Innovation, digitalization and distributed energy solutions are driving major shifts in the energy market, putting power in the hands of the consumer and fundamentally changing their relationship with energy. 
 
On this special edition of Columbia Energy Exchange, host Jason Bordoff is joined by Iain Conn, Chief Executive of Centrica, a multinational energy and services company supplying electricity and gas to businesses and consumers across the UK, Ireland and North America. Recorded at Innovation Agora at CERAWeek, they discuss the trajectory of the energy transition in relation to thoughtful policymaking and technological transformation.

Iain Conn served as chief executive of BP’s Downstream division from 2007 to 2014, overseeing production and sales for BP’s fuels, lubricants and petrochemicals businesses. Since being appointed CEO of Centrica in January 2015, he has helped the company navigate low oil prices, grow new business sectors and shift toward a more consumer-focused model.

Innovation Agora is an open marketplace for the exchange of ideas on energy innovation, emerging technologies and solutions to our energy challenges. It is a part of CERAWeek - an annual event that brings together 4,000 industry leaders and policymakers from more than 75 countries.

view transcript

 [00:00:03]

Jason Bordoff: Hello and welcome to Columbia Energy Exchange. A weekly podcast from the Center on Global Energy Policy at Columbia University. I’m Jason Bordoff. This week, we’re sharing an interview, I recorded in Houston, Texas at Ceraweek. Ceraweek is an extraordinary annual event, a premier gathering that brings together 4,000 global industry leaders and policymakers from more than 75 countries representing the entire energy value chain. I’ve been going to Ceraweek for many years and one of the dynamic new additions, I’ve most enjoyed is innovation Agora. An open forum for the exchange of ideas on energy innovation, emerging technologies and solutions to our energy challenges. I had the chance to sit down with Ian Conn, the CEO of Centrica for a conversation at the Agora this year. I hope, you enjoy it. Good afternoon everyone. Thanks for joining us here at the session, the Agora. I’m really excited to have the chance to speak with my friend Ian Conn and bring you all into the conversation. I see a lot of friends and familiar faces here and how much expertise there is in this room. Just introduce myself. My name is Jason Bordoff. I’m a professor of professional practice at Columbia University School of International Public Affairs and direct the Center on Global Energy Policy there in Energy Research Institute and Ian has been a friend of mine and a friend of the Center on Global Energy Policies for many years. He’s one of the most thoughtful and insightful leaders, I think in the energy sector. About where the energy industry is going, the role that the energy industry plays in energy and in energy transition. The role of thoughtful policy design in an energy transition and the role of technological innovation. And we are gonna talk about hopefully many of those things today. I think, Ian is known to everyone here. So, I won’t waste time with a long introduction. He’s the CEO of Centrica since January 1st, 2015 and a long career, almost three decades at BP in many senior leadership roles prior to that. So thank you Ian for making time and thanks to all of you for being here. So, there is a lot that I want to talk about. We can spend several hours with Ian and still be fascinated at the end of it. But I want to just start broad and ask if you could talk a little bit about what you see in technological innovation, what you see in digitalization particular and how that is going to change the way we produce and consume energy in the years to come?

[00:02:32]

Ian Conn: Well, thanks Jason and hello everybody. The first thing to say why did I take this role on and what interested me about Centrica because actually I think it might anchor this conversation. I’ve spent 29 years at BP and I was the head of the downstream company looking after customers. I was Mr. Gasoline in the U.K. for sure and a lot of other places too. But what struck me very strongly was the change that’s taking place at the interface with the customer and in particular about heat and light. Heat and power and how we were going to change the way we use it because at the end of the day, we spend a lot of time focused on decarbonizing transport. But actually 80% or 75% of primary energy use is in heat and power. And if I then roll the clock forward, what is fascinating about what’s happening is that the pace of change and what’s driving that change and how customers are starting to respond to it. So, the three trends that we identified a few years ago were, first of all in response to decarbonization, the energy system is becoming decentralized. So, it’s going away from big base load power with pipes and wires to get to a customers and at the end of the day the customer just gets what they get through the wall and they’ve got limited choice to a place where people are now able to use downsized technology to generate electricity where at their point of use to use flexibility tools to optimize the way, the amount of energy they use to impact the carbon footprint of the energy they use and this trend, I think is unstoppable. It’s creating fundamental changes in the whole electricity and to some degree natural gas value chain. So, second trend is that because of this the customer is actually becoming more powerful. And the choice available to the customer means that they have much more influence and they also can take much more control over their energy use, the systems they use and the third trend was digitization. And digitization is both accelerating at all but it’s also introducing the ability to design new propositions. It’s allowing customers to control their energy in a different way. It’s allowing consumers to control their own energy in their own home in a different way. It’s allowing much more AI applications in optimization of the energy system and these three trends, I believe are completely unstoppable. They’re revolutionizing the energy system everywhere, every country in the world although, there are some very big differences between growing economies and how they are seeing this and Europe and the U.S. So very exciting set of opportunities here. I mean, some of the technologies, last point and sure, we’ll get onto that. Things like demand side response, virtual power plant where you can buy a battery with demand side response and you’re effectively able to create quite sizable impacts on the local energy balance which in turn means there is less need for large base load power and that’s really exciting what customers are able to do. Consumers and business customers, so those are the trends.

[00:06:01]

Jason Bordoff: So consumers are able to do this with the technological innovation you’ve talked about. Do they want to? Do the consumers pay attention to this? Do they care about finding ways to be more with their energy?

[00:06:11]

Ian Conn: Great question, Jason. I mean, consumers, some consumers just want commodity energy at the cheapest price and they don’t care who it comes from and they are not interested in doing anything else with it. But that segment is becoming in my opinion smaller and what we are seeing is quite a lot of consumers that actually want to engage with their energy and be much more in control of it. And this can range from the electric vehicle integration into the home to solar and battery integration into their home with control systems that people rely upon and they enjoy being more in control. Now, what we’ve done, it started out because Centrica in addition to being the largest energy supplier in the U.K., we are quite a large supplier here in the U.S. and Canada and Ireland and do quite a lot of continental Europe. But one of the things that we historically have done is we have about 12,000 people that go into people’s homes to install and maintain equipment and through this largely in the U.K. we have boilers as opposed to HVAC systems. But we install and maintain those. And what we realize is that our customers wanted to control their energy system at home from their smartphone. So we developed an app.

[00:07:30]

Jason Bordoff: Because they thought, it was sort of neat and cool because they are motivated by incentives.

[00:07:35]

Ian Conn: So the motivation, I mean, we’ve got an app, you can’t probably see it here, trying to get it out but it’s called Hive. It’s like, it’s available here in the states but it’s like Nest because it’s basically, this is my own home. I could switch stuff on and off and turn my heating up and down right now. And obviously in some ways, there is nothing differentiated by that in itself. But what it does do is fundamentally change the way the consumer relates to their energy and what we are finding, we take, we’ve got 1.4 million customers on this now. 28,000 customer survey recently over 55% of people in that survey said they were saving about 12% on their natural gas usage simply by being able to control what they do at home and it goes way beyond just thermostatic control and the reason, they can do this is people either with second homes at the high end of the market or people, if you’re late in the evening and you want to turn the heating down because you’re wasting money otherwise. You can do that. You can much more accurate control of temperature and with it we’re starting to expand into other propositions in the home. And people suddenly find the use case mean something to them. And then they actually are quite happy to get their energy from us and take this proposition and for example the net promoter score of our customers that have both up seven percentage points with rate. So significantly reduced customers find energy useful when they can do something with it.

[00:09:11]

Jason Bordoff: And you mentioned, I mean, there is some ways in which many of us whether we have that technology in our home or not or probably familiar where you can adjust your temperature from afar. You can have different settings. Where is the technology going? How much bigger the impact it will have? You mentioned AI for example, how does artificial intelligence and use of data analysis, where is that taking us?

[00:09:30]

Ian Conn: So, for example, in this state here in Texas, I mean, smart meters are everywhere. So one of the propositions we are for with direct energy here. We have a 10% market share. What we are first, smart meter insight products which allow our customers to understand their energy use. What’s that is enabling customers to do is change their behavior around their energy. We’ve actually, a personal friend of mine, actually said to me, you all did for me the other day. You helped me turn my, know that my swimming pool pump was about to go bust. And you know, it was using AI and pattern recognition in order to preempt an event. Customers find that really useful and in the U.K., we’ve now installed diagnostic technology into boilers which means that the boiler, it’s pretty simple algorithmic stuff that the boiler can now tell if something is going wrong with itself. It can also deduce what it thinks is going wrong. It can call us. It can tell the client that your boiler is about to go down. By the way, we’ve called British Gas and we’ve told them which parts to put on the van to come and fix it. That’s a used case. So if someone, how many of you have wasted a day off work, waiting for somebody to come and fix your HVAC. You know, this is real, this is real utility. Not just commodity energy supply.

[00:10:57]

Jason Bordoff: I want that. I’m gonna download that. And does that also mean, does that mean hackers can take down all of our boilers at the same time and how do you think about cyber risk?

[00:11:06]

Ian Conn: So, I’ll come back to the business, maybe able to touch on the business segment later because I mean, that’s at least is interesting. I know, there was a very famous set of issues in New England or I think it was maybe two years ago. That was because people had DNS access points sitting behind the router which allowed people to hack into distributed systems. We don’t have any DNS access points. The only way you can hack into our system is if you hack into somebody’s router in their home routers. So, now the security is dependent on individual’s router. But as a result the blast radius of any problem is small. You can’t get the whole system. Now, clearly if we got someone attacking our overall platform that Hive runs on, they could disrupt the customer service. But you can also access Hive through 4G directly and so you can still stay in control of your home even if our platform doesn’t function.

[00:12:13]

Jason Bordoff: And how do you, I mean, you mentioned before there are other ways people can get that technology. There are small startups with a lot of agility. There are big players like Google and Apple in this space. How do you compete with that diversity of participants moving into the space?

[00:12:29]

Ian Conn: There are hundreds of thousands of people in the internet of things space particularly in the consumer space. We are in terms of this type of ecosystem running the home through your smartphone. We’re number five globally. We are about the same size as companies, you might be familiar with here like ______ [00:12:49]. And we think that’s a pretty good place. We are number one in western Europe. We are number one in the U.K. We’re only just really starting out here. I believe that our platform that we developed is scalable. We’ve tested it to eight million customers. We currently have 1.4 million and what we are finding is we are adding, we added best part, half a million customers just last year. So, it’s growing quite fast in the cumulative rates about 70% per annum and what we are finding is more customers, you know, taking subscriptions as well. It’s becoming a recurring revenue model. So, I’m always paranoid. I’m always looking over my shoulder. Everyone asks Amazon, aren’t they gonna take you out? Well, actually, the first person that came and talked to me after my panel this morning was Amazon. I mean, why because we partner. So, Echo and Alexa, every time someone in the U.K. our Hive product is one of the top ten skills for Alexa. So as a result every time someone gets an Alexa, they actually want to buy a Hive and every time someone buys a Hive, they often say, I want to buy an Echo dot and create the interface. So, it’s a partnership more than anything else. So, I don’t worry too much about the competitive landscape. But it’s clearly highly competitive. There is always a risk of falling off the perch but so far so good.

[00:14:11]

Jason Bordoff: As someone who’ve worked in government and runs a policy center, I naturally think about policy drivers of innovation or of consumer demand for these technologies. So, can you talk a little bit about that? Is government friend or foe in moving this forward?

[00:14:26]

Ian Conn: This whole debate about government and regulation, I think is, we could spend the whole day on it. Unfortunately, I think for some very obvious reasons, consumers are very frustrated at the way big institutions have served them. Big businesses, government institutions, the institutional frameworks since the second world war, I think this may have had some impact on why the current president in the United States is sitting, it had some impact on the decision in the U.K. to lead the EU. What does this resulted in is more and more populist approaches to protecting consumers. That had a big impact in the U.K. We’ve just had the government reintroduce price controls in the most competitive open energy market in the world. That’s taken $400 million a year out of our PNL. That’s not great. In general though, I think policy makers are struggling with the pace of change and I find regulators are unfortunately fast followers or even slow followers rather than creating the envelop for innovation. And so that’s a real shame.

