We need to rethink regulation to bridge the deliverability divide

In PA Consulting and Utility Week’s recent publication – The Deliverability Divide – ‘unhelpful regulation/unsupportive regulatory settlements’ is identified as one of the biggest barriers to achieving meaningful improvements to capital delivery by 48% of water companies, 30% of electricity network respondents, and 13% of supply chain or other respondents

This challenge comes at a critical time for utilities – against the backdrop of the race to deliver Clean Power 2030, and with an unprecedented step change required in the scale and pace of infrastructure delivery.

The good news is that there’s widespread recognition that regulatory and planning reform is a critical enabler. And this creates an opportunity for regulators to rethink what outcomes best serve the public interest, and then align their work towards how this can be achieved.

From our conversations with leaders across the sector for our research, and from our experience of delivering major transformation programmes with utilities of all stripes, we believe the regulatory focus needs to be on two key areas: providing certainty, and providing clarity. And because our research conversations extended beyond asset owners and operators to include wider supply chain partners and regulators, we also believe there is an onus on utilities to meet regulators halfway.

Providing certainty

The good news is that there are clear signs of regulators actively taking steps to improve speed of delivery. For example, the shift from no-spend ahead of investment to regulatory mechanisms designed to act as enablers. See Ofgem’s Accelerated Strategic Transmission Investment programme (ASTI), which identifies 26 strategic projects to be taken forward under a streamlined regulatory process, and the Advanced Procurement Mechanism (APM), which gives operators the ability to place bulk orders for both strategic projects, which have been introduced in recent years.

Furthermore, early construction funding is now available. Detailing the difference this early-stage funding can make, Ofgem’s director of major projects Beatrice Filkin told us: “These projects are vast and complex – you don’t know the full costs until designs are worked up and the market is tested. Early funding provided certainty that we would continue backing them.”

Yet water regulators in this post-PR24 phase, and Ofgem ahead of ED3, have the opportunity to take such innovations further. As Yselkla Farmer, chief executive of trade body BEAMA – the UK manufacturing trade association for the electrotechnical sector – told Utility Week: “We need an equivalent of ASTI and APM for distribution networks to procure ahead of need and on a larger scale.”

Providing clarity

The report repeatedly surfaced the challenge brought about by the stream of regulatory changes coming from myriad bodies. Multiple respondents told us they craved a single, clear scheme.

Where utilities have had clarity, they’ve reacted positively – investing in additional project resources. Ofgem’s Filkin added: “The signals we’ve sent as regulator have given [utilities] the confidence to do that. All three operators have significantly expanded their in-house teams – exactly what we want to see.”

Here, longevity of thinking is just as vital as its singularity. Paul Killilea, Asset and Investment Director at SP Electricity North West, told us: “We’re doing huge investments now up to 2050 to decarbonise the network. If we can get a longer-term view from the regulator, that’s going to help us. What the supply chain needs is visibility of work and a consistent approach.”

Yet the onus isn’t only on one party. Where regulators are asked to take bold and innovative approaches, companies must meet them halfway.

As Andy Mitchell, chief executive of Thames Tideway, outlines: “The moment you start looking at the regulator for help or blaming the regulator because I can’t do this or that, you’re on the wrong track. The regulator is not going to solve your problems. You’re the utility company, you’re the one that’s got to fix this and you’ve got to find that balance between day-to-day and longer-term projects.”

As the report concludes, now is a moment to rethink as to what outcomes best serve the public interest and simplify how this can be achieved. Ultimately, this is the key – as it’s consumers who will benefit the most by regulators and utilities taking the actions above to shift from infrastructure pipe dreams to collaborative delivery.

This article was first published in Utility Week.