Regional growth and utilities
Following the UK election result, our New Deal for Utilties series for 2020 will examine the debate about what a fairer contract for the regions, including the North, could mean for energy and water companies. We speak to leaders from throughout the sector and the supply chain, politicians, business groups, academics and industry watchers to hear their views about the economic changes and opportunities ahead. In our launch report this week, Suzanne Heneghan explores some of the key themes arising from the prime minister’s ambition to “unify the UK” and “level up” the nation’s economy, both for the sector and the communities it serves.
It was an election issue that rocked Westminster and sent Labour’s historic “red wall” tumbling. But how might the new UK government’s campaign pledges about regional growth and devolution impact utilities?
Are utilities part of the big plan?
The shockwaves of Election 2019’s historic Conservative landslide victory may have finally subsided, but its consequences are only just sinking in, and not least for utilities.
While the spectre of public ownership has retreated, the industry’s attention remains trained on what the new government’s policy plans will finally look like – including what its vote-winning philosophy shift on regional growth and devolution might mean for energy and water companies. Could such regionalism be the sector’s opportunity to address the consumer sentiment that lay behind support for renationalisation and be a new way for utilities to build local legitimacy?
As the growing disparity in productivity and prosperity between the South East and the rest of the UK became a major political football on the campaign trail (with the North of England proving a definitive battleground) a raft of assurances about a better deal on regional funding, critical infrastructure, and governance were made – and noted.
There is now huge pressure on the new administration to deliver, with all eyes on the forthcoming Budget, the National Infrastructure Strategy and expected white papers on devolution and energy.
Utilities across the UK already know the regions will be vital to Britain’s future prosperity due to the country’s planned, decentralised journey towards net zero by 2050. And they and their customers will be slap bang at the heart of that regional, clean growth revolution.
The sector has been busy developing key projects in various pockets of the country for several years, from creating areas that now boast a thriving, world-leading renewables economy and growing skills base, to overseeing cutting-edge regional trials and pilot schemes forged via strong public-private sector working partnerships.
And it’s the reason why several key industry players have been supporting the work of regional bodies, such as the Northern Powerhouse Partnership, in bringing together a range of stakeholders to foster collaboration, attract investment and help accelerate local economies.
As these regional bodies prepare, as promised, to hold the government to account on its (literally) far-reaching manifesto pledges, utilities know they will ultimately be playing a key role in the future vision. Enabling e-mobility infrastructure, clean energy and water resources, and generating the power to service the growing smart cities and regional hubs being talked about, will all require huge coordination and input from the industry.
But how imminent a call on utilities’ resources and business planning is the rising regional growth narrative likely to be? Do they already feel prepared for such policy opportunities and challenges ahead? And what further political or regulatory support might they need?
Utilities have long believed themselves to be truly regional companies. Does the rising noise about regional growth provide them with the perfect opportunity to prove it?
Is Boris a new Hezza?
Within hours of winning an 80-seat majority for his party – many in Labour’s traditional heartlands – prime minister Boris Johnson was in front of the cameras thanking voters in the north of England for “breaking the voting habits of generations”.
The man who just three months earlier had dubbed himself “Brexity Hezza”, appeared to have already convinced some voters he could deliver on the latter part of that nickname – a reference to former Tory wet Michael Heseltine, largely credited for bringing about the regeneration of Liverpool when Minister for Merseyside in the 1980s.
Pressure is now firmly on Johnson from those who put their faith in his promises to the regions – notably, to inject more investment into road and rail links and to “level up” the UK economy.
Reportedly, the Treasury is already now rewriting the rule book on public spending to boost growth in areas such as the North and the Midlands. It’s claimed existing government project investment criteria currently favours already prosperous areas.
In their manifesto, the Conservatives vowed “to unite and level up, spreading opportunity across the whole United Kingdom”. “We lead the world in 21st-century technologies, from batteries to bioscience… There are parts of this country that are more productive and more innovative than anywhere else in Europe. And yet there are parts of the country that feel left behind.
“Talent and genius are uniformly distributed throughout the country. Opportunity is not. Now is the time to close that gap.”
Achieving comparable levels of UK growth will require a concerted effort by all key players within the regions, including utilities.
