Our 12 Days of Christmas series is timed to coincide with issue 600 of Energy Spectrum. It commemorates 12 years of our weekly publication, which first debuted in 2005. It offers perspectives from senior industry figures on the past 12 years and discussion on where the energy market could be heading.
Tony Ward has over 20 years’ experience in the sector and is currently Head of Power and Utilities for UK and Ireland at EY. Tony spoke to Cornwall Insight on his role, inequity in the market, the challenges fragmentation has posed and what energy-related policy he’d choose to implement.
Where were you and what were you up to in 2005?
I joined EY’s power and utilities team at the beginning of 2002. For the three years leading up to January 2005, I’d worked exclusively for bank syndicates on the distress in the UK’s power generation sector. What was interesting about 2005 was that, coming off the back of what had felt like three years of extended distress, things were getting back onto a little bit more of an even keel, with value returning to generation. We were beginning to see people judging the market to be in a more stable place after what had been a fraught period.
In the last 12 years, what trend or development in the energy sector has most surprised you?
The main surprise would be the extent of the politicisation of the issues that the industry is trusted to deliver on. Back in 2005, there was significant distress in the generation market but, frankly, everyone just got on with it with little public awareness. The government knew that they could call in the key industry players (Ofgem, NG and the generators and retail businesses) to work out a solution or get things moving. But as we’ve gone through the subsequent 12 years, the industry has been front page news time and time again. It’s become a political football and, despite Ofgem and CMA reviews, the rhetoric hasn’t died down.
I have also found the degree of fragmentation in the industry surprising. We’ve now got a market which is characterised by many different owners and developers of the assets or components of the industry’s structure. The value chain of vertical integration, which still existed in a form in 2005 with one or two exceptions, is now pretty much a thing of the past. The industry is now both broader and deeper, with new aspects such as smart metering, data management services through to embedded generation at scale. At the same time the multiplicity of owners creates new challenges and hand-offs between different parts of the market.
The third development is the extent of the penetration of solar in the UK. I don’t think for a moment, sitting there in January 2005, I would have anticipated us having 12-13GW of ground mounted solar by 2018.
What has most pleased you?
Without a doubt, how the industry in its broader sense has risen to the challenges of climate change, technology and stakeholder activism to maintain a system, whether it’s gas, electricity or water, that is reliable, far lower carbon in the case of energy, and increasingly innovative. Despite all of the challenges, we still have one of the most reliable systems in Europe.
I think it’s testament to the focus of the industry collectively to maintain that through what’s been a really challenging period.
What has most disappointed you?
That there has been a failure of truly disruptive players to enter the market. Even back in 2005, and many times since then, there’s been an expectation that an Amazon or another big retailer is going to come in and shake-up the market, either through technology or a much stronger customer-orientated proposition. Some are seeking to build businesses around more of a service or brand-led model, but it hasn’t come to full fruition yet. Multi-utilities haven’t yet come up at scale alongside traditional players. There are elements of it with some of the newer entrants, but really that’s not moved on in quite the way I might have expected.
The more significant disappointment has been what I sense to be a growing inequity in the market for what ultimately is a basic good. There’s been an emerging trend, with onsite generation, battery storage and demand-side response, that has allowed big, financially capable users to withdraw themselves from the market when prices are high. But as a consequence, those that don’t have the financial capabilities or technical ability to disconnect themselves end up potentially bearing an even greater burden, paying for whole system costs which others are increasingly getting a bit of a free ride on.
Whilst we rightly seek to get value out of new technology, I’m concerned we haven’t really continued to focus on the societal needs of customers, especially on a domestic scale, and how to design a system that is fit (and fair) for the future.
What are you working on currently and how could it affect the industry?
In the last couple of years in particular, my client base has been changing noticeably. There are now more entrepreneurs, more innovative businesses and many more non-traditional entities. My clients are looking more broadly at technology, facilities management, services, electric vehicle infrastructure and capability and the like. I’ve also been part of the team working with government on the thinking through of the techno-economic impact assessment of small modular reactors and their potential role in our low carbon future.
