CECA National Civil Engineering Director Peter Crosland sets out what the current landscape of regulation in the water industry means for members.
The Environment, Food & Rural Affairs Select Committee have published their findings following an inquiry into the Regulation of the Water Industry. The inquiry looked into how well the water industry serves consumers and whether current regulatory enforcement mechanisms are fit for purpose. The inquiry also looked at the potential benefits of regulatory divergence post-Brexit.
The report is the result of consultation that was started in May 2018 and involved the responses from 40 individuals and organisations who are involved in the UK water sector. High profile witnesses gave evidence over 4 days to various members of the Select Committee.
Key Findings
Increasing Supply – There is an inevitable need either through climate change and/or increasing population that some areas across the country will need to address potential future water shortages. It is suggested that these shortages can be addressed in a number of ways but it is recognised that each region is different.
Water Transfers – It is recommended that water transfers should play a more important role in increasing supply and resilience. It is recognised that there are environmental and infrastructure challenges associated with this approach, but it is thought by Defra that the current rate of 4% of ‘traded’ water needs to be doubled in the next 20 – 20 years. Although some way off, this would require significant investment and therefore provide substantial opportunities for CECA members to be involved in this work
Leakage – Leakage from water systems is still shockingly high and there is to be a continued focus on reducing the %age lost from the network. It is viewed that Ofwat’s target of a 15% reduction by 2025 is not ambitious enough and that the industry should collectively be aiming to reduce leakage by 50% by 2040 rather than the date of 2050. The net effect of this target would be a potentially significant investment in mains replacement / relining and would again hopefully provide CECA members with a significant increase in activity.
Reducing demand – Although metering of supplies has been proved to have an effect on water consumption the Government has not yet supported (to date) a PCC (per capita consumption) target. The inquiry concluded that use of metering sends a strong message to water users about the value of water. Whilst not directly affecting CECA members, it could be useful for member organisations to help educate the public around the value of water which in turn would show that the construction industry takes this issue seriously. It is also suggested that a benefit of metering is the effect (and identification) of leaks within the network.
Water Retail Market – Ofwat have stated that they believe there have been promising signs within the first year of roll out of the retail market in England and Wales. That said, the inquiry’s view is that the results around water efficiency for the first year were ‘unimpressive’. In particular, they were disappointed at the uptake of SME’s in the retail market as it is suggested they could play a significant part in improving water efficiency and resilience. Although still in its infancy (in England and Wales), it is believed the retail market is encouraging new entrants to be innovative. An example of this is where businesses are able to connect new housing developments incorporating dual water systems, grey water systems and innovative water efficiency schemes.
Is regulation fit for purpose? – The main comment made by the inquiry related to the price review cycle and that it was too short to allow long-term planning in the industry. The recommendation is for the Government to commission an independent review to determine whether the water industry and regulation fit to meet the future demands including drought resilience as well as delivering value for money to customers.
In Conclusion
It is clear from the report that the focus is very much on water supply and resilience and these elements are key to CECA members’ workloads. The movement (transfer) of water from one region to another and the infrastructure to do this is going to require significant investment and CECA members need to be ready for when these opportunities arise.
Whilst innovation is not targeted specifically it is nevertheless ubiquitous and members are encouraged to be innovative across all areas.
It is frustrating that we now have to wait for another review to tell us something that we know already – that the price review periods are too short. This has been a widely held view of CECA and its members for some time and we continually challenge water providers and the regulator in this regard. It remains to be seen whether this will change any time soon, but will keep our members informed of developments.