Davos: the energy, food, water nexus

The Davos World economic forum has as one of its major themes the nexus between energy, food and water. 70% of water is used for irrigation while energy is, of course, essential for water distribution. So increasing food production to cope with rising population and demand has huge consequences for water supply. Food and energy prices are on their way up and that is driving investment in new production but what about water?

There is still no real recognition of the value of water in too many parts of the world and that unless it is given a value there will not be investment. The problem is that water is still seen often as a right and that where there is no history of charging for water it is politically very difficult to introduce charging. 

Just look at how difficult it is in Northern Ireland, where the inevitable effect of free water and consequent lack of investment came home with the water shortages that made the headlines over Christmas. Davos has suggested that one of the key levers for action is to introduce: “market led natural resource planning” which roughly translated means being prepared to pay for water.

Until politicians are prepared to grasp this issue – the problems of water scarcity will continue. 

OFT and Ofwat investigate market for organic waste and anaerobic digestion

At first sight the decision by the Office of Fair Trading to investigate the market for organic waste sounds surprising. The investigation was triggered by a request from Ofwat, not because it had competition concerns but because it was concerned that the appropriate incentives may not be in place to encourage anaerobic treatment of organic waste from food scraps from household waste and waste products from the food and farming industry.

Heather Clayton, OFT Senior Director of Infrastructure, said:'Advanced organic waste treatment techniques like anaerobic digestion offer tremendous opportunities to produce clean energy and reduce unnecessary waste. 'We need to make sure that the conditions are right to maximize the potential for these technologies to benefit the UK.'

There is a concern over competition as the water companies may have a regional monopoly and with the dominant impact of transport costs may be able to exploit an unfair market advantage. But perhaps more importantly if the market for organic waste is to develop it needs a more commercial attitude to developing new sources of supply than the water companies have so far shown. This is where Ofwat and the OFT may have a role to stimulate activity. 

Can the UK afford continued water investment?

The recent extreme weather events in Australia have served to highlight the challenges the water industry faces. Severn Trent Water estimates that another £96 billion of investment will be needed over the next 20 years. This is in addition to the £85 billion invested since privatisation.

Is this sustainable, especially with customer debts spiralling out of control?

Energy usage for example has spiralled by a staggering 113 per cent since 1989. Understandably the industry has been wedded to capital schemes and the transport of water to fewer centralised water treatment and wastewater plants with the consequent massive investment in the necessary water mains.

Is there a better way? Certainly the proponents of Sustainable Urban Drainage think so with the focus on local treatment at source. If we are to limit the increase in water bills and generate a truly sustainable water industry there needs to be a radical rethink about whether bulk water supply and largescale sewage treatment is really the best way forward. Should not individual households be encouraged to do much more to supply their own grey water? Certainly with new homes, rain water harvesting should become standard, as it already is in some European countries.

2011 brings the opportunity to drive forward change. A Water White Paper and related Natural Environment White Paper, a review of Ofwat, all promise change. Its important to take this oportunity to deliver a sustainable approach for the water industry, its customers , its investors and the envronment for the benefit of future generations.    

Northern Ireland Water - biting the bullet

The recent water supply problems in Northern Ireland were undoubtably inevitable given the chronic under investment in Northern Ireland’s water infrastructure. Even NIW on their website admit there has been chronic underinvestment and there is a big gap in performance compared to water companies on the mainland.

Water is a very long term businesses (with water mains on average over a 100 years old). But although politicians can delay expenditure, eventually, as the events of the last week have shown the inevitable consequences will result. 

With the ‘blame game’ now starting, this may distract from the real issue of whether the politicians (and the voters who put them there) are prepared to take the tough decision and sanction massive investment in improving the infrastructure. With the public sector spending cut backs, the only realistic way to pay for the investment is to start charging for water. Water is still ‘free’ in Northern Ireland and while the politicians refuse to take the tough decisions on charging its certain that water supply problems will reoccur and politicians (and voters) only have themselves to blame.

Management can't escape blame either, they know the problems that under investment will cause. Its their duty to make sure the risks being taken are explicitly clear. The key to good management is to plan ahead and act early. NIW may not be able to stop problems occurring but that does not excuse poor communication compounded by inadequate emergency planning.

Water sector - staying ahead

In being successful its vital to know what the strategies of your customers are and what the competition is doing.

• What are the aims and objectives of your customers?
• How do they define success?
• How well placed are your competitors to deal with the ‘New Normal’?

I know from my own exoperience its very easy to become internally focussed, particularly during difficult times – but its precisely at these times that an even stronger external perspective is absolutely vital. It provides vital intelligence and understanding of changes ahead, a useful sense check and challenges what you are doing.

• Do you know what your customers are doing to meet the demands of the “New Normal’?

There’s a lot of information available but even more importantly its vital to be talking directly with your key customers and others in the industry. As you would probably expect me to say, you can always enlist the help of cosultants to give you that external perspective. 

Building a succesful future

We have already discussed the new normal and its consequences and short and long term successes. What I propose is a set of challenges designed to assess just how ready your organisation is to deal with what ever the future holds.

Firstly let’s consider management

1            Do you managers undestand the potential implications of the new normal?

By this I mean do they have a good understanding of the main drivers in the water market, do they really understand what are the critical objectives for  customers and are they clear about how value can be added and how the service/ product offering can be clearly differentiated from the competition?

2            Have your managers identified the critical success factors to adapt to the changing market and economics?

This means having a highly capable and flexible team, having everyone focussed on how they can help customers achieve their goals as well as being strongly focussed on cost effectiveness and constantly striving to improve.

The key is smart management. This means:

• Really knowing your customers and their requirements
• Being able to identfy where value can be added and having the flexibility to develop the products required
• Being clear on who the customer’s key decision makers are and building excellent relationships 

Success in the water industry

In the previous post I referred to the ‘New Normal’ and what it might mean for water industry suppliers. Today I cover the question of what success will mean in the new normal.

The new normal prediction means that we are very unlikely to return to a repeat of the boom years of profitability.

So what success will mean is:

• Firstly being ahead of the competition – across a balanced scorecard of key benchmark indices as as well as less tangible factors such as innovation and people development
• Being profitable and having the funds to selectively invest in winner projects as well as organic growth
• Achieving sustainable improvements that leave you well positioned for the future e.g. innovation, training, organisation and process improvements

So having defined success the question is how do we achieve it?