[00:15:40]

Jason Bordoff: What policies would be most helpful to drive greater innovation and talk a little more broadly about the faster energy transition? We worked together through the system initiative on the future of energy at the World Economic Forum. You share that with ______ [00:15:52] the head of the IA. Talk a little about innovation in this space and then more broadly on climate policy.

[00:15:58]

Ian Conn: Well, I mean, first of all, let me just touch on what scale in businesses if I may. Business customers because one of the most exciting things for me is that businesses now have the equipment to do some really interesting things with their energy. If I just take a hospital. So we’re in 70 hospitals in the U.K. What the heck the hospitals want from us? Well the answer is they want to run their wards and their operating theaters and they want to make sure it all runs right. Some of the older hospitals in the U.K. have got very old heating systems. Old boiler systems. They don’t know how to manage all that. We go in and said look, we’re gonna help you with your health trust. Get the capital investments through, with great returns. We put combined heat and power units into the hospital. We change out the heating system into the wards. We change out the lighting and then we manage the energy system for them. What we are finding is it will get to your policy point. If you just take, I’ll give the U.K. example, I know well. If you just take the industry health and hotels and leisure and if they took 50% of the distributed energy opportunities available with today’s technology without any additional incentives, they would save about 980 million sterling a year or a gross value added of $25 billion sterling. This is what is now available to the system. It’s been enable lower carbon applications, more energy efficiency, more control by the customer and at the same time, less base load power because you’re actually able to put more of the capacity in the edge. So your question, what policy incentives are required? Well, first of all, I think government need to incentivize in certain sectors, the enablement of distributed energy technology of scale. I don’t mean they need to put more subsidies in place. But they need to encourage more adoption of distributed technology and a lot of that is down to learning from one sector to another and communication and we have an education job to do with the government about the types of grants that they could make available in part or even the government itself, the public sector, how do they use energy because they’re some of the least efficient in the whole, in the world actually. If I turn to the system initiative for the future of energy that you and I have been involved with, one of the biggest issues and Catherine Hamilton sitting to my left is very involved in it. One of the biggest issues we’ve come across is communication. Governments are actually doing the same mistakes over and over again and one of our missions is to be, is to help people understand and learn how you can move forward without making the same mistakes. An example is on the, how the grid edge is going to start to operate. We ran a pilot with the government of Columbia. That’s now spreading to Brazil and Argentina and they are not making the same mistakes. So, communication is a really important component. Another very big one is the size of the challenge and how far off we are from the pathway to a lower carbon. Right now people are arguing about 2 degree C or one and a half. Frankly, we know, we have two degrees. So why are we arguing about two degrees versus one and a half when we need to get just near two degrees. The whole coal debate is a massive issue. We’re shutting down coal plants in the western hemisphere partly because they are so old that we can. They’ve been depreciated and we’ve also got strong prices for carbon. But you go to a country that’s got a need for that coal firepower because people don’t have access to energy and they’ve got brand-new coal plants and we are saying to them, bad. You need to replace that all with natural gas. They’re saying, it’s all brand-new. Who’s gonna pay for me writing it all off? So, I think there is a real dissidence between developing economies and the established world and what we are trying to do is enable that dialogue.

[00:20:28]

Jason Bordoff: And since we are sitting in the innovation the Agora can you talk a little bit what room you see for innovation in business models or new technologies in the other parts of your core business that could affect the challenge you just brought up from upstream oil and gas to natural gas distribution, to electricity generation? Not just digital tools in the home or the business.

[00:20:49]

Ian Conn: So, one of the things that customers are finding daunting is one, what technologies, physical technologies should they adopt and how do they go about knowing, that they are not gonna make a mistake and it’s really important to have trusted platforms of multiple technologies that you can walk the customers through and help them understand what’s available to them. So we’ve developed an integrated solutions platform for the business customer which basically allows business customer to model their facility. We can walk through with them, what happens if we install a battery or a combined heating power plant or a 5 megawatt solar array and we are getting into Charles Cameron sitting here on my right is one of our, he’s head of technology for us, electric vehicle integration and how does that actually work both for businesses and consumer side. Say, technology integration is one of the things that we are focused on. We are not the only people who can install solar arrays. We’re not the only people who can package up combined heating power units. We’re one of the only companies in the world that has the ability to do energy solutions, energy optimization, energy insight all on the same platform. So, I think integration is very important. We are still involved in upstream oil and gas and there is no question that data science and AI can help you with everything from your maintenance scheduling to safety critical equipment, management to barrier management and in the matter of natural gas clearly the next stage, I think of natural gas use will be moving to heat pumps, the possibility of gas absorption, heat pumps. The integration of these technologies, one of the biggest challenges is the decarbonization of heat. It may seem like a very strange thing for a company that’s built its heritage for 200 years on British gas saying what about the decarbonization of heat. But we’ve got to address that and there are new technologies available in order to do that.

