Lawrence Slade has been chief executive of Energy UK, the trade association for the UK energy industry, since July 2015. Energy UK represents more than 80 of the UK’s suppliers and generators of gas and electricity. Lawrence previously led the Energy Retail Association and the Society of Petroleum Engineers.
- Slade on the challenges facing the industry: “It’s quite a confusing time I think for the industry. But, generally speaking, when you talk to people there is optimism, as long as we can get a clear [policy] framework.”
- On phasing out coal: “I think coal has to come off the system. Coal will come off the system. I think, from the government’s point of view, it’s about making sure you do it in a structured fashion.”
- On baseload versus distributed generation: “Do I think that we would need some form of baseload [in 2030]? Yes, I do…But we’re certainly evolving into a market that is looking at more localised, distributed generation, than I think anyone dreamed possible.”
- On headlines warning of blackouts: “Do I think the lights will go out? I’m actually confident that they won’t. I’m confident that the grid and the industry have the tools available to keep those lights on…having a lower capacity margin is not such a worry given how the market is structured, and how grid can use these tools.”
- On electricity storage: “There are great opportunities for storage across various technologies that you will start seeing and playing a much larger part in the market over the next few years, as those technologies are refined.”
- On demand response: “I think most of the time when you’re in a building, you’re in a business that’s doing demand response, you won’t even notice…It’s a great deal for a business if you can do it…[and] ultimately, it’s the best value solution for consumers.”
- On damage to investor confidence: “[Industry needs] a re-statement by government that they are committed to decarbonisation, and committed to a pathway that ultimately will deliver us to our international commitments around 2050.”
- On utility firms’ business models: “We’ve seen examples in recent corporate history of what happens to companies that don’t change…at the moment in the energy sector…you must innovate and you must embrace change if you want to grow.”
- On rising bills: “I think there’s a temptation to say, policy costs have gone up massively, it’s all the fault of what we’re trying to do and green levies, etc, and actually miss the other point which is that we’re all working to actually bring down household consumption by making our houses more efficient, by making white goods more efficient, so we can actually manage this process better.”
- On energy efficiency incentives: “We need something other than low-interest loans, or anything like that. There needs to be some other form of fiscal incentive, be it council tax holidays or stamp duty reductions to encourage householders to make what are often quite high capital investments in their properties.”
- On UK energy infrastructure: “Ultimately, we have to replace our infrastructure. And that’s a message that I don’t think has come through. You know, we’re not just doing this on a whim. We invested £15bn last year and we’ve got to continue that level of investment for a number of years. It’s got to happen.”
- On the steel crisis: “This is a global market and, actually, energy provides effectively a very small part of the overall cost of running a steel mill, compared to what’s happened to global steel prices over the last few months.”
- On investor confidence, post-election: “I don’t think there’s any doubt that investor sentiment has changed. Can it be brought back? Yes, of course it can. But over what time and how quickly is the important part.”
LS: I think, on the one hand, very, very exciting with massive potential new technology coming through in terms of what we can really start doing for consumers and industry. But, on the other hand, incredibly complex, in terms of where are the signals from government in terms of long-term policy bringing forward investment in some of these exciting new projects. So, it’s quite a confusing time I think for the industry. But, generally speaking, when you talk to people there is optimism, as long as we can get a clear framework.
CB: OK, so which countries in Europe would you say are managing that process of change appropriately, and who’s doing it badly?
LS: Well, I think everyone’s struggling to an extent, through slightly different issues, and I think for the UK – and from an Irish perspective, actually – we are slightly different to continental Europe. I mean you see what Germany is going with the Energiewende, and how that has transformed their market. Now, OK, they had the political shutdown of nuclear over the next few years, but you can also see how they’ve really got engaged at a community level in terms of bringing forward local projects and getting local people involved. So, that’s a really good example of what can be done when you involve local communities, and you give planning down to that level. But, at the same time, there are obviously risks associated with that model in terms of how at peak periods for solar and wind, you can see German activity flooding the rest of the continent which has impacts that are yet to be resolved, I think, in terms of how you manage that over a much greater interconnected Europe, and how that flows through. So, I think across Europe there are good and bad examples. But I think we’ve got to work very closely with the European Union, in terms of how we actually get this Energy Union together, and how we see interconnectors working from a continental Europe perspective. But also how they supply into GB, and the UK, and Ireland as a whole.
CB: So, do you think that increasing interconnection capacity to other parts of Europe is important for the UK?
LS: I think, overall, getting extra interconnectivity in place has got to be a good thing, in terms of how we’re managing different intermittent sources of energy and how we’re combining those with current forms of electricity. So, on that point I think it’s good. I think where we have to be careful as GB, though, is to make sure that when we’re looking at greater levels of interconnectivity, and when we’re looking at how the market is developing over the next decade, say, that we look at it from a holistic, whole system point of view. So, I think, generally, interconnection is good and I think it can bring great benefits for consumers. But we’ve got to look at it from the GB perspective, under a lens of also energy security, and making sure that we’re bringing on our own form of generation as well.
CB: If you ruled the world, what would the UK’s electricity system look like in 2030?
LS: If I ruled the world, then I think that we would probably still have some baseload capacity, but I think we would have a much larger role that decentralised energy was playing, and we would have more local grid operation, and much more local community engagement, and a different style of consumption at an individual household level, but also I think we should be, we would be looking at how we’re managing on a community basis, in terms of community heating and other things like that.
CB: OK, so what would be your number one priority to move towards that vision?
LS: I think it’s how you actually digitalise the industry, and how you get really… actually managing our networks in a smart fashion, so we’re actually harnessing the ability of what we’re generating at a local level, how that feeds into a national level, but actually bringing that down to a local point where you’re seeing how you’re using, how you’re consuming, and bringing planning down to that level where it’s needed. But also really look at national infrastructure and have a very, very clear vision for how you’re going to harness electric vehicles, for example, and electric heat, which are two key components which could radically transform, on the one hand, energy demand – well, actually, energy demand just generally.
LS: Well, we’re already seeing coal come off the system now in response to the market conditions, or the actual charges that they incur. We had last February a commitment from the three then party leaders to have coal off the system by 2025 [CB: the pledge did not actually commit to a phase out date]. And that’s, in theory, being talked about to bring back to 2023. I mean I think coal has to come off the system. Coal will come off the system. I think, from the government’s point of view, it’s about making sure you do it in a structured fashion, and I think from the industry’s viewpoint, the more clarity you can have, as to how government senses that these major plants will start coming off the system, then, again, that investment work comes back in terms of that starts giving you the signals to actually say, if we’re getting this lump of plant come off in 2022 or 2023, then I can see when the capacity market starts coming up in T-4 etc. [CB: auctions are held four years in advance of the delivery year, in other words in year T-4] you can start seeing those buying, or investing signals rather, starting to come through.
CB: You mentioned some dates, but I don’t think there’s been a firm commitment to a particular date from the current government. Do you think that that lack of a firm date is a barrier to bringing forward the new investment we need?
LS: I think it’s one element that could be seen as a barrier to coming forward. I think, overall, what the industry, or rather what the investment community needs, is certainty. So, in that respect, yes, is the answer. But it’s not just about coal, it’s about managing the whole system and making sure that as you run the capacity and market out further into the future, that you’re actually being very transparent around how you’re managing it, and how you’re working to evolve it so it includes new technologies as we progress.
CB: You mentioned the capacity market. Do you think as it’s currently set up, do you think it’s fit for purpose?
LS: Well, obviously, there have been some questions raised around the sort-of level of the first auction. I think we need to see what the second level actually brings forward and then we’ll have a much clearer picture. But I think the general sense of Energy UK members is: we’ve got this far, keep it in place, but allow it to be tweaked. But I think a better way of putting it is allow it to evolve over time, so you make sure that you are bringing forward generation. And I think that the key part, or the key measure will be, is it actually going to bring forward the new CCGT [combined cycle gas turbine, the technology used for larger gas-fired power stations] capacity that we need?
CB: In a recent interview Steve Holliday, who’s the boss of the National Grid, talked about the idea of baseload generation being outdated, and I just wondered what your view was on that?
