Holliday: encouraging the best new talent into the industry

Steve Holliday, chief executive of National Grid and Utility Week's first Industry Champion, tells Janet Wood why his number one priority is mapping out the route to low carbon energy.

When Utility Week's first Industry Champion, Steve Holliday, says to me "I want your job, it sounds interesting", I'm a little startled. In the event, the chief executive of National Grid is simply remarking on how often science students move into alternative professions, instead of engineering. Dara O'Briain, host of BBC 2's Mock the Week and the star performer at December's Utility Industry Achievement Awards, is another ­example.

Holliday's efforts to ensure the best new talent is entering the industry, at every level, is one of the reasons why a utility industry panel made him the recipient of this inaugural award.

Engaging future engineers

He explains that the quality of the apprentice and graduate intakes at National Grid is strong at the moment, but the company fears for the quality and quantity of candidates at both entry levels in the future. He believes the government's drive to encourage children to study science, technology and maths is working. But research shows children are not excited by engineering and are favouring other career paths. It also reveals that teachers' perceptions of engineering are outdated.

"All the big organisations need to be involved in shifting this perception and everyone is doing their bit. There is no lack of intention and effort, but it could be better co-ordinated," says Holliday, suggesting there is a role for government there.

He thinks the climate change issue may be part of the solution. "Lots of young people are incredibly environmentally aware. That's exciting. We have to make sure they realise that if you want to be part of the solution, these are the industries you need to work in," he says.

Climate change roadmap

The muddled response to climate change has also been exercising Holliday, and he has been pressing for a detailed roadmap that will shift the low-carbon energy supply from political rhetoric to a workable solution. He says: "The immediate investment actions between now and 2020 are already pretty much set. There is not a lot up for debate, although we have to get on with it." But he adds: "We have to ask, what does that facilitate for 2030 or beyond? And what does it preclude? That means looking hard not just at what technologies are useful in themselves, but whether they run the risk of closing off other options."

He is optimistic about the future. "Most of the things that are under way or are being seriously considered for 2020 are the right things to do. Beyond that it is less clear, and there will need to be some technological innovation." If the UK is to have any hope of meeting its 2020 targets, Holliday says we will need to build new nuclear power stations "and make a bet on some big offshore windfarms". He says we also need to make use of all the weapons in our arsenal. "We need to significantly accelerate energy efficiency because that needed to start yesterday, and get on with the smarter [network] solutions we are going to need when we have more electricity being used for transport and heating, and a step change in local generation."

Effective investment

His concern here is that investment in these technologies is made in the most cost-efficient way. "You need to be quite clever about how you plan this to make sure that investors are not investing in assets that risk becoming stranded," he says. "And for customers - they must not pay for things too early, but a significant delay could cost even more. It's hard to see how you can do that without quite a detailed master plan that you can measure progress against."

Holliday says there is now action on setting that roadmap. "It is due to be published in the summer and although I am sure the plan will be said to be not granular enough, at least it will be a start."

He says the political climate in the UK concerning climate change makes it an easier process than in the company's US market. "It is not a political issue here... In the US there is a huge difference of opinion on climate change and that is why the agenda is moving more slowly there."

Network expansion

At the moment, National Grid is contributing to consultations on an acceleration of the network expansion needed to meet renewables targets. The required new lines and capacity were identified by the industry and government through the Electricity Networks Strategy Group. Holliday says: "It's a fantastic piece of work - the first time for many years that government, regulator and transmission companies worked together and identified an essential, no-regrets group of investments. Now the question is, should we wait or begin now?"

Holliday says the industry must be able to attract the investment it needs to implement the roadmap when it is produced. He explains: "Credit markets have changed beyond all recognition. They have significantly improved from where they were nine months ago for a business like ours, but the challenge will be the step up in requirements after 2012. It means this industry will need to attract both equity and debt investors. We must make sure returns are adequate and that the cashflow is stable to pay down the debt.
"The job of the regulator is to ensure the balance, where you have customers that are content but you also have to make sure that the industry is financed."

DPCR5 concerns

Holliday fears that Ofgem has not put enough focus on helping network companies attract the capital they need. He explains: "One thing concerning me and other observers is the distribution price control [DPCR5]. The headline returns being proposed for those businesses do not look particularly attractive for investors."

The complexity of the proposals also concerns him. "Investors tend to focus on the headline returns. Complex regulatory incentives will be perceived as high risk - and 600 pages [as in the DPCR5 determination] is complexity. There has to be a concern that the combination of low headline returns and complexity will create the wrong atmosphere for investors."

RPI-X@20

Holliday was on the advisory panel for Ofgem's re-examination of the current regulatory model (the RPI-X@20 review) and he says: "We at National Grid don't believe you need to throw the system out and start again... The real top priority is that an enormous amount of investment needs to be incentivised in a timely fashion so it gets built."

Asked for his number one wish for the coming year, Holliday says: "The roadmap, without any question. It's crucial to give all the players in this puzzle a clear view of the roles they have to play, to give investors more comfort about continuity and to help the regulator understand its role in delivering that plan."

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