Look for a silver lining from higher water prices

MEUC Water Adviser, Karma Loveday warns, water bills will rise after 2025. Large users should use this as a spur to reconsider whether they could do more to manage their usage.

Regional water companies across England and Wales published their business plans for 2025-30 on 2 October, providing a clear line of sight on the direction of travel of water prices and services for the coming five-year period. Change is very much on its way.

At a high level, we are about to swap over a decade of moderate investment and flat bills (before inflation is added) for substantial price rises to fund bumper spending. Under the plans, water wholesalers have proposed doubling their current total five-year spend of circa ￡50 billion to ￡96 billion in 2025-30. This is in response to campaigners and media criticism, particularly of storm overflow discharges to rivers; new legislative requirements including from the Environment Act; tighter regulation; and higher public expectations.

It is impossible to summarise everything the plans set out to deliver, but some key outcomes include:

? 140,000 fewer storm overflow spills and a 66 per cent reduction in serious pollution incidents.

? 31 per cent reduction in leakage from a 2017-18 baseline.

? 830Ml/d of new water resources, including progressing ten new reservoirs.

? ￡2 billion for millions of smart meters.

? 28 wetlands to improve water quality and biodiversity and ￡1 billion on Net Zero measures.

The headline numbers mask considerable variety company to company. Spending growth is far more pronounced for water and sewerage companies than for water-only companies because wastewater outcomes (discharges, pollution etc.) for the water environment are the major focus.

At present, bill impacts are only expressed for household customers, but these provide an indicator for business customers of the direction of travel of their wholesale charges. The average household bill would rise by about a third, before inflation, but again there is wide variety.

Negotiations between Ofwat and the water companies on the plans are still ongoing. Ofwat will give its preliminary verdict in May/June 2024. History suggests the regulator will squeeze the plans and demand efficiencies that will lead to lower bills for customers than the water industry has put forward. But this won’t reverse the direction of travel, just moderate it. So, to varying degrees, businesses must plan for much higher water and wastewater charges after 2025.

Will this drive a greater focus on water management? Despite the hikes, water charges will remain below costs for energy, communications, and other utilities, so in that sense, water is likely to remain at the back of the queue for attention. However, higher costs will inevitably drive more focus on water, and the incentive to save will be higher.

But there are also many other good reasons why large users should take the moment of price increases to consider their water management practices and whether any efficiencies or adjustments might be found. These include:

? Water security –?changing climate patterns, population growth and policy requirements to leave more water in the environment for nature are increasing water security risk for businesses. One regional water company has had to refuse 40 megalitres a day of growth from the non-household sector in the past 12 months, because it simply does not have any spare water to meet the requirement. Although currently confined to pockets of the country, such stories look set to become more common. Using water as wisely as possible is in business interests.

? Better data –?the water company plans for 2025-30 earmark ￡2 million for rolling out smart meters to household and non-household customers. While the details remain to be confirmed, more businesses will receive wholesaler-funded smart meters in the coming years. Policies are being developed to ensure the data is accessible and intelligible by customers and retailers, which should make closer water management much easier. A quicker win will be more rapid identification of leaks.

? Tariff changes –?business customer tariffs are being reviewed. This is in part driven by acknowledgment of the need to simplify the hundreds of tariffs in the market. But wider considerations are also at play, including introducing tariffs to incentivise water efficiency and deter excessive use.

? More help –?for the first time, water wholesalers have been charged with driving usage reductions in the non-household market. This is through the Environment Act, where a 9 per cent reduction has been targeted by 2038, rising to 15 per cent by 2050. In addition, Ofwat has built a new incentive into the next price review specifically relating to reducing business user consumption. So, customers should start to see wholesalers working more closely with retailers, third parties and end users to help them identify water wastage and even consider alternative supplies where this is feasible, such as using rainwater or grey water harvesting technologies to replace mains supplies.

With prices set to rise significantly from 2025, there has been no better time for large users to consider what they might do to reduce higher costs, build resilience, and support the water environment.

This article appeared in BUU Winter 2023 - read more ?? https://meucnetwork.co.uk/buu-winter-2023/