Michael Lewis of E.ON: ‘Customers never felt the need to engage with energy – now they really do’
Michael Lewis is not used to friends taking a keen interest in his job. But the energy crisis, which has driven dozens of suppliers under, has turned the tables for E.ON’s UK chief executive.
“I never thought I’d be standing at a friend’s birthday party explaining the system marginal pricing of the electricity market,” he laughs. “But there I was, and I had an audience. They want to understand what happened – you explain why 29 suppliers failed and they’re saying: ‘Oh really? And we’re all paying for that?’”
The crisis has shone a light on the darkest corners of the industry, as ministers, officials and the public attempt to fathom and fix a situation that has cost customers billions of pounds and sent bills soaring. As the boss of Britain’s second largest energy supplier, behind British Gas, Lewis has seen his share of upstart rivals shaking up the market before crashing spectacularly.
“We’re highly critical of the fact that numerous companies entered the market with no capital on their balance sheet, using customers’ money to fund their business and ultimately leaving a trail of destruction,” he says. “We need to learn from that and make sure that we don’t let companies
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Age 55
Family Married with two grownup children.
Education Knutsford county high school, Cheshire. BEng, Leicester Polytechnic; MSc in pollution and environmental control, University of Manchester.
Pay £300,000 salary, plus variable bonus.
Last holiday “Lake Garda, Italy, with my wife. Our first trip since lockdown.”
Best advice he has been given “Don’t waste your time and energy regretting the past – focus on changing the future.”
Biggest career mistake “I’m not sure if it was really a mistake, but I passed up the opportunity to do a PhD. Maybe one for my retirement.”
Phrase he overuses “So what do we do now?”
How he relaxes Fishing, reading, philosophy, long canal walks. Occasional half-marathon runner.
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E.ON, which is listed in Germany and is worth €24bn (£21bn), has its UK headquarters in Coventry, but we meet at Citigen – one of the most unusual power plants in the country. Located in Farringdon, central London, the hidden plant is a labyrinth of industrial pipework that provides district heating, cooling and electricity to the densely populated area.
Its hotchpotch of brickwork – from smooth Victorian orange tones to grey breeze blocks – reflects engineering through the generations from its origins in 1894. In one room, huge combined heat and power generators are on standby; in another, a four-storey thermal store sits in a room once used to keep meat from the neighbouring Smithfield market cool.
Hot water is piped to draughty, grandiose buildings nearby, including Guildhall, at up to 90C. Slick, well-insulated new offices are supplied at lower temperatures. As Lewis speaks, the water in the jug on the table bounces, Jurassic Park-style, as generators and tube trains rumble below.
Lewis praises the government’s energy price guarantee, which is designed to limit typical household bills to £2,500 this winter. But he’s already fretting over its rise to £3,000 from next
April. The decision not to repeat the £400 one-off payment given to each household this autumn will make the jump even steeper. “It’s a massive increase – there’s a group of people who are not getting support through the welfare system: the squeezed middle. There’s going to be real pressure on average households,” says Lewis.
He is particularly concerned that vulnerable customers may need more short-term targeted support, which is funnelled through universal credit payments – although he adds that E.ON, which has 5.4 million UK residential customers, is yet to see a “big uptick in bad debts”.
Long-term, he is behind the idea of a “social tariff”, a targeted discount energy deal for qualifying low-income consumers. For better-off consumers, he would like to see a “relative price cap” that allows them to shop around for the best deals without penalising loyal customers. “That’s the best way of continuing to have a vibrant, competitive market that doesn’t leave people behind. In the past, people who are perhaps less savvy ended up on the highest tariffs,” he says, sipping from an E.ON branded mug.
Lewis didn’t set out to become the boss of a consumer business. He spent his childhood living with his father in Cheshire and visiting his mother in Swansea, south Wales, in the holidays, spawning a love of Welsh sport.
The engineering graduate was later an intern at an iron ore mine in a remote Western Australia village, watching the process of “basically blowing up a mountain”, which triggered an interest in the environmental impact of industrial activity. He completed a master’s degree in pollution and environmental control and had roles in handling emissions at Powergen. “In technical roles, you’re only mitigating the impacts; the key question was strategically what can you actually do about it?” He then took on strategy jobs and, after E.ON’s takeover in 2002, ran its renewables businesses. Deals to sell off fossil fuel and renewables assets followed, while E.ON’s UK arm focused on consumers.
Lewis became E.ON’s UK chief in 2017 and snapped up npower and its 2 million customers in 2019 after the supplier scrapped plans to merge with SSE. “It was very, very challenging. The business was very heavily loss-making, the service levels had declined and it had lost a huge number of customers. We did a fundamental transformation.”
As a group, E.ON raked in profits of £3.47bn in the first half of this year, although that was £591m down on a year earlier.
In the UK, there’s a host of projects under way, including a feasibility study on generating green hydrogen for Sheffield’s steel industry from a biomass
plant, and Lewis is keen to replicate elements of the “ectogrid”, a city-scale energy sharing project in Sweden, on British shores .
He’s also convinced a paradigm shift is occurring whereby consumers engage with energy and commit to using it more dynamically. “Our strategy is to get the right devices – smart meters, EV [electric vehicle] chargers, solar panels, batteries, heat pumps – in the right places: from homes to SMEs [small and medium-sized enterprises] to large customers and whole cities.
He argues that the mix of gas, coal, nuclear and renewables has meant the UK has “smart flexible generation and inflexible customers who turned on their demand when they wanted and supply responded”. With more intermittent wind and solar “we need smart, flexible customers”.
As such, E.ON was among the first suppliers to offer National Grid’s demand flexibility service, incentivising them to reduce their power.
“Customers never felt the need to engage – now they’re really engaged,” he says. Asked about his plans when he gets home to Warwickshire that evening, Lewis says he intends to walk along the Grand Union canal to the pub near his home. With the state of the energy industry, he’ll have plenty more to discuss with friends over a pint.