The transactions that our teams have been working on are helping further reshape the industry – from Drax buying Opus, through EpH acquiring Langage and South Humber Bank, to EdF acquiring Imtech and the sales of Utiligroup and ENSEK.
It feels that the businesses or capabilities previously considered to be around the fringes of the market are now at its very heart.
How would you characterise the key energy policy challenges going forwards?
The difficulty of squaring the rhetoric of short-term political perspectives with the market need of longer-term direction. If you want to leave it to markets to decide, leave them to it. What we’ve had is iterative intervention, progressively layering on more policy initiatives, making the interaction between them ever more complex. I don’t think this was ever the intention, but it’s almost an involuntary reflex from government and policy makers.
In my view, policy needs to be forward looking in its intent, and more of an enabling mechanism, rather than retrospective in its justification. Policy makers naturally see a problem in the market and design a response, but often by the time it’s implemented, it probably isn’t fit for purpose anymore.
Technology and innovation is already moving at a faster pace than policy and regulation. But rather than retrospectively adjusting policy to accommodate these changes, it would be better to prepare the ground for them. Ofgem’s regulatory sandbox approach is an encouraging step in this regard.
Another challenge is the ownership and structural fragmentation, including the NGOs that serve the industry. If you want to come into this market, you’ve got to interact with dozens of different bodies. It’s a minefield for small businesses. It really doesn’t make things straightforward. There’s going to come a moment in time for government, if a problem does arise in the market, they’re going to find it really hard to know who to call.
What New Year Resolutions do you feel are needed to make the sector a better place to work in and to better contribute to policy goals?
I think as an industry we should recognise that we ultimately serve (and are paid by) the customer who often has very little option but to take our services. Think of the customer first and last, and reflect on why we do what we do, and the way that we do it. There’s a danger that the industry becomes a bit of a technical or regulatory academic exercise. We don’t step back and ask, is this actually helping us serve the consumer better, because otherwise what’s the point in doing it?
Do you feel the recent government releases (Clean Growth Strategy, Industrial Strategy & Budget) have done enough to support the UK’s low-carbon future? Where could more work have been done?
I think it’s helpful from a policy clarity perspective to have things set out in a strategic approach. However, I think there’s maybe too much reliance on a nudge in the right direction. The approach is often to enable facilitory steps, maybe through putting some money into innovation, R&D, or technology and supply chain support, and then trusting that in the competitive and uncertain energy world, somebody steps up and delivers a major innovative infrastructure project at the end of it. I’m not sure we’re seeing enough decisive decision making, clarity of intent or purpose.
We’ve been here before with the carbon capture and storage competition for example. Great intentions are fine, but it’s all about the execution.
If you could implement an energy-related policy, what would it be and why?
Given the desire to shift behaviours around energy consumption, coupled with the growing penetration of technologies that enable consumers to be more flexible, I think mandatory time-of-use tariffs would be a good thing. Retailers should leverage the investment in smart meters to provide time-of-use tariffs to encourage behavioural change. Whilst acknowledging the need to protect vulnerable customers, this, coupled with a fairer charging basis for the use of the system, would better align and incentivise users and producers alike.
Broadly, I think we need to think very carefully about how you charge equitably for not just energy but also for the access to the system. Especially so given how electric vehicles and storage will reshape demand and power flows across the system.
What do you think the main focus of the 2020 Christmas issue of Energy Spectrum will be? Why?
I can see the uptake of electric vehicles and battery storage is really beginning to have an impact on the system. System stress, volatility, unpredictability and managing power flows will be a growing theme.
How does Energy Spectrum help you in your day to day work?
It’s absolutely top quality. It’s impartial, insightful, it helps us test our thinking and keeps us alert to both thinking across the industry but particularly, the drumbeat of what’s happening. There’s so many different bodies, regulatory interventions, and Spectrum helps to keep on top of that every day.