Now Brexity Hezza’s victory laps have subsided, those stakeholders will be watching to see what happens next.
The North is primed and ready
As CEO of one of the country’s biggest regional energy networks, and chair of the sector’s trade body, what does Northern Powergrid’s Phil Jones make of the noises coming out of Westminster about a new era of economic change for the regions? Where do utilities fit into the big picture, and how useful could it all prove for reaching net zero? Suzanne Heneghan reports.
A renowned proponent of regional growth, it’s unsurprising to hear that Northern Powergrid chief executive Phil Jones has been following the emerging political narrative with acute interest.
Yet, from the off, he is keen to clarify his own personal position on empowerment of the regions, and the potential impact of any regional agenda on the country’s local utilities.
“I have never seen the issue through a sort of ‘utility lens’,” he explains, “though obviously you don’t have to talk about it too long before you get to that.
“But first and foremost, I see it as welcome news for anyone who’s a British citizen. This is good. This is about keeping the country together long term. It’s much more around the wider economy – although clearly that at some point picks up infrastructure.”
And if anything, says Jones, taking the North as an example, it’s quite possible that what might come out of this whole discussion is that one area of national infrastructure that doesn’t demonstrate a regional disparity is the power networks.
“I don’t think I’ve ever heard someone say, ‘the trouble is the North’s under¬invested in its power system. At least, there’s nothing to say we’re not keeping pace with everybody else.
“If we did have a hopeless energy structure in the North, that would be a massive hold-back on the potential of the region to grow. But that isn’t the case. If anything, [we’re] probably better placed.”
With networks, effectively then, great regional equalisers and consistent performers, it sounds like Jones views them as existing solid foundations, already prepared to facilitate any new future growth.
It’s certainly a concept that would do no harm for their legitimacy – as trusted, reliable providers for the transitioning local communities they serve. And especially now the nationalisation debate has been silenced by the election result.
“I think all the evidence is that, if anything, the energy networks are in pretty good shape. They’ve been well invested in. Which takes us to the argument we were running before the election: the private era has delivered in spades on investment.”
Jones is keen to reiterate that, while he welcomes the current regional policy debate, it is not just because it could be “a gateway to depositing more money into the regional power networks”. Although, he quickly counters, if more money was deemed necessary to boost infrastructure activity, and was on offer, he would obviously not say no to it – particularly with the net zero challenges ahead.
“Where there is a need for some form of economic stimulus in these areas to catalyse growth then, yes, low-carbon infrastructure, energy infrastructure, smart cities, are a fantastic way of doing it. Because we are going to have to do that anyway [for net zero]. It’s got to happen.”
It seems, then, an argument that could play either way, though what is unequivocal, says Jones, is the need to address other regional growth issues such as education outcomes, transport infrastructure, regional power bases and devolution. “Those ingredients that across the world are correlated pretty strongly with prosperous regional economies. There’s clearly – to quote the prime minister and the government – some ‘levelling up’ needed. And there has been for ages.”
Jones on: Regional sustainability
On the issue of ‘levelling up’ the North – and despite most debate so far having been largely transport-oriented – surely such a huge economic rebalancing project would ultimately put a greater call on the operations of critical regional utility giants, such as Northern Powergrid, I ask.
“That’s a sustainability issue, and rightly so,” says Jones. “It’s a net zero issue – and you’d have that whether or not you cared about regional disparity. Even if all the regions were neck and neck in terms of GDP per head, you’d still have all the same conversations to go through, such as ‘What kind of energy do we need?’ And, ‘What kind of smart city do we need?’.”
“But if that [sustainability issue] is seen as a potential to stimulate the other [regional growth], then fair enough. If the idea is that we have got to create some economic activity of a sensible good nature, then here is where you could see a tilt towards energy infrastructure… in the regional growth context. I think we can be a vehicle for that.”
Jones on: Regional fairness
A proud Yorkshireman, Jones has long been putting forward the case for regional growth, though he’s quick to point out that he has not been the only one.
“There’s lots of us. I think it’s for anyone who believes in our region. Everyone who loves the region ought to see the same thing – whether they are in my game or not. And you’ve just seen a Conservative government get swept to power in areas that it never dreamt it would have MPs, on exactly this point.
“The election has now revealed it as an issue: the challenge of what you do in a post-industrial western economy. It’s a challenge all over the world. And we’ve had it facing us as a huge domestic policy, I think, for a number of years.”
Jones on: Regional collaboration
Jones is a strong voice within the northern business community, as a member of Business North – an independent leaders’ network focused on issues of economic growth. He has also been active in the Northern Powerhouse debate, although Northern Powergrid is not a subscribing member of the Northern Powerhouse Partnership.
(That body was set up to represent business and civic leaders across the North, and is chaired by former chancellor George Osborne, a key proponent of the powerhouse vision which he first outlined in 2014.)
Yet Jones shares his input with the high-profile forum because he believes it important regional issues are “addressed in concert”.
“It’s a piece of very complicated orchestration that’s needed,” he says, including for example working together on education and skills, along with local transport to allow people access to within an hour of a labour market. If you can get more people who can continue to live normal lives and get to and from work, you create a concentration, and you have a much greater chance of a virtuous circle of skills, wages rising and productivity increasing.
“That is where infrastructure plays its part. And I would highlight from an energy point of view that there is not a deficit today relative to other parts of the country. But there is a deficit relative to the long-term ambition.”
This ambition, explains Jones, might take the form of agreeing to focus on one area of local skills and production, such as making batteries for EVs. “There might be loads of investment there, we might be excellent at it. We already are as good as anyone. So, you might think, why not make that one of the areas that we concentrate on?”
But does the network boss fear the huge level of cooperation needed to tie up the many moving parts involved in such large regional visions could prove an obstacle?
“Yes, it could. As I say, it will need a lot of orchestration. But at the end of the day you’ve got to decide whether you believe in markets and free enterprise, or whether you think you can centrally plan something. And I’m not in the central planning club.”
Jones on: Regional investment
Regarding these long-term ambitions, will utilities require more support, I ask, to help their regions realise them? And what precisely would they need? “Well you need a regulatory deal that encourages it, that incentivises it,” says Jones. “The usual story.”
But surely regional growth could be grist to your mill on this?
“To a point. But without sounding like we’re banging the same old drum, there comes a point where they’ve got to be willing to make the investment attractive. In all forms, both in terms of the returns and the level of confidence that investors can have.
“And I bang the drum again because I don’t think we can just ignore it. And the past three or four years have not been our proudest as an economy and a nation for attracting long-term investment.
“But we’ve taken a massive step in the right direction I think, on that subject [renationalisation] by a very big public vote in favour of saying, ‘look, we’re not doing all that stuff’.”
Jones on: Regional moment
My phone call with Jones is almost over, but I can’t end without asking if the current collapse of the nationalisation debate feels like the perfect opportunity for networks – and utilities in general – to shout more about their credentials as true champions of their regions.
“It’s one of the [country’s] best kept secrets. Energy networks are outstanding operating companies with investors that have proved over a 20 to 30-year period that they are prepared to step up and make significant investments, and hugely improve service levels and reliability.
“I think that in every region there’s a great energy network company. And there are some excellent companies that need to come together – across local government, devolved government, and the business sector.
“Networks are well placed to be part of this wider coalition that needs to emerge in each of the regions.”
Phil Jones will be speaking at the Utility Week Investor Summit on 5 March. More details here https://event.utilityweek.co.uk/investor/
We need local heroes
If utilities are to make the most of the new horizons offered by the government’s policy shift towards boosting the regions, they must forge even deeper regional partnerships, Jonathan Werran, CEO of Localis, tells Suzanne Heneghan.
Preparation, they say, is everything, and that means teaming up with others to crack the challenges posed by huge beasts like regional growth and net zero.
Jonathan Werran, chief executive of the independent neo-localism thinktank Localis, is a big advocate of regional players working together, including utilities. And he has seen many strong examples of partnerships in action around the country.
Yet despite the obvious opportunities offered by the clean, regional growth agenda, he notes a worrying lack of preparation by the organisations involved. And planning time is running out.
“How many action plans are there? How many combined authorities, city regions, big non-met areas, are doing strong preparation work to see how energy networks, water networks can help fulfil this?