LS: I think if you look in the broader context – again you asked me if I was king of the world in 2030, what would be my vision – I think if you move out into that horizon then you’re seeing a world where the baseload capacity that we’re used to today and previous decades, may not well be there in the same fashion. Do I think that we would need some form of baseload? Yes, I do, because I think the way other areas of our market will evolve you will need these big chunks of capacity. But we’re certainly evolving into a market that is looking at more localised, distributed generation, than I think anyone dreamed possible. Certainly, if you look at the speed of uptake for solar, it’s outstripped any projections. So, I think we are moving into this new world, this exciting world that I referred to earlier, and I think those are the kind of points that people are, that are bringing forward here. You know, on the one hand you could view it: “Oh my god, this is a vast challenge.” On the other: this is actually really exciting and let’s embrace the innovation that we need.
CB: In terms of coming back to capacity markets, the main reason for that has been the so-called “capacity crunch”. Every winter, or every autumn, we see headlines talking about the potential for blackouts. Do you think that’s actually likely, and if not, why do you think we keep seeing those headlines?
LS: I think one reason we keep seeing those headlines is that they make quite good headlines, from the public’s point of view, or from a newspaper sales’ point of view. Do I think the lights will go out? I’m actually confident that they won’t. I’m confident that the grid and the industry have the tools available to keep those lights on. I think the the crucial part will be as we actually transition into the first year of the capacity market, what that delivers. And I think where we, perhaps, as an industry have to do as a better job, is explaining to the public around what we’re doing and how we are transitioning. And, actually, why I sense that…having a lower capacity margin is not such a worry given how the market is structured, and how grid can use these tools. You know we’ve spoken about interconnectors, for example, which obviously have a great part to play in how you manage these peak period where there is the most risks. So, I think again, we’re in a very different market position to where we were a few years ago, and, actually, a very different market position to where we were I think a decade ago when capacity had dropped down to this level before – and the lights didn’t go out then, by the way. So, markets evolve, markets change, and I don’t think we’re in a world where we necessarily need to have this 10, 15, 20% margin, as long as we’ve got the flex in the system, to be able to bring on peaking units as we need.
CB: OK, so do you think it’s helpful to focus on those de-rated capacity margins – the one per cents, 20 per cents, whatever it might be – in a world of a different, more flexible grid?
LS: Not if we’re trying to get the nation and the general public to understand what we’re moving towards. It’s maybe helpful if you’re trying to get investment, but it’s not helpful, I think, if you’re trying to explain the broader picture of what we’re trying to do. Actually, how an individual household’s consumption and supply may change, say, by the time you get to, say, 2025.
CB: You mentioned more flexible markets and grids, so, obviously, you think that’s a good thing. So, how do you think that should be achieved?
LS: I think, again, it comes back to how the industry gets back to, or what long-term guidance or policy frameworks there is to give the correct signals to the industry in terms of where you’re investing, or what you’re doing. Certain technologies and certain levels of innovation will flow through anyway, so I think, for example, that there are great opportunities for storage across various technologies that you will start seeing and playing a much larger part in the market over the next few years, as those technologies are refined. I think, though, there’s also how the local grid networks, the DNOs [distribution network operators, who run local electricity grids] at the moment, how they actually adapt over the next few years into having much more generation on their system, and how they adapt to power going that way as well as that way, if you will, and how that feeds into the national grid structure. So, that’s the area where you will need more policy concentration as opposed to I think bringing in – the technology’s there, but the framework will help bring it to market that much faster.
CB: One of the ways that the grid’s ensuring the lights do stay on next winter is demand response, where they’re contracting with large energy users. That’s often caricatured in the press as…
LS: Closing down the industry for the day [laughs].
CB: Right, so, what’s your view on those systems?