[00:20:49]

Jason Bordoff: And you have this really interesting perspective as you spend time now with a company with many traditional utility functions, although Centrica is certainly much broader than that, including upstream. Also decades in one of the world’s largest IOCs. And we see many of the IOCs around the world becoming, moving into electricity, taking on some functions, utilities have traditionally played as a way to move and in a period of energy transition. One of the main challenges for them in doing that and what does that mean for sort of the business model of energy companies moving forward?

[00:23:32]

Ian Conn: Okay. If I put my feet back in my old job running the downstream of BP, we made a lot of money out of our customers coming to see us every week. I made more money at that time over one cup of coffee than a tank of gasoline. So, it was kind of important that the customer actually came to me. And we had 14 million of them every day. The problem with electric vehicles, suddenly the customer doesn’t need to come to you anymore. So, international oil companies clearly are, if I were still there and I’m not gonna put words into anyone’s mouth. I would be worrying about what the customer is doing when they are not with me and how can I get into the deal flow associated with that customer if they are only going to spend part of their time or maybe even all of their time away from my destinations. So what you’re seeing is like Shell has just bought one of our leader competitors in the U.K. It’s a much smaller company but a company called First Utility. And people said, they’ve gone, aren’t you worried that Shell is buying this. I said no, this was a loss making company. Shell is, as far as I’m aware, a company that likes to actually make money and they are probably gonna require a disciplined competitor. So I don’t worry about that and actually, I think it’s quite good that responsible businesses like the international oil companies are getting involved in some parts of the value chain could they become competitors to us? Of course but competition is good. It’s good for the customer. It keeps us sharp. So, I don’t worry about that much. I think the big challenge that I see with the IOCs is that their traditional business of exploration and production of oil and gas is so big and requires so much capital reinvestment, it’s like a fly wheel that you can’t easily get off and also anything you create, relatively speaking is quite small and therefore moving the dial is a hard, it’s a hard thing to do. It will take time.

[00:23:32]

Jason Bordoff: We’ve talked about how innovation will affect the demand side. Can you just say a word in terms of how it will generate energy in terms of distributed, for distributed sources of energy, what drivers consumers to a more decentralized sources of energy.

[00:25:49]

Ian Conn: I think consumers, customers, whether they’re consumers or businesses value being in control. I think they value being able to produce as well as consume energy. I think they value the idea that they are not just, they have no choice in the matter of who they get it from and how they get it. You’re therefore seeing people and it’s more and more economic as the cost curves come down, building solar arrays and having batteries and having the ability to reexport to the grid. People find that both interesting and it saves the money and with heat pump technology and the others I’ve talked about, it’s making the customer much more in control. It’s also saving the money and when you look at demand side response and the ability to, when they can be helped when peaks of demand are coming up to be able to turn down aspects of load and save money because they know when those peaks are coming and that’s one of the services we provide or they can actually adopt much more efficient technology and save money and reduce their carbon footprint. It appeals more and more to them. In turn, it’s putting pressure on the grid and there is a recent study done by a company called ______ [00:27:11] which suggested that by 2013 some countries, the amount of electricity demand going through the main transmission grid could be half of what it is today. That’s gonna raise a very interesting question which is, is the grid actually becoming an insurance product. If you imagine it right to the end. Will people actually use the grid or will it tend to be there just in case and people are going to increasingly optimize the system that the grid edge. I think that’s gonna happen.

[00:27:40]

Jason Bordoff: Very interesting. And people can see why, so it’s fascinating to spend time talking about these issues with you. We have time for questions and I think there is a microphone somewhere. Folks will briefly introduce themselves. Please keep your comment brief and make it a question or a quick comment.