“I can’t think of many. It’s a great lacuna in preparing for 2050. There really is only a very limited window, maybe four or five years maximum, to get all the planning down.”
On the plus side, Werran sees the Conservatives’ plans for clean growth as a jobs generator and regional growth generator. Although “a lot of thought needs to go in the middle”, he says “the exciting challenge is how well our growth bodies – your Northern Powerhouse, your Midlands Engine, and combined authorities – can rise to it. And I’m very sure they can if they get their thinking and their systems alignment right.”
On the recurring theme of cross-collaboration, he believes it is vital local organisations, including utilities, are properly prepared. “There needs to be far more cross-collaboration between different parts of the public sector – essentially local government and regional bodies – and industry. There’s also going to have to be a lot of overlapping boundaries issues too.
Werran is calling for “bigger partnerships, as you are seeing in parts of the South East. It’s not something that can be done by a single body”.
With the lion’s share of attention on the North, is this where we’re likely to see the most momentum, I ask, or could regional growth impact utilities all over the country?
“It’s something that’s going to have to involve all four corners of the land, their regional bodies and utilities. Sajid Javid’s got his £100 billion cheque for infrastructure and he’s going to direct it more at the Midlands and the North for reasons of rebalancing the economy, as well as political reasons.
“But it’s still got to work for all four quarters, including for example the coastal and rural communities which don’t have the benefits of agglomeration you get in cities.”
With regional partnerships like the Northern Powerhouse seemingly bywords for encouraging successful local growth, does that suggest utilities should become more closely involved with them?
“The die’s been cast as far as that is concerned. The government will be investing a lot of time and effort in the regional growth bodies. And on top of that you’ve got the English Devolution White Paper coming out soon, as mentioned in the Queen’s Speech. So, there will be more regional groupings, perhaps more with a lower-case r, than not.”
There will be an impact on local government structure, with potentially more powerful mayoral leaders. All this is likely to play very strongly into the agendas of regional partnerships, which Werran believes have “won the battle of optimism over cynicism” because they’ve become “something that industry, government, and finance can push behind. There’s a sense of belief”.
But have they really been successful? “What I can say is that it’s not enough just to bring people around the table. Creating unity is harder than people give it credit for. They have created a strong sense of many in body but one in mind. There seems to be a shared vision that I think bodes well in propelling the vision forward over the next decade.”
Of course, the extent of regional growth will vary, even within nearby areas. Manchester has been criticised by some for steaming ahead over its northern neighbours, essentially creating the need for more inter-region levelling up. Should it be reined in, I ask?
“Manchester got where it is because of two decades’ worth of painstaking intelligent consensus-building, getting the relations right with central government, and tracking unity with the constituent individual boroughs that made up Greater Manchester. I think it would be cutting off your nose to spite your face to retard Greater Manchester over progress in this regard.
“If the point is to give everyone who agrees to a mayoral model the opportunity to scale up, to enjoy genuine devolution as opposed to tokenistic decentralisation over minor trifling things, then Manchester needs to keep flying the flag. It needs to be supported to be strong.”
So what should utilities’ priorities now be, in terms of embracing the regional growth agenda, I ask Werran?
“Continue to further your links with the regional pro-growth bodies, the combined authorities. Work together in partnership as a broad industry front so that things align well when lobbying central government.
“But before you start, fill out the envelope on what you can already do locally before asking for any more powers.”
Are we now looking at a golden opportunity for utilities and their ability to attract the investment they are going to need for net zero? “I don’t think in many people’s working lifetimes there will be such a full sail from the political and economic winds to make this happen.
“It’s probably wrong to pin all hopes on a government, or regional policy, but I think that after three years of Brexit water torture, there’s a strong sense of direction. Wisely navigating those streams and rapids should be in everyone’s interests.”
Regional growth is not going to happen overnight, though, successful or otherwise.
“My view is that it will be a decade-long process, at least,” says Werran, who also thinks that although things won’t have been completed and topped off – “there will be a sense of aspiration that money is coming through to make life better”.
“Better skills, new ways of government, of financing things, and getting communities more invested in infrastructure. There will be much need to provide social infrastructure in parallel with the economic infrastructure being laid under the ground.”