The multi-utility

Owen McQuade looks at the multi-utility model and how it might develop in the future.

With the liberalisation of energy markets and the commercialisation of water and sewerage businesses in the UK and in other countries, the model of the old vertically integrated energy utility has been changed.

Market liberalisation has meant that gas and electricity transmission systems must be independently owned. The convergence of the gas and electricity sector has been well documented over the past 15 years. In the late 1990s much was made of the further convergence between these two energy utilities and water, sewerage and telecoms services.

There were a number of high profile mergers, including the merger of the electricity and water utility in the North West of England to form the multi-utility company United Utilities. The company is a FTSE 100 company and is listed as a water company, the UK’s largest listed water company, and owns, operates and maintains utility assets, including water, waste water, electricity and gas. The company provides water to seven million people across the North West of England, and operates and maintains the electricity distribution network in the same region.

Globally, particularly in Europe, there is a merging of utility services with many companies offering services other than their original core utility offering. However, although there has been convergence in the retailing of energy there has been little cross-over when it has come to operating networks and all of the companies are still dominated by their original core business units.

Energy supply

The synergies in selling gas and electricity are well recognised and most energy utilities now sell both. Local gas supplier firmus energy now sells electricity in addition to natural gas. Northern Ireland Electricity’s (NIE) supply business, energia, sells natural gas to large energy users. Water charging has not yet been introduced into Northern Ireland; when it is there will be competition with offerings from other companies.

Back office multi-utility offerings

Whilst there are synergies in the joint selling of a number of utilities, perhaps the most value can be obtained by combining back office functions. Networks need to be maintained, meters read and customers billed. One local company that offers outsourcing to utilities is Northgate. The local IT company has a pedigree in the utility sector as part of the company grew out of the IT function within Northern Ireland Electricity. The company now serves the electricity, gas and water sectors and is focusing on expanding its operations further in the water utility sector. Ed Brown, Managing Director of the company’s utility business, sees “great synergies in serving a number of utility providers” and enthuses about the multi-utility model.

One contractor, one trench

There are now companies offering a multi- utility service in the new connections to utility services, particularly with new developments. Conventionally, developers have to liaise with four or five utility companies and local planners. Taking a multi-utility approach with one supplier simplifies things and reduces costs.

Future developments

With the future prospect of smart energy grids, gas and electricity networks will become increasingly entwined. At present 60 per cent of electricity is from gas-fired generating plant and future on- site combined heat and power plants will increase this figure. The future introduction of water billing would offer the opportunity of utilising existing utilities’ infrastructure as they already send every home and business a bill at present.

Top 10 global multi-utility companies

• E.ON AG
• GDF Suez SA
• Electricite de France (EDF)
• Enel SpA
• RWE AG
• Veolia Environnement
• The Tokyo Electric Power Company
• Centrica plc
• Iberdrola SA
• Scottish and Southern Energy plc

Article from agendaNi issue 33 Dec 2009 / Jan 2010