The Times - UK - 04.12.2021

the times | Saturday December 4 2021 59

The ManifestoBusiness

W

hen he’s not running
Britain’s second
biggest household
energy supplier,
Michael Lewis likes
to read philosophy. It has taught him
that “the calmness of stoicism is
probably the most important lesson.
Always remain calm in a crisis.”
It’s a lesson that should stand the
54-year-old boss of Eon UK in good
stead this winter. Surging wholesale
gas and power prices have plunged
the British energy market into an
unprecedented crisis. Households are
facing record bill increases, while
start-up suppliers have been dropping
like flies. By the time of this interview,
21 domestic energy retailers had
collapsed in four months.
According to Lewis: “We had far
too many companies entering the
market that were poorly capitalised,
that didn’t engage in proper risk
management and that were, frankly,
using customers’ monies to fund their
business and to gamble on wholesale
prices.” Indeed, some suspect that
established suppliers like Eon may be
relishing the demise of smaller rivals,
which have been poaching their
customers for years. While Lewis
concedes it’s “a good thing” that some
firms offering unsustainably low
prices have left the market, he
laments that it’s come to this. “We’re
not rubbing our hands with glee, far
from it. This is really not good for the
industry and it’s not good for
customers.”
With the exception of Bulb, which
is in special administration, customers
of failed suppliers have been moved
to solvent suppliers, including Eon.
Most of the extra costs that these
suppliers incur as a result — from
honouring customer credit balances
to buying energy at short notice —
will be recouped from a levy on all
households, including Eon’s
5.5 million customers. “That’s really
the fundamental problem: when those
companies came into the market and
gambled with customers’ money, they
weren’t just gambling with their own
customers’ money, they were
gambling with our customers’ money
because our customers will have to
pay for it. It’s not fair. It’s totally
wrong.”
Lewis insists that he doesn’t “want
to get in the blame game”, but is
implicitly critical of Ofgem. “We all
agree that there are serious flaws in
the regulatory regime that got us
here. Something should clearly have
been done sooner. For me, the most
important thing is that we fix the
problem.”
The short-term priority is to shield
people from rising costs. Already, the
price cap that limits tariffs for
15 million households is expected to
undergo “a very substantial increase”
in April to reflect high wholesale
costs. “It’s certainly going to be
several hundred pounds. It’s going to
be incredibly challenging for
customers next year. I don’t think a
lot of customers have realised this is

coming yet.” Lewis wants the

government to mitigate the impact by

taking VAT off energy bills, saving

households about £50 a year, moving

environmental levies from bills into

taxation, saving about £150 a year,

and permanently shouldering the

costs arising from all supplier failures,

which otherwise could start feeding

through to bills from April, with an

initial cost that he estimates of about

£50 per household. “If you take all

The boss who understands that with

power comes very real responsibility

The head of Eon UK

wants to protect energy

consumers now and

the planet’s future,

reports Emily Gosden

Michael Lewis in the basement of Eon UK’s headquarters in central London, where heat pumps are being installed to drive a zero-carbon district heating scheme

that away, at least that’s £250 that

doesn’t need to be in the bill.”

In the medium term, he says that

regulation of suppliers needs to be

tightened to protect customer credit

balances and ensure that companies

are “properly capitalised and... have

proper risk management in place”.

Ofgem must also address “some flaws

in the price cap methodology”,

although Eon is no longer opposed to

the cap itself. “We’ve learnt to live

with it. The market works with a price

cap and we have to get the cap right.”

In the longer term, he believes the

answer lies in decarbonisation. “The

fundamental problem is we’re tied to

the global gas market. We need to get

off gas. Getting off gas is a positive

environmental and economic benefit.”

He cites an interest in

environmental issues dating back to

an undergraduate internship at an

iron ore mine in Australia

(“essentially, it comprised blowing up

a mountain and exporting it to

Japan”). He did a masters in pollution

and environmental control and, after

a brief stint in the water industry,

joined Powergen in 1993, initially

working to reduce emissions from its

coal power plants that were causing

acid rain. He moved into strategy and

then to Germany in 2004 after the

company was acquired by Eon.

Lewis arrived in Düsseldorf with a

rusty grasp of German from an O-

level two decades earlier, but studied

it to fluency (“I used to sit on the

tram and go into work with my

vocabulary book, learning ten words

every day”) while also developing

Eon’s carbon strategy, leading to the

creation of its renewables division,

where he became the first employee.

Since moving to lead Eon UK,

much of his time has been taken up

dealing with Npower, the former rival

that landed on his plate in 2019

through an asset swap between their

German parent companies.

Combined with the price cap, the

Npower acquisition rendered Eon UK

lossmaking in 2019 and 2020, but a

“pretty drastic” cost-cutting campaign

and a switch to Octopus Energy’s IT

platform have put the supplier on

track for profitability this year. It aims

to reduce its annual operating costs to

less than £50 per customer by next

year, down from more than £100 for

Npower and £85 previously for Eon.

In future, however, Lewis hopes

that profit growth at Eon will come

through a “package of measures to

get the customer to zero carbon”, such

as optimising electric vehicle charging

and decarbonising heating.

It is making a contribution to net

zero on its own property, too. Eon’s

Citigen building in Farringdon,

central London, is the heart of a

“district heating” scheme — a huge

network of pipes that supplies hot

water to buildings near by. It runs on

gas, but Eon is working to decarbonise

this system. Down in the basement,

three giant heat pumps are being

installed that will run on renewable

electricity to draw warmth from

boreholes 200 metres below ground.

Lewis sees a big role for new low-

carbon district heating schemes in

dense urban areas, but is “absolutely

convinced” that individual heat

pumps, which typically draw warmth

from the air, are the way forward for

most homes. He is brimming with

ideas for how to encourage people to

install such technology, from

mortgages that include funding for

low-carbon upgrades to tailored

stamp duty holidays. “We need to

upgrade about 20,000 houses a week

by 2050. That’s roughly how many

houses are transacted every week in

the UK, so there’s a nice symmetry.

That’s where the focus needs to be.”

Yet while the climate crisis

demands action on such matters,

there’s no escaping the retail market

crisis for now. By the time this

interview had been wrapped up, two

more suppliers had gone bust.

TIMES PHOTOGRAPHER RICHARD POHLE

Q&A

Who is your mentor?

Someone I look up to

would be my

grandfather, who left

school at 14 and worked

in a mine in south Wales

and then, via evening

classes, ended up as a

lecturer at what is now

Reading University. He

lived to 108

What does leadership

mean to you?

The willingness to step

forward when you don’t

necessarily know what

exactly the right

thing to do is.

You have to

take the

information

you’ve got,

make the

best

judgment

you can and

convince people to

come with you

Does money motivate

you?

That’s certainly not my

prime motivator. It’s

much more important

to have a purpose

Who do you most

admire?

Nelson Mandela. I was a

supporter of the anti-

apartheid cause when I

was a student and I had

the pleasure of meeting

him back in 1993

Favourite TV

programme?

I don’t watch much TV. I

watch Channel 4 News

and I like BBC Four on a

Friday night, they

have some

great music

documen-

taries (such

as on Billie

Holiday, the

American

singer, inset

left)

CV

Age: 54

Education: Leicester

Polytechnic; University

of Manchester

Career: 1991:

environmental

specialist, Wessex Water;

1993: environmental

specialist then strategy

roles, Powergen, which

was taken over by Eon

in 2002; 2004: vice-

president corporate

development, Eon AG;

2007: managing

director Europe, Eon

Climate and

Renewables; 2012: chief

operating officer wind

power, Eon Climate and

Renewables; 2015: chief

executive, Eon Climate

and Renewables; 2017:

chief executive, Eon UK

Family: Married, two

children

have

gre

do

ta

a

H

Am

sing

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