Centrica boss reveals his ambition to make Britain a leader in hydrogen

Chris O’Shea, CEO of Centrica, the FTSE 100 energy giant that owns British Gas, is no pinstripe suit guy.

Despite a fear of heights, he dons brightly colored protective gear and strides across the metal walkways of a North Sea platform, with a dizzying view of the gray-green waves below.

He believes this platform, 18 miles off the East Yorkshire coast, could make our energy system more resilient to shocks such as Putin’s war on Ukraine, and help the UK economy go green.

He is also convinced, although he cannot prove it, that it can reduce consumer bills.

After a short helicopter ride from the mainland, we landed on a small circle at the Rough gas storage facility.

To the dismay of many at the time, it fell dormant in 2017 after the government refused to give Centrica financial support to keep it running.

O’Shea, 49, reopened the facility, staffed largely by friendly Geordies, Teessiders and Yorkshiremen, in the midst of the energy crisis last fall.

He just announced a major increase in the amount of gas that can be stored, from 30 billion cubic feet at the time of reopening to 54 billion cubic feet this winter. This, he says, is equivalent to the gas needed to heat 2.4 million homes in cold weather.

He hopes this is just the start of an ambitious plan to develop Rough, a field discovered in the late 1960s and acquired by British Gas in 1980 for storage.

The idea is that Centrica will invest £2 billion to ‘create the largest gas storage facility in the world’ along with up to 5,000 jobs.

In the future, Ruw could, he argues, be used to store hydrogen – widely seen as the environmentally friendly energy source of the future – and put the UK on track to become Europe’s leading hydrogen economy.

But first, he says the government needs to provide a supportive regulatory framework. He wants a model with an agreed return. If Centrica makes more, it would pay back money to customers, and if it is less, it would be added to the bills.

This sounds sensible, but politicians are wary of anything that could add to the woes of the cost-of-living crisis, and there is understandable suspicion from energy companies, who are accused of making profits at the expense of customers.

“We didn’t ask the government for money,” O’Shea says. ‘Ultimately, it ensures lower bills and greater resilience of our energy system.’ Even with the latest capacity expansion, Rough will still operate at just over a third of its previous capacity. O’Shea wants to expand it to 200 billion cubic feet, making it the largest such facility in the world.

We could be bigger than China. I would be very proud. The UK could become a net energy exporter again if we produce hydrogen on a large scale.

“We don’t have open talks with the government about Rough, but I’d like to.” O’Shea has an extravagant beard with a curled mustache in the style of a Victorian strongman.

A hipster-style tonsure isn’t the only unusual aspect of O’Shea. He’s surprisingly outspoken – possibly the legacy of his upbringing on a council estate in Glenrothes, Fife, before the family moved to Glasgow when he was nine.

In a highly unusual move, O’Shea received no bonuses for the first two years of his tenure as CEO. As a result, he was one of the lowest paid bosses in the FTSE 100, albeit with annual rewards of £765,000 and £875,000 respectively.

This year, regardless of what it would look like for struggling clients, he decided to take his £3.7 million bonus. ‘There is always attention for the remuneration of top executives of listed companies. There is much less focus on the leakage of value from companies that are not listed on the stock exchange,’ he says.

He is referring to some of the smaller energy companies that went bankrupt during the energy crisis. Centrica took over 750,000 customers from nine bankrupt companies. The cost, about £88 per household, has been added to people’s bills.

In some cases, such as People’s Energy, where the founders emerged from the wreckage with a combined £50 million, individuals have greatly enriched themselves. Some of the founders of these failed companies walked away with millions. It’s an abomination.’

He says it’s wrong that some smaller companies don’t shield customers’ assets. Instead, they use that money as working capital, so if bill payers all wanted their money back, the companies wouldn’t be able to pay them back.

“At Centrica, we withdraw customer deposits and we believe all retail energy suppliers should be forced to do so. Some of the largest energy suppliers are run by very wealthy individuals. When things go well, they get even richer, and when things don’t go well, people like my mother foot the bill.’

Wouldn’t some companies be technically insolvent if they were forced to foreclose on customers’ money?

‘Yes. But it means they pose a systemic risk to our energy. We must face these problems. They are no longer allowed to take on clients and they must be forced to raise capital from their shareholders. At least two of the Big Six are undercapitalized.”

Yet Centrica has had its own scandals. Earlier this year, British Gas was at the center of a storm when external collection agencies were found to be forcibly breaking into homes and installing prepayment meters.

O’Shea apologized profusely at the time. He now says an investigation “has revealed no systemic problems, but some areas where we fell short.”

‘We brought the entire collection in-house. We have not yet reinstated prepayments except in crime cases such as cannabis farms. We found a lot of that,” he says.

In the longer term, he says, the UK needs a more resilient energy system. Even after the expansion at Rough, the country will still have a much lower gas storage capacity than its large European neighbours. This, he says, leaves us vulnerable to price spikes and ultimately to the lights going out. The UK has 12 days of storage after the expansion, compared to 89 in Germany, 103 in France and 123 in the Netherlands.

Formed 300 million years ago before the dinosaurs, the gas reservoir covers an area larger than the surface of Lake Windermere and lies 1.7 miles (2.7 km) below the sea floor. “It’s very dry, so it’s perfect for storage,” says O’Shea, adding that it’s the ideal temperature to store hydrogen.

‘We have the most amazing natural endowment in the UK. It’s a pity that Rough has closed and I’m very glad it’s reopened. I can’t prove it, but I think energy prices would have been lower if it had stayed open.’