LS: I think most of the time when you’re in a building, you’re in a business that’s doing demand response, you won’t even notice. Someone gave me an example a few years ago of going into a building, and they did a trial for a week where they turned the lighting down a little bit, turned the air conditioning down a degree – or up a degree etc. And did anyone in the building notice? No. But if you’re aggregating several buildings, or several businesses like that, you’re actually taking quite a lot of capacity out of the market at a key point. And, again, it’s where we’re not being strong enough in how we’re communicating that to people, and saying, actually, there’s nothing wrong with this. It’s a great deal for a business if you can do it, and it’s about the country being smart and using technology so that we reduce capacity rather than investing in new plants. Ultimately, it’s the best value solution for consumers.
CB: Amber Rudd is rumoured to be preparing a policy reset speech some time in the next month. What would you like to hear from her?
LS: What we really do need, and there’s a slight risk of the industry sounding a bit like a broken record here, but it is certainty of direction of travel. It’s certainty around where they – how the current LCF [levy control framework, the limit for low-carbon power subsidies set by government] overspend came to be. Let’s see real transparency around the assumptions and the contracts that have gone into the current £1.5bn overspend so industry knows the starting point, if you will. Then let’s look at how that’s going to be set over the coming years. Those provide immediate investment signals around the different technologies that are going to be in the market. Then let’s look at where we’re going around the capacity market. Let’s look at how we’re dealing with the outcomes of Paris and the outcomes of the fifth carbon budget, and then start building up a structure that lasts over a single parliamentary term and actually gives us this direction of travel, this pathway to 2025, 2030 and obviously 2050 in the end game. But I think a real call from us is, this isn’t about the five years of this parliament. I can start thinking about investing in a new CCGT today, but, actually, the cycle from conception to commissioning is about seven years. So, I’m already looking at projects that are going to be falling in the early 2020s. So this is a multi-parliamentary issue, it always has been and will continue to be so at least for the next decade. I’d also like to get back to the situation where we can have cross-party support. Those elements linked together will start rebuilding the confidence that we need.
CB: There already was that long process about setting up electricity market reform, that was supposed to provide that long-term framework. So, what is it you’re actually saying? Do we need another energy white paper?
LS: No, no, sorry. I think it’s the nervousness that’s been caused, post-election, with how they’ve gone about dealing with subsidy cuts and that’s caused a situation in the market where to a certain extent you have seen damage to the covenant between government and industry. You’ve seen damage over the market’s confidence as to the real direction of travel for this government. So I think as part of this, it’s a re-statement by government that they are committed to decarbonisation, and committed to a pathway that ultimately will deliver us to our international commitments around 2050.
CB: You talked earlier about there still being a role for baseload capacity, even out to 2030, say. Do you think that a new-build nuclear programme is part of that?
LS: Yes, I do. I’m quite happy to say that. But I think if you look at Q2 this year, we had 25.3% of our electricity generated by renewables, which is an absolutely incredible figure. I think where I come from is the view that says we’ve got to make sure that however we look at the policy while going forward, we’ve got to take a pragmatic approach, and we let policy evolve. So, as the network becomes smarter, we look at the different technologies that can sit on that network, and provide the energy security that industry and consumers need.
CB: So, how much — going from that 25% — how much renewable energy do you think the grid can cope with?
LS: I simply don’t know the answer to that. I think at the heart of that question, though, is how smart and how quickly we can make our grid respond to that and give you the flexibility that you need. I think that’s at the heart of many conversations that are going on at the moment. But I think the key point that we talk about here is, how you make sure that any policy decisions you take today can evolve, because I’ve got no doubt in my mind that over the next decade, renewable technology will improve and generation technology overall will improve to the point where you will be looking at different capacity and load factors to those that you see today. So, any policy has got to be pragmatic in how it allows that development, and how it encourages that development.
CB: So, you don’t see a fundamental limit to deployment of, say, wind and solar?
LS: I think within the current framework, then there would be fundamental limits. I would like to think, though, that as we develop technologies into the 2020s, you can look at how you’re running that and how you’re measuring that across the entire market.
CB: Last week, the boss of Italian utility Enel said that most utilities would be joining his firm’s shift towards low-carbon over the next 12 months. Do you agree with that?
LS: Yes, I think I probably do, actually. I mean I think we’re seeing moves afoot in that direction across Europe and across the world. I think utilities are looking at how they shape their businesses and how they move forward generally, so I think, I really do think it’s an exciting time to be in the industry in that respect because you are going to see a vast amount of change. From quite small companies, who will be in there as disrupters and the challengers, to how these big companies actually respond to that. So, I would go along with that and I think it’s quite exciting.
CB: How do you think that’s manifesting in the UK? Perhaps it’s difficult to name particular companies, but people see the big six [the UK’s six major energy supply firms] as quite monolithic and unchanging.
LS: …which I would disagree with quite strongly. We’ve seen examples in recent corporate history of what happens to companies that don’t change, and who don’t embrace new technology and who don’t innovate and the mobile phone market being probably the best one ever. So, I think you are faced as a business at the moment in the energy sector as – you must innovate and you must embrace change if you want to grow. So I think, sure, there’s going to be challenging times ahead, but I think a market that you’ve seen move from as you put it, the big six, through to there now being something like 31 different supply businesses in this country, to there being a multitude of different generators. It is changing in front of our eyes. You are seeing all of these businesses look and change how they’re presenting themselves to the consumer, but also looking at how they are generating and where they’re going in the future. So, I’ve got no doubt at all that you will see a very different energy market in 10 years’ time, and there will still be some very familiar names about, but there will also be some new names.
CB: It’s quite common in some parts of the media to point at the struggles of German utility firms, which, perhaps, have faced bigger challenges than in the UK, and for those commentators to then say it’s the fault of the Energiewende and we need to change those green policies. Do you think that’s the right answer to those challenges?
LS: It comes back to the speed of change. Within that, it’s making sure that the country, and the country’s infrastructure, can afford that pace. Now, I think where we’ve maybe gone wrong in the past is we haven’t had a policy in place where we’ve been sharing what we’ve been doing with consumers, who, ultimately, are paying for this. So, where we’ve balanced off the must-have need to decarbonise against the equally important measure of keeping things affordable and/or that we have appropriate support structures in place for individual households or businesses who are suffering as a result of what we’re trying to do. Because, ultimately, we shouldn’t be in a situation where a well-run business is suffering because of heightened energy costs, or a family is afraid to put the lights on or to put the heating on because they can’t afford bills. We should be in a position where we have support measures in place to ensure that doesn’t happen, whilst we are on this journey to decarbonise our energy supply.
CB: Do you accept that, as part of that transition, bills will have to rise?
LS: Well, look, someone showed me a number the other day — which I haven’t checked — but something along the lines of only 38% of the average dual fuel household bill is actually wholesale energy costs [CB: government figures show wholesale costs made up 47% of the average household dual fuel bill in 2014. Network costs, supplier costs and margins made up another 42%. VAT was 5% and policy costs accounted for the remaining 7% of bills]. So, there is this sort of factual point that policy costs are making up more of the average bill than they were 10 years ago. But against that, we’re also seeing average consumption and demand fall slightly every year. So, I think there’s a temptation to say, policy costs have gone up massively, it’s all the fault of what we’re trying to do and green levies, etc, and actually miss the other point which is that we’re all working to actually bring down household consumption by making our houses more efficient, by making white goods more efficient, so we can actually manage this process better. Again, I think that comes down to how you communicate that particular issue, and you may well see spikes in policy costs, but, actually, if you explain what we’re trying to do and how we’re managing that process, then that should be something that people embrace.
CB: So, wouldn’t it just be cheaper, playing devil’s advocate, to focus purely on new gas plants into the 2020s?
LS: Well, in theory. We spoke earlier, one of the things that we want the capacity market to do is to bring on new gas plants so you’ve got that flex in your generation fleet, as you start building up and you see greater roll-out of renewables. My view is it’s not about one single technology, it’s about how you get that mix of technologies onto the system. I think the point I’m trying to make, is, let’s try and do it in a way where we’re constantly taking account of where our own economic situation is. We’re getting this balance between what we can afford and what we can deliver all the time. Now that’s not an easy thing to do, I grant you, but I think that’s, perhaps, where we went wrong a few years ago where we had rising wholesale prices — and we saw rising policy costs. We’re now in an area where we have benign or falling wholesale energy prices and I firmly believe we should be using this period — and you mentioned the secretary of state’s reset speech — so let’s reset the conversation with the consumer around what we’re trying to do, and also, let’s try and enthuse people around how you can make your property more energy efficient, and look at those drivers outside of the direct control of the energy industry that can make a difference. So, let’s look at how we have a national retrofit campaign to make properties more energy efficient. Let’s look at what we do with new builds. Are we building new houses and are we using planning laws and regulations to maximum effect, to make sure that we’re not actually storing up problems for the future?