Male Speaker: Hi, Reagan with Nvidia. So I’ve spoken to a couple of IO here in the state and I know one down in Houston. They’ve spent a lot of money deployed over 4 million smart meters that’s collecting consumption data every 15 minutes. When I ask them what they are using it for, they said building into detect blackouts which phone and video point of views, absolutely blasted this. So, I have two questions. One, why do you think the utilities have been so slow to actually utilize all these data that they are collecting and two, what are you doing differently that they are not with this data?

[00:27:40]

Ian Conn: So, I can’t speak for others but what I can do is speak for us. I mean, direct energy here, we’ve got a product called direct you energy. It’s driven by the smart meter data and it’s basically free to the customer, to give them energy insight into how they are using their energy. If you apply AI to the patterns of information you can get. It’s slightly scary, I mean, you know, you can take out all the background data. You can, if you really want to deduce how many times someone goes to the bathroom during the night and that’s not what we use it for by the way. But it gives the customer much more insight into how their energy is being used. It enables different behavior. So, that’s one use of smart data. If you then have a smart control system in your home and you’re combining it with the smart meter data, you can actually see when some thing is going wrong in the home. I gave the swimming pool pump example earlier. So, it means that people are able to feel like they’ve got much more insight and potential to intervene for convenience purposes. In the U.K. we are behind tech in the sense that we still do some estimated billing. It is true that the very first base use of it is to stop estimated bills. So you can stop doing meter reads and so on. That is for a lot of countries, one of the big benefits but it’s kind of first base and all the AI applications of it. So when you combine it with other data from the home, it then allows different propositions to be given to the customer.

[00:30:05]

Male Speaker: What about household level forecast. Do you see that coming into play?

[00:30:09]

Jason Bordoff: Just give a quick answer. I want to make sure we bring in more questions.

[00:30:17]

Ian Conn: So you can if you use again, if you use segmentation data in AI, you can actually look at pretty typical consumption data for regions and you can predict the average level yes.

[00:30:29]

Jason Bordoff: And there is a question over here, please.

[00:30:33]

Male Speaker: Hi, Mr. Conn. Ashutosh from ______ [00:30:35] investment company, Abu Dhabi. Just, what is your next leg of growth strategy? Where do you see your growth coming from, a new sector?

[00:30:45]

Ian Conn: So, first of all I’d like to get this one done first. In the sense that we are growing very fast in these businesses but actually they are quite small. So the total is approximately 300 million sterling, $400 million of revenue right now that are growing at about 50 to 70% per annum. So, I want to see the growth continue. The main purpose of all of these is to move the center of gravity of the relationship with our customers so that it’s not just about commodity energy. So that’s the strategic purpose of it. It has a long way to travel. Now, what we are mainly focused on is home energy management through smartphones at the moment and energy solutions for business customers. But there are two quite important pillars that are gonna come next. One of them is home energy management beyond simply connecting the home. And that involves energy management systems that integrate batteries, electric vehicles, solar panels, heat pumps and traditional equipment in the home, so that it can be optimized and optimized with the grid. I think that’s gonna be a big platform going forward and it’s gonna happen every where. The other one is clearly mobility solutions and electric vehicle integration into the system as a whole. So I see those as opportunities as well as complications. There is one other area that we are focused on which is peace of mind. Customers pay a lot of money for peace of mind and one of the propositions we are developing, have developed and it’s now just in market is helping consumers monitor aging family members at home using sensors, not cameras because all of our research says the last thing your aging grandparent wants is a camera on them all the time. But in terms of understand their pattern of life and if they leave the front door open and forget to close it or they don’t seem to be up or they don’t seem to be doing anything, you can get an alert and that alert, if you don’t respond to it, as the primary carer will go to neighbors that the person is being looked after. We’re finding that this is researching very well. That whole area could be a growth area. The final point, I mentioned is again consumer but leak detection. It’s the biggest single cause of insurance claims, water leaks in the home. We have a plug on, clip on leak detector which again runs through the Hive system and we are finding insurance companies and water companies are interested in it. So, the application base for the platform technology is growing. But we are gonna have to keep innovating and trying and testing and it will work.

