adoption of electric vehicles is an obvious example of this trend and the clearest policy signal from government you could get. I say to my teams in WPD that whilst speculation continues on a possible change to the current 2040 target for the banning of internal combustion engines for passenger vehicles any change will only ever be in one direction – towards us – and we need to be ready!
For that reason, WPD’s transition to deliver distribution system operations is substantially underway and has many facets. We’ve developed an ambitious electric vehicles strategy, including guides to support the roll-out of charging infrastructure for a wide variety of customer groups. We’re providing detailed one-on-one support to every local authority in our service area to aid the development of bespoke, regional energy plans.
At the same time, WPD is supporting our local communities, ensuring that the transition to a greener, smarter energy future is a fair one that benefits all customers. I have made it a priority that this must include customers in vulnerable situations who may need extra support and protections to ensure the positive impacts are realised.
Is there investment you had planned which could be brought forward to stimulate a green recovery?
Due to the sheer scale of our geographic area, more than half of the UK’s motorway services are located in our region. We already have an exciting innovation project underway at Exeter services to install a low-cost primary substation that will enable high speed mass electric vehicle charging. We have now identified 42 viable locations to replicate these successes in a move that could be highly significant for the UK’s green recovery.
Right now, if you needed to make a 200-mile journey, a lack of fast charging infrastructure on many routes could act as a barrier if you are considering the switch to an electric vehicle. By investing in energy capacity at motorways and on trunk roads, WPD can enable customers to charge up to 80 per cent of their vehicle’s battery in just 20 to 30 minutes. This could have a huge impact on consumer behaviour and confidence – acting as a game changer for the wider electrification of transport across the UK as confidence grows.
To give an idea of the scale here, we are talking about accelerating up to £220 million of investment on the energy network, with an initial £67 million brought forward within the current RIIO-ED1 regulatory period. But we will need the support of the regulator to do so.
One mechanism, amongst others, is to reach agreement with Ofgem to allow us to take these highly anticipatory steps to reinforce the network, making a minor modification to the allocation of costs which will enable a greater portion to be shared across our customer base. This could be a huge step forward in establishing consumer confidence and reassuring drivers that they can undertake longer journeys without the fear of being unable to charge and being left stranded.
There is an increasing focus on energy flexibility as a route to deferring or removing the need for capital expenditure from power networks. Does this run counter to the ‘build, build, build’ route to economic recovery?
There has to be a balance. The provision of energy flexibility as well as capital expenditure to build new capacity both have a vital role to play in decarbonising the UK, especially if we are to successfully deliver the network capability needed at the lowest overall cost to the end customer – which must always be our focus.
Flexibility is great because it unlocks greater certainty in our planning. That’s why I’m so proud that WPD has led the UK’s largest roll-out of flexibility by some distance. It is traditional for network operators to use forecasts to predict likely capacity needs and the points at which capital expenditure will be triggered. In a number of cases where you can procure flexibility, this can effectively buy you time until that anticipated demand emerges and demonstrates the longer-term need for expenditure. This reduces the risk of making significant investments that ultimately may be underutilised. Customers pay for everything we do, so it’s essential that we spend as efficiently as possible.
It is also true that in some cases flexibility will be the enduring, permanent solution. When I look at WPD’s network in some villages and small towns in particular, constraints on the network may only be at select, predictable peak periods. Rather than reinforce the network for these short, infrequent windows of time, we can procure flexibility to spread the load throughout the day more evenly…
Whilst our modelling in the coming years predicts significant peak load growth to accommodate a take-up of electric vehicles and heat pumps, it also shows that this flattens off in later years as vehicle to grid technology, additional flexibility sources and energy efficiency measures become more widespread. The more we can do today to bring forward that capability, the more measured the additional reinforcement needs will be.
You don’t just back one horse though. Anyone who that tells you flexibility is the sole answer is wrong. There will be situations where the significance of the increase in demand will result in reinforcement clearly being the lowest lifetime cost option. For example, if we can get the go ahead to invest to provide the highly anticipated capacity needed for 42 service stations and trunk roads, as mentioned above, that’s a huge amount of ‘build, build, build’.
To be clear, I do not see ‘flexibility’ and ‘build, build, build’ as mutually exclusive. In fact, in terms of the UK’s wider economy the two should go hand-in-hand. What WPD has found from three years of operating flexibility on such a large scale is that customers are currently not building new infrastructure to provide that flexibility but are simply utilising flexibility within their existing operations. If we can give customers longer term certainty of the need for flexibility on WPD’s network where the modelling demonstrates it works, then they may start to build the new flexibility products needed, such as large battery storage, to participate in flexibility markets at a greater scale.
This is a fantastic opportunity, and the next step for this rapidly maturing market. I can’t wait to see network flexibility explicitly driving new, green capital expenditure in this way.
Do you think the emphasis on local and regional routes to green growth will change as the UK looks to emerge from the impacts of the pandemic? How will this impact the way in which WPD interacts with local communities?
I think it’s important to address this question in reverse order. At WPD, we set an incredibly high bar for our stakeholder engagement with communities and local authorities. This must also include MPs who bring valuable local perspectives from their constituents, on topics ranging from network reliability to flexibility, capacity, fuel poverty and the role of transport in local communities. In the last two months, despite the restrictions imposed by the coronavirus pandemic, we’ve set out our stall by engaging with all 130 local authorities in our region to understand and support their net zero aspirations.