LS: Yes [laughs].
CB: OK, so what would you like to see on energy efficiency policy then?
LS: I think, you know, I’d like to see something that looked at it from a national point of view. That zeroed really in on what we can do to help those people who need help the most, so how do we deal with fuel poverty. How do we actually nail that problem once and for all, and really help people that need it there? But then also how do we manage the able-to-pay market? We’ve seen some of the issues with trying to get people enthused and spending their money on making their property more efficient. We need something other than low-interest loans, or anything like that. There needs to be some other form of fiscal incentive, be it council tax holidays or stamp duty reductions to encourage householders to make what are often quite high capital investments in their properties. Then, going forward, how do you then really bring in planning and these other building regulations to make sure that we are bringing in new regulations for new builds, so, actually, any extra cost associated with the up-front purchase price of that house can be seen as being written off very quickly as being written off very quickly against the actual costs of running that house? Whereas, at the moment, I think we see it in a very blinkered fashion, that, oh, if we put extra insulation into that property it’s going to put an extra £1,000 into the purchase price. No-one will buy it. Well, I’d say, actually, if you went to me as a house buyer and said that house is going to cost you a £1,000 more, but over the average seven years that you’re going to spend there, it will either be flat or it will save you money, you’re having a completely different conversation. We’ve got to move to the latter, and away from the former.
CB: Coming back to bills and the new capacity that we need in the 2020s, people often look at Hinkley Point and say the contract is double current wholesale prices. But people don’t often talk about what sort of wholesale price would be needed to support new gas. What price would that be?
LS: That really is where you would hope the capacity market would come in and answer that question, in terms of what bid prices come through. But I do believe in order to get those signals in place so that you get people coming forward with the new plant that we need, that you need, ultimately, to have complete clarity in terms of where government projections are going [for] national demand, and how that fits together in the broader framework. What money is going into the levy control framework, etc. Without those clear policy decisions, I think you’re always going to be in a slightly confused situation when auctions come forward, as to what the ultimate price is, and how much capacity can be delivered from that. I can’t get into a world where I’m guessing what price is actually needed. At the moment we see various conversations going on around, do you have a subsidy-free CfD [Contract for Difference], and, ultimately, what price? If you work out the whole lifecycle price of a CCGT, that comes out at £X per megawatt, and you compare that to wind coming down to X. So I think there’s a lot of fundamental issues at play here, but one of the key elements will be just being very, very concise and getting that clarity through on where you see demand. Because, ultimately, it’s demand that gives you the buying signals, and give you the answer that in this auction we need X amount of capacity, and that’s when you’ll start seeing the clarity you’ll need.
CB: You mentioned subsidy-free CfDs. Do you think those are a good idea?
LS: I think we, perhaps, need to look at how we use the word subsidy. Someone put it to me a while ago that actually it’s not so much a subsidy. What we’re paying for is the learning curve. What we’re paying for is learning how efficient a piece of technology can be, learning how fast it can be brought to market, and, ultimately, how fast it [can] compete with more established technologies like CCGTs. So, I think that anything that brings those conversations forward, and actually looks at it from the point of view of, we’re actually learning how we’re managing our system going forward, and how we can do so in the most effective manner, has got to be a sensible discussion to have.
CB: Looking at the whole system costs that people talk about, in terms of integrating intermittent renewables, I understand that the government has commissioned some work to look into that. What do you expect to come out of that?