[00:33:41]

Jason Bordoff: Other questions. I have many more but is there a particular technology that you’ve seen that maybe is not fully understood, conventional wisdom that’s coming down the road that you’re particularly excited about that you think is gonna be particularly disruptive?

[00:34:02]

Ian Conn: I don’t know whether it’s a particularly new technology but I’m very interested in heat pumps. I don’t think we anywhere in the established world have really leveraged heat pumps both ground source and air source heat pumps and in the U.S. you know, you’ve got half of the heat pump in reverse as part of a traditional HVAC system. It’s kind of ironic with an HVAC system here, you use natural gas for the heat part as opposed to reversing, you know, using a reverse cycle in order to pump heat from the air back into the home. They work significantly down to very low temperatures and you know, I think there is real potential for heat pumps to start to reduce the dependency on natural gas. That may sound like a weird thing for someone who is in natural gas to say. But it’s coming to us anyway and the decarbonization of heat and the decarbonization of hard to abate sectors like cement, petroleum refining and petrochemicals is going to be one of the massive challenges for the next period. So, heat pumps, I would have way up my list.

[00:35:08]

Jason Bordoff: It’s interesting. Yeah because it does many of the things you’ve talked about. One might say, there is a tension between the success of parts of your business and the success of others. Is there an inherent tension and what does that mean for how companies reinvent themselves?

[00:35:22]

Ian Conn: Well, I honestly think you’ve got to get your head into that place. I’ve mentioned earlier. It’s a bit of a mindset flip to say, is it okay that what we are promoting might actually cause customers to use less energy? Well, one of the ways, I answered it earlier is the unit growth margins on energy sell, you know, 6 to 16% on revenue. The unit growth margins for some of these new technologies that we are selling to people 20 to 40%. Now, the relative scale of them means that one does not compensate for the other. That this is where, this is where customers want to go. And if we don’t follow the customer and we don’t provide the technology for the customer to do what they want to do, it will be game over eventually. So, we have to go there and we have to get our heads around that.

[00:36:11]

Jason Bordoff: And this point about heat pumps raises a question that is a topic of much discussion now, what is the role for natural gas in energy transition? We see a lot of the IOCs that are taking steps to reduce methane emissions, lower their life cycle footprint but talk a little bit about the outlook for gas both in Europe and then more broadly?

[00:36:29]

Ian Conn: So, we are, I mean our brand name in the U.K. is British Gas. We have been around since 1812 at the time of the second American war of independence. But what we have to recognize is that natural gas is crucial for the next 30 years. It’s absolutely crucial. If you listen to ______ [00:36:51] talk about Chinese use of gas, it’s gonna go from 5% of the mix to 15% of the mix. That’s gonna have a huge impact on the amount of gas required in the world. Natural gas is a good thing. It’s half the CO2 of coal and half the capital cost coal. Four times, if more efficient per, you know, for per unit CO2 in terms of financial costs. Now, I believe that we have to brace natural gas as part of the transition but it doesn’t mean it’s gonna be forever. But we, it’s been fundamental in taking unabated coal off the grid in Europe. There needs to be a price for CO2 and that price will eventually start to diminish along with the technologies I’ve talked about. The amount of natural gas intensity in each economy. But it’s not gonna happen for a while. And if we want the emerging economies to stop building one coal fired power station every week which is what’s happening right now, we are going to have to not only allow them to but encourage them to use natural gas. It’s why Centrica is still involved in LNG where we see growing our LNG business and we think it’s really important. It’s not the end game but it’s essential in the transition.

[00:38:06]

Jason Bordoff: Very dynamic outlook. A lot of uncertainties in the role of innovation and technology is gonna be key. So, it’s really a pleasure to have the chance to sit here and go and talk that through with you and the perspective that you have coming with so many different perspectives and all the work that Centrica is doing to help disrupt and lead different parts of the energy transition. Pleasure to see you again, and in fact, all of you for joining us. Please join me in thanking him.

[00:38:29]

Ian Conn: Thank you.

[00:38:33]

Jason Bordoff: I hope, you’ve enjoyed the special edition of Columbia Energy Exchange. For more information about Columbia Energy Exchange and the Center on Global Energy Policy, visit us online at Energypolicy.columbia.edu or follow us on social media at Columbiauenergy. I’m Jason Bordoff. We’ll see you next week.