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City faces a short circuit

7 April 2008

Manchester's economic growth is being stifled by a poor electricity supply. Businesses, particularly in IT, are struggling to find locations with enough energy to meet their growing needs.

The Association of Greater Manchester Authorities (AGMA) is so concerned by the problem, which is down to the state of the city's electricity distribution infrastructure, that it has commissioned Manchester Enterprises to carry out a new a study.

Evidence uncovered by Manchester Enterprises — the economic development agency for Greater Manchester — will be used to put pressure on the government to find a solution. John Steward, head of planning and environment at Manchester Enterprises, said: "We believe it is having an effect on Manchester's growth. We believe the study will confirm that. There is anecdotal evidence that it is happening. We believe it's having a slowing effect on the economy."

Manchester Enterprises believes enough power is entering the grid but a poor distribution network means capacity is restricted. Trafford Park is one of the areas affected, according to energy consultant Jeff Wealands, of Pendleton-based Utility Auditing Ltd. He said one client in the area was forced to pay up to £40,000 to install transformers to feed directly from the high voltage network. Wealands said: "There has been a lack of investment in infrastructure. It is not keeping up with demand."

Manchester-based web hosting firm UKFast, which has a data centre in Hulme, said the problem is so acute that it is considering building its newest centre in London.

Typically a data centre will use 4 MVA, (million volt amps) which equates to 40,000 times the energy used by a PC.

UKFast found only three potential sites in Greater Manchester where it identified a "power surplus" but concluded these were unsuitable to build a new centre.

UKFast managing director Lawrence Jones said the problem was discouraging IT companies moving here and was stifling growth in the sector. He said: "I know it is happening with people with hosting facilities, competitors of ours. Everybody has come up with the same problem.

"I have to consider doing our next data centre in London. That is possibly between 50 and 100 jobs as the company grows. Unless we can tackle this problem we might have to do it. I'd rather stay in the North West."

Jones said he had come across evidence of landlords charging a rent premium on sites with an abundance of electricity.

He has been told by United Utilities that he would have to put up capital costs of £1m before there could be any improvement in electricity infrastructure.

Peter Mills, managing director of Internet Facilitators Ltd, which also runs two data centres in Hulme, is facing the same problem.

He said: "There is a significant amount of money that has to be put up front. We are having to put in the capital up front and that amount of money is difficult to find. Anybody that has a large power requirement, like warehousing or manufacturing, will have a potential problem."

What is unclear is who is to blame for the infrastructure problems. Some analysts blame government privatisation which effectively split electricity suppliers, those that supply power to companies, from the distributors, which maintain the infrastructure.

Little encouragement

According to some the set-up does not encourage electricity distributors to invest heavily in infrastructure because they do not receive any income directly from customers.

Manchester's distribution system is now owned by North West Electricity Networks Ltd — a consortium of JP Morgan and Commonwealth Bank of Australia — following its £1.7bn acquisition of UU's infrastructure arm last December. UU still looks after the network through a contract which runs until 2015.

The company, when it was controlled by UU, generated a pre-tax profit of £144m by charging electricity suppliers a fee for maintaining the network.

Manchester Enterprises says its report will be completed in the coming months.

It told Crain's it would highlight to the government that certain legislation, to protect customers from huge price hikes linked to infrastructure investments, was actually preventing utility companies from investing in the network. John Steward said: "Ofgem — the government regulator — restricts the forward investment a utility company can make. There is regulation in place that does not help effective forward planning. We are in discussions with the government on this issue."

United Utilities said it was spending £10m to £15m building two substations in the city centre. It has started work on one near Piccadilly station and is currently looking for a site for the second.

A spokesperson added: "Beyond the city centre, we are continuing to play an active part in local economic planning across Greater Manchester to help anticipate future electricity needs.

"The main challenge we face, especially in the city centre, is the availability of sites on which to build new sub-stations."

By James Chapelard

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