The challenges facing water companies to make the most of the £200 million innovation fund are revealed in Utility Week’s major new insight report in association with CGI. Denise Chevin picks out some of the key themes.

“Few water company leaders would have predicted the circumstances that surround the start of AMP7. The challenge of meeting future demands in an affordable and sustainable way seemed difficult enough – before Covid-19 changed ‘business as usual’ for us all.”

So says Stuart Brand in his foreword to Utility Week’s and CGI’s landmark qualitative research report to support water companies as they shape their strategy to take advantage of a £200 million innovation fund for 2020-2025.

He goes on to say: “Only time will tell us what the true impact is – operationally and economically – but one thing is clear: innovation has never been more important. Challenging times require creative and innovative solutions, and so maybe there is no better time than now to launch a new approach to a sector wide innovation fund.”

Many of those interviewed for our report certainly support the sentiment – hence the title Grasping the Opportunity, but it was also clear from those chief executives we spoke to in detail that there are still obstacles and cultural barriers to be overcome if water plc is to deliver on the fund’s most ambitious of aims. That is, as Ofwat sees it, innovate at a scale that will transform the sector.

What came across from the CEOs was that the fund could provide a much-needed stimulus for development in ways that could maximise resources, reduce duplication and increase “bang for your buck”. It should, they said, enable good ideas to be scaled up, with solutions developed in one company adapted and embraced by others. This may include new ways of tackling water scarcity and pollution, leakage detection, or developing a better understanding of flow through underground water systems. And they saw it too as an opportunity to rethink how problems are solved. This could include overhauling the relationship between water customers and suppliers to tackle, say, water scarcity by greater emphasis on water efficiency.

There was a strongly held view that outcomes of successful innovation should be shared – that way, if not all companies benefitted from the funding pot, they and their customers, who are paying for the fund through a levy on their bills, