Centrica chief: 'The old utility business model is dead'

London – The energy sector is undergoing a transformation every bit as fundamental as the market liberalisation of the 1990s as it meets the challenges of climate change and energy security, Sam Laidlaw, chief executive of Centrica, said in a keynote speech at the Royal Society of the Arts.

Declaring that “the old utility business model is dead”, Laidlaw said that the shape of British Gas is changing and within just a few years its energy services business will become at least as big as its energy supply business.

And he announced £30 million of funding for British Gas to ’go early’ on the Government’s proposed Green Deal to help customers make their homes energy efficient now, without needing to wait for the planned legislation.

“Cutting carbon emissions from power supply alone is not enough and a greater focus must fall on energy efficiency. The focus is switching from delivering units of energy, to ensuring a well lit, warm and energy efficient home.

“The Green Deal has the potential to transform Britain’s housing stock. What’s needed now is to see the scheme up and running as quickly as possible. And if it is to truly transform our homes, it needs to capture all the technologies available, from insulation to microgeneration.”

Welcoming the move, UK energy and climate change secretary, Chris Huhne said: “It’s great that British Gas is backing the Government’s Green Deal and investing £30 million to insulate their customers’ homes, helping them cut carbon emissions and energy bills.

“Once the full Green Deal is in place from 2012 we hope more consumers will benefit from a range of firms, kick starting a massive and long overdue improvement in home energy efficiency.”

Laidlaw said the aim was to cut the average carbon footprint from energy use in Britain’s homes by over one third within 10 years through a combination of decarbonising the electricity supply and stepping up the pace of energy efficiency measures applied.

Turning to power generation, Centrica’s CEO set out how the challenges of decarbonising while maintaining security of supply will require the energy market to be rebuilt.

A largely decarbonised electricity sector, he said, is a springboard to decarbonising the rest of the economy, but key decisions and investments are not happening at the scale and speed required.

“The forces of the liberalised market brought prices down. Now they need to be captured to bring carbon down to encourage low carbon capacity.

“The energy market now needs to be reconstructed to reward all forms of low carbon generation, including nuclear. Energy security lies in energy diversity. We also need a strong price on carbon, so the polluter pays.

“But the timetable is tight, with no room for slippage. If we get the market framework right - and crucially the planning system as well - I believe the energy sector can provide the clean power we need.”

Laidlaw cautioned that the move to a low carbon economy wouldn’t be cost free and that all parties need to be honest and transparent with customers about the potential costs ahead: “There is need for a reality check which is often missing. The energy bill cannot be a proxy for funding environmental and social policy without the customer understanding and supporting this.”

Noting that environmental levies are potentially regressive, Laidlaw concluded by saying that securing low carbon affordable energy is achievable, but by no means inevitable and that delivering this will require Government, regulators, energy companies and consumers to work together urgently to put in place the right building blocks.