The sessions were hosted by our senior managers who run the network in each local region, holding one-on-one dialogues to fully understand their bespoke needs. The conversations were not just about green growth and decarbonisation, but also about the provision of new housing stock, schools and enterprise zones, for example. The important thing for us was to understand their ambitions so we can ensure these are incorporated into our forecasts and that WPD’s upcoming business plan to be submitted to Ofgem is supported by robust data and justifications.
Turning to the first part of the question, local routes to green growth will always be vitally important. But what’s of even greater significance is that network operators, central government and Ofgem all understand what local authorities are trying to achieve.
I desperately want to see an overlay of central government supporting the ambitions of local authorities. Understandably ambition comes at a cost and local authorities often aren’t in a position to fund the local developments to match their aspirations. When it comes to energy, they therefore look to the energy networks to fund schemes through general reinforcement charges shared by all customers, rather than one off connection charges they must fund themselves.
Are there any key policy and/or regulatory levers which you believe should be pulled to enable energy networks to play a full role in the green recovery?
In a nutshell, for me there are three key regulatory decisions needed to provide greater certainty for energy networks:
- Short term charging boundary changes to enable networks to facilitate electric vehicle connections at motorway service stations and local authority charging hub locations.
- Beyond that, longer term charging boundary changes – for specific areas that deliver best decarbonisation and contribution to net zero by 2050.
- Certainty over the role for DNOs in delivering distribution system operations.
When I look at what WPD has achieved across the current RIIO ED1 price control review, I’m proud that we have delivered a Covid response which has resulted in little or no disruption to the excellent service our customers have come to expect. We have also made huge strides towards delivering the transition to become a distribution system operator, over and above our original business plan commitments and allowance. This is a great example of the creative, flexible, innovative delivery that networks are capable of and shows that we deserve to be trusted.
In the current price review, we’ve invested heavily in initiatives to make the transition to a distribution system operator. As part of this, we’re putting brand new systems in place. We’re facilitating new markets for energy services and providing greater transparency and access to our data than would have been possible just three years ago. WPD’s online information hub is a great example of how we are opening up data, providing much greater visibility of assets and unlocking the potential for others to optimise our energy system and deliver on the UK’s net zero ambitions.
WPD has delivered all of those things, achieving hugely positive outcomes for our customers, while Ofgem continues to deliberate and consult on whether DNOs will be allowed to be DSO’s.
To continue on this track – delivering ever better system operations at the same time as supporting more markets for new services to open up – we need more certainty. Whilst I accept this will never be absolute, we have to have better clarity from our regulator going forward.
We cannot ignore the balance of risk/reward and the fact that the more uncertainty that exists then the higher the risk premium. Ofgem talks about regulated businesses being given lots of certainty, which drives some of the lower returns they are going to be allowed to make, but then introduces uncertainties into the equation at the same time.
We’ve watched issues in the gas distribution and energy transmission sector in Ofgem’s draft determinations with interest and the possibility that companies will be required to check back every 12-18 months to seek approval for major investment schemes. This only serves to heighten uncertainty and slow investments, at a time when the duty to deliver a green economic recovery rests firmly with us all.
WPD is up sale. Could this process distract WPD from fulfilling its ambitions to support a green recovery and how will you represent those ambitions to your new investors?
Absolutely not. As the UK’s largest distribution network operator, we deliver industry-leading standards for network reliability, customer service and stakeholder engagement performance. We have a moral duty to continue to deliver these vital services for our customers, including looking to the future and delivering on our social responsibility to deliver a green energy future.
I clearly separate the two issues. Since the announcement of the process to sell WPD, it has been extremely important to me to reiterate to our staff that the top priorities I want them to focus on are their safety at work and continuing to provide excellent service to our customers.
Do you see any risks attached to the desire to accelerate into a green recovery? Do you have any concerns it could lead to sub-optimal investment or a lack of coordination?
We can only build back better if we work collaboratively with others. The role of energy efficiency will be vital, for example. By being ambitious as a sector, we can create new skills and jobs to deliver smarter networks. There are clearly huge upsides to outweigh any perceived risks.
In terms of coordination and collaboration, I feel that we have never worked more closely within the energy industry and the other sectors that interact with us, than we have over the last six months during the pandemic. Therefore, I actually think that the risk of suboptimal investment has never been lower.
WPD is continuing to invest significantly in the network during the current RIIO-ED1 period. In addition, we are now looking to identify areas where we can speed up that investment to help with the green recovery. This doesn’t present sub-optimal investment – these are investment strategies we have already set out; the process is simply being accelerated.
The investments I have discussed around electric vehicles in particular are based on the clearest government policy that we have had in some considerable time, with opposition parties only questioning whether it should be more ambitious, not less. Therefore, investment in that area would never be suboptimal…
In Kwasi Kwarteng, we have an energy minister who is incredibly enthusiastic, engaged and very capable of picking up on the key issues facing the whole sector. As a result, I don’t see an accelerated green recovery as a risk. The UK’s adoption of electric vehicles is certain, driven from the top by the government. If you combine this with a regulator who understands the importance of electricity distribution networks in delivering net zero and backs them to do so, then it can only be a good thing for our customers and our wider stakeholders.
Swift is one of the speakers at Utility Week’s Build Back Better Forum next week.