Utility Week’s Content Director Ellen Bennett met Basil Scarsella, UK Power Network’s chief executive, and a Utility Week Live 2017 transformation leader.
Basil Scarsella knows transformation. The chief executive of UK Power Networks is widely recognised in the energy industry for taking the country’s largest network group, with the most challenging patch, and turning it into one of the top performers. UKPN has won the Utility of the Year Award for the past two years, achieved a solid regulatory performance with a customer satisfaction score of 87 per cent and strong returns for its investor CKI Holdings, with Ebitda up by £167 million to £1,293 million in 2015-16. Little wonder, then, that Scarsella, who led CKI’s acquisition of the business in 2009, was voted one of the ten most transformational individuals ahead of this year’s Utility Week Live at the Birmingham NEC from 23-24 May.
So is the transformation complete? “No, it’s just starting,” Aussie Scarsella tells Utility Week in his office, in the unglamorous location of Elephant and Castle. Relaxed as usual, straight talking but charming with it, he explains how UKPN may be well advanced in the traditional transformation expected of an energy network – but the changing landscape now requires a transformation beyond any he has yet seen. Scarsella is determined UKPN will play a leading role in the new world order, and reckons the distribution system operator (DSO) model, the smart systems consultation and RIIO-ED2 will help it do so.
“The traditional transformation is well advanced, but transformation as the industry transforms is now becoming more important and urgent,” he says. Barely pausing for breath, Scarsella lists the changes the business faces: the increase in renewables, the electrification of transport and heat, the impact of decentralised generation on traditional revenue streams, the need to balance the system at a local level, the shift to microgrids… The list goes on.
Scarsella isn’t daunted. Rather, he seems excited by the challenge – “it will revolutionise the industry in a way I have certainly never seen before” – and determined UKPN will lead, and benefit from, the change, rather than be outpaced by it. Take his views on microgrids, for example: “Rather than try and fight it, we should be facilitating that transition. We’re better placed than anyone else.”
It’s become the accepted wisdom DNOs will need to evolve into DSOs which balance the grid at a local level. There’s a lot of buzz about the new model, but “the business case needs to be developed,” Scarsella acknowledges.
And, in reference to the potential £8 billion of savings per year the National Infrastructure Commission has identified from the more to a flexible power system adds: “The business case of moving from a DNO to DSO really depends on how those benefits are split up. I see DSOs as playing a pivotal role in delivering flexibility and therefore I expect they will share some of the flexibility benefits.”
The other power networks are queuing up alongside UKPN to lead the transition to a more flexible energy model that makes use of storage and demand-side response to manage the new forms of generation and consumption – but will the regulatory system allow these monopoly businesses to lead a new market? A consultation is currently under way as to how to remove the current barriers to smarter systems, for example, around the ownership and market operation of storage.
Is Scarsella confident it will come to the right conclusions? “We should be careful not to predict what the new world will look like because we’re bound to get it wrong. In short, the regulatory regime needs to evolve with the industry transformation.”
One vexed point is storage. It’s increasingly seen as the silver bullet that will enable the transition to a flexible network, but there’s disagreement over whether DNOs, as regulated monopolies, should be allowed to play directly in the market. Should they? “Yes. It’s a new market and it seems that trying to restrict networks from owning storage could hamper the development of a market. Storage is so important that putting obstacles in the development makes no sense.” There’s a school of thought that the RIIO regulatory regime, which moved the sector with great fanfare to an eight-year cycle, should shift back to five years in its second round, beginning in 2023 for electricity distributors, to reflect its rapidly changing nature.
Does Scarsella agree? A measured response: “If it continues as an eight year cycle, there needs to be uncertainty mechanisms or reopeners. We’ve still got six years of ED1, let’s see what develops before we jump.”
All these changes are liable to make investors twitchy – particularly as the stability, asset-intensive, and heavily regulated nature of the networks have made them so attractive. Scarsella, who is close to UKPN’s parent company CKI, which also owns Northern Gas Networks, Wales and West Utilities and Northumbrian Water, acknowledges the point with a smile, and issues a careful response: “To a degree the risk profile might change. I say might because it depends on how the regulatory regime evolves. In some ways, we are now incentivised to reduce the cost of the networks because under the current regime we share in the benefits [of doing so]. That sort of sharing of the benefits looks set to continue.”
Transformation is supposed to be underway in one area of the energy market, with the rollout of smart meters – voted one of the top ten transformative technologies. Of course, the rollout is supplier-led rather than managed by DNOs as in other countries, giving UKPN and its peers a role limited to intervening when called upon. Does Scarsella consider the technology transformative? He pauses and chooses his words thoughtfully: “Smart meters are essential to move to smart networks, I think it is pointless talking about smart grids and networks if you haven’t got smart meters, now whether the technology that’s going to be rolled out is the latest or not I’m not sure, but if functionally it does what is being proposed it’s going to do then it’s essential that the rollout goes ahead as planned.”
And will the 2020 deadline for the rollout be achieved? “That’s not for me to say, but whether its 2020 or 2021, my view is it doesn’t matter too much. What matters is that it goes smoothly.” A diplomatic response.
As the interview draws to a close, Utility Week asks Scarsella what makes a transformational leader. His response is modest and he won’t be drawn on personal qualities: “The first thing you need to have is a good team.”
If Scarsella’s track record is any measure, it’s good advice.
Hear Basil Scarsella discussing energy network transformation in these sessions at Utility Week Live 2017: