Urban Waste Water Directive still driving investment in water infrastructure

Photo source: Southern Water

Despite the fact the Urban Waste Water Directive  (UWWD) was supposed to have been implemented by 2000 it is still driving major investment across Europe. In the UK virtually all schemes are now complete except London. The UWWD is one of the factors forcing the investment in the Thames Tideway Tunnel.

There are similar very major schemes in Europe especially a huge scheme in central Paris as well as schemes in Italy and Spain.

Despite the current harsh economic climate there is continuing pressure from  the EU to enforce current legislation, with both Belgium and Luxembourg subject to fines. The EU is also seeking to foster integration of water and other policies especially the common agricultural policy. Consultation is currently open on several directives that could have significant financial impacts.

Topically the EU is talking about a European standard on drought management and water efficiency. This could help to drive European wide standards for water saving equipment and fittings, which could be useful.  Although the UK stance will be that it prefers to manage drought issues not the EU. 

Bathing Water Standards - trouble ahead

Photo: Courtesy of Southern Water- their new treatment works at Brighton

The story over the last two decades has been one of steadily improving bathing water quality largely as a result of the massive investment by the water companies in coastal sewage treatment. Now the situation is about to change.

For the last few years bathing water quality has plateaued. In 2015 the new Bathing Water Directive comes into force. This changes the classification of water quality – if the proposed standards came into force today, 10% of English waters would fail. In addition the blue flag status will move to excellent water quality in 2013.

The other change which will have a big impact is that from this year information on water quality and sources of pollution will have to be displayed at all bathing waters and in 2016 classification symbols will also have to be displayed. This sounds like an innocuous change but the impact is likely to be very significant. When major beaches have to display a clear sign saying water quality is not fit for bathing the public relations consequences are likely to be severe. 

Further improving bathing water quality is likely to be expensive. The frequency of spills from combined sewer overflows will have to be reduced further and action will be needed on diffuse sources of pollution as well.

Northern Ireland Water still trying to catch up

Performance at Northern Ireland Water (NIW) is certainly improving but they have a long way to go to be as efficient as the UK mainland water companies.

When NIW was formed the gap on costs was 49% now this has reduced to 39% but this still means that NIW customers are paying about £1.6 for every £1 paid in England a significant additional cost burden. The service NIW provides is also a long way behind with a notional OPA score of 131 compared to the UK mainland average of 254

NIW is unique in being the only water company in Europe that does not charge its customers. There has long been talk of introducing charging as a means of both increasing investment and encouraging customers to reduce their water demand. But it is very clear that this is politically totally unacceptable.

The consequence is that NIW are in the very difficult position of both being a Government Company and also a Non Departmental Government Body. This means that NIW are subject to annual budgets and reductions in expenditure as public finances tighten despite the Price Control agreement implemented by the Utility Regulatory. Price Control 2010 (PC10) does allow expenditure of £190m a year, but in PC13 (2013 -2015) this is dropping to £170m a year 

The forecast for 2015 onwards shows a massive drop to £100m a year.

For NIW to meet the challenges it faces it is essential the Governance issues are solved and that will require strong political leadership.   

Marine Planning process - protecting the waves

Photo source: SASThe Marine Planning process has started. The first area opened up for Marine Planning is the East coast between Scarborough to Felixstowe. Currently every conceivable coastal stakeholder is making their claim to the sand.

The Marine Planning organisation who are leading the Marine Planning process have recognised recreational water users as stakeholders they need to include but don’t have the data for. The campaign group Surfers Against Sewage is working to ensure surfers, kite surfers, windsurfers get involved.

Ensuring local waves and surf spots are marked on the Marine Planning map might not immediately sound exciting or important. However when a developer decides to build a new marina they will need to consult these Marine Planning maps. It will open up stronger legislation to protect waves.

The increasing popularity of surfing is leading to significantly more pressure on water companies and the Environment Agency to ensure bathing water quality is improved. Currently the European Commission believes the UK is breaching the Urban Waste Water Directive by allowing CSO’s to discharge sewage too frequently. The outcome of the case being investigated by the European Court of Justice is expected shortly.

Campaign groups like Surfers against Sewage working with the water companies have started a sewage alert service to warm water users when CSO’s are .spilling. All this attention is ramping up the pressure and it’s a reasonable bet that the next periodic review will see increased expenditure on reducing CSO discharges.

Future direction in the water industry

Photo: Southern Water's new Brighton treatment works taking shape

Speaking at the British Water House of Lords reception this week, Lord Taylor Parliamentary under Secretary of State for Defra outlined the Government’s view of the priorities in the water sector. Some old favourites came up like the emphasis on innovation and a reminder of the TSB sponsored competition to promote Innovation due to be launched in the Spring.

Catchment management and the need to tackle unsustainable water extraction is a clear focus of Defra attention. It is an area where real progress can be made givern sufficient focus. Defra will also shortly be issuing guidance to Ofwat on how it would like to see regulation develop.

Last week the Government launched a bill to enable it to reduce the cost of water for South West Water’s customers by £50 year – as promised in the last budget. The bill also allows the Government to provide financial support if the cost of the Thames Tunnel escalates.

The Government’s view is that a lot of the proposals outlined in the water white paper do not need legislation, however for those that do a Water Bill will be announced in the Queen’s speech. 

Changing ownership of UK water companies

Photo: construction underway at Peacehaven, Southern Water

The last few months has seen major changes to the ownership of the UK’s water companies. Cheung Kong Holdings has acquired Northumbrian Water, the Canadian investment fund Capstone has bough Bristol Water and this week came news that a Chinese wealth fund has acquired 8.7% of Thames Water. The later deal may have more to do with Santander selling its stake to raise cash due to the Euro Crisis and the withdrawal by investors of funds from European banks.

However its clear that the UK water sector remains very attractive to investors. This is further underlined by the successful bond issues by several water companies like the £250 million bond issue at 4.875% by Severn Trent. Its not surprising the water sector is attractive, given its totally secure cash flow – its customers wont stop using water! The regulated structure means that their income for the next few years is certain. Better still water prices are linked to the retail price index so are currently increasing by over 5% a year – not many businesses have that luxury.

The 64 000 dollar question is has the regulator got the balance right between a fair charge to customers and an adequate return to reward investors? The appetite to buy UK water companies implies not.

The start of a new year is traditionally a time for looking forward. Although much of the news has been about the Euro crisis and current financial problems of most of the world’s major economies. The blog believes it is also a time to be optimistic.

Yes major change is happening, perhaps most importantly there is a huge demographic change underway as the average age in the G20 countries gets older. The post war baby boomers are now reaching their 60’s and this will have a profound impact on demand patterns.

                                                                     Graph copyright International eChem

 29% of the rich Western population are now in the New Old generation of 55+ years. Yet just a century ago, Western life expectancy was only 46 years. It was still only 66 years in 1950. Today, these 272 million people can expect to live until they are 80.

This change in age profile to many more people being ‘retired’ rather than being in their 20’s to 40’s, having families and buying new houses and cars will have a huge impact on demand. People in their 60’s plus don’t need new cars or houses, they have very different demands.

The blog written by my ex ICI Watercare colleague Paul Hodges gives a lot more detail on the changing population demographics and why this will create a New Normal. His blog is well worth reading www.icis.com/blogs/chemicals-and-the-economy/

There is a big paradigm shift underway. But any change like this brings opportunities especially for those first to realise what is happening.

The blog wishes you a successful and happy New Year.