LS: I think we’re all waiting with bated breath, to see what comes out of that. It’s going to be a very important part of the discussion, and I think, you know, we’ve been speaking for a long time around, you have to have this sort of helicopter view of the market, if you will, and look at all of the different components. We spoke about interconnectors and look at how they affect the operation of markets across Europe and also within GB. So looking at the whole system cost, is going to be absolutely fascinating. But I would ask that government share that report with industry, as soon as possible, because, you know, it could have a lot of answers in it. But, again, I think it’s something that, the more transparency we can have in these discussions, the better it will be.
CB: I think I probably have to ask you about the steel industry, which has been much in the news recently, particularly in conversation around high energy prices. What’s your view on the situation?
LS: I think the energy industry actually does a lot in itself for how it supports intensive users, in terms of how the energy industry works with its customers who fall into that segment. And in many occasions it’s how we actually help them ahead and how we provide that sort of collateral support, in terms of where you’re buying energy from and making sure you’re getting the best deal. So, I think that bit’s already there. I think the issue is not to focus on energy and the cost of what we’re trying to do because, ultimately, we have to replace our infrastructure. And that’s a message that I don’t think has come through. You know, we’re not just doing this on a whim. We’re investing, we invested £15bn last year and we’ve got to continue that level of investment for a number of years. It’s got to happen. There isn’t a sort of yes, no or maybe situation here. It’s something we must do. So, I think what I would say is the most important part here is how we as a country are providing support for those intensive industries. And if, as I believe we do, we want a healthy steel industry, then we’ve got to look at what support measures are there at a national level and what support measures are there at a European level. But we’ve also got to remember that this is a global market and, actually, energy provides effectively a very small part of the overall cost of running a steel mill, compared to what’s happened to global steel prices over the last few months. So, the energy industry is happy to do as much as it can but we need to understand that the investment level that’s coming through has to be there. But I think as a country and as a European trading union, we have to look at what support measures we can have in place for our own domestic industries and then how that fits into the broader international scale.
CB: Do you think investors sentiment – talking about the need for investment to come through – do you think that sentiment has changed since the election?
LS: Undoubtedly, yes. Look at the EY report that saw the UK drop out of the top 10 most favourable locations for renewable investment. We’ve had anecdotes from various meetings where the investment community are not looking at GB any longer. They are looking at other parts of the world where there’s a better return. So, I don’t think there’s any doubt that investor sentiment has changed. Can it be brought back? Yes, of course it can. But over what time and how quickly is the important part.
CB: One last question, do you think traditional utility business models have passed their sell-by date?
LS: I don’t think they’ve passed their sell-by date yet. I think the utility of five years’ time, the utility of 10 years’ time will be completely different and I think you will see a shift in how they’re operating and how they’re managing their businesses, and their relationship with the customer will undoubtedly change over time.
CB: What sort of thing might that include? What would it look like?
LS: I think it’s anything from how you might – you know, once we’ve got the roll-out of smart [Smart Energy GB] in place, once we’ve got time-of-use tariffs and customers are actually used to using those kind of tariffs – I think there are big opportunities around how you manage all that data, and how you actually work with customers to help them save more money. And how you might be able to – as much as we see aggregation in demand side response in the industrial and business markets – what might be available in the consumer market, if you’re pulling together a million customers? How can you actually use that data? And how can you take a whole house approach? What other utility style products and services can be sold through that? How do you harness the “internet of everything”? How do you harness, maybe, half a million of your customer base who are prosumers [a consumer that also produces some of their own energy, for instance with rooftop solar panels]? So, how do you manage that for them? A lot of people don’t want the hassle factor associated with that kind of thing. But if you walk in and say, I’m going to manage this for you and we’re going to share the savings and ultimately, I’m going to reduce your bills – yes, I’ll sign here. So, I think there’s endless opportunity, but at the heart of all of this, if you will, is in many respects, we could be seen as an analogue industry. In fact, we do still have meters of that nature. We’re going through a process of digitalisation. Off the back of that digitalisation becomes an opportunity for a massive amount of innovation. And, ultimately, I think that’s for the industry’s good.
CB: OK, thanks very much.
LS: Thank you.
This interview was conducted at Energy UK's offices in central London by Simon Evans on 28 October 2015.