New innovation fund for the water sector

A new innovation fund for the water sector will be announced shortly. The fund will have about three million pounds to award by means of a competition. The best ideas will get 50% funding.

There is now broad acceptance of the importance of innovation but the industry is still very risk adverse. This is a step in the right direction and should encourage new ideas to be developed through to successful implementation.   

Water White paper delayed till autumn

It is disappointing to hear that the promised Water White Paper has been delayed till the autumn according to Environment Minister Richard Benyon. The reason cited is the need to develop the policy on affordability of water following the announcement in the budget that action would be taken to tackle the very high water bills in the South West. This is likely to prove a very difficult area to tackle especially now that expectations have been raised.

Yet again this year is proving one of climate extremes with the very dry and warm April. In the blog's area, Somerset, rainfall last year was one of the lowest in 100 years, with December the driest month on record.  Water supplies is just one of the key areas that the Water White paper will address. Given the very long lead time to develop new water resources this guidance is urgently needed. 

Privately owned water utilities achieve highest returns

Increases in the Regulated Capital Value (RCV) are good news for shareholders, who see increasing returns on their investment but bad news for customers who only see rises in their water bills.

 

Ofwat has just released the latest RCV updates. These show that the three water companies achieving the highest increases in RCV are Thames Water (9.16%), Southern Water (4.32%) and Yorkshire Water (3.51%). These water companies are all now owned by institutional investors. By contrast the water utilities with the lowest increase are all in public ownership, Severn Trent Water (0.44%), South West Water (0.96%) and not for profit company Welsh Water (1.16%). This does imply that privately owned companies have a more aggressive approach to driving up the regulated capital value.

It also helps to explain why water utilities are so attractive to long term investors like pension companies. With returns on investment above 10% for the best performing plus a risk free investment its no wonder pension companies have been flocking to buy into water companies.  

Water wars

The blog has just returned from visiting South Africa – what an amazing country but with huge challenges and a startling divide between the rich and poor. Water is a big issue. Still about 20% of the population struggles to obtain clean water despite some parts of the country being extremely affluent. 

Elections are forthcoming and in riots over water supplies to a township, one protestor was shot dead by the police. This was an isolated incident but is indicative of the huge social problems lack of water and sanitation cause. 

Water charging based on volume is established but a majority of the population struggle to afford the cost. It was clear insufficient investment is occurring and progress in improving water supply and sanitation appears to have stalled.       

Public subsidy to cut water bills

The blog was delighted to hear in today’s budget that the Chancellor announced help for South West Water customers. SWW customers pay for the upkeep of 30% of England’s coastline, even though they account for only 3% of the population. They have some of the highest water bills in the country and were due to face a 5.1% increase in April.

The announcement by the Government will help to reduce the inequality and is welcomed. But an announcement like this may have unintended consequences, it will certainly increase the focus on water bills. 

Information revolution will drive up water quality

The advent of so many computers and intelligence built into the systems that make our modern world work like cars, appliances, mobile phones and water networks is making available a vast source of data that could transform how we run our cities and built environment. IBM has recognized this in its Smarter Planet’s initiative.

Imaginative new Apps are being developed by IBM like Creek Watch. This is a simple application on an iphone that enables anyone to quickly and easily take a photograph and send a simple report on the water quality in their local stream, river or brook.  It means that rather than having to send inspectors out the Environment Agency or water company can get site specific data on the quality of local water courses and identify pollution incidents much quicker.

The Environment Agency is taking this a step further by a new scheme its about to launch that will require water companies to text surfers whenever sewage is about to be pumped into the sea. The Environment Agency will also announce on Thursday that it is publishing profiles on all designated bathing spots. All this information and the power it brings to people to understand what is going on at their local bathing spot will undoubtedly increase pressure on the water companies to take further action to improve water quality. 

It will  ensure that we have a much better understanding of where the real pollution hotspots are ensuring investment is targeted where it will make a real difference, That is in everyone’s interest, water companies, water bill payers and bathing water users.

Push, pull, nudge to save water

Photo source: Ofwat

Ofwat’s new focus report on reducing water consumption is to be welcomed if it promotes debate. It suggests various ideas to reduce the consumption of water. While the environmental case to reduce water usage is clear the financial case from the viewpoint of the customer is not.

Water suffers from two main problems, its too cheap and most of the costs are fixed not variable. Ofwat proposes that there should be much greater use of metering but is this really going to change behavior? In most cases water meters are installed in the pavement outside the property boundary so it is impossible for the customer to read them even if they wanted to.

Smart meters may help but so far it is far from certain these will influence consumption and the cost is currently excessive.

What about nudging behaviour and persuading customers to buy appliances that use less water. Here again the low cost of water is the issue. Typically a dishwasher that uses less water costs considerably more, perhaps £100 yet the annual water saving is at best £5, hardly a compelling financial investment case. Instead the trend of consumers to install power showers is continuing unabated. There needs to be some realism in the debate and a recognition that most customers lives are far too busy to want to worry about water consumption. Other solutions need to be found such as improving social housing by installing showers in houses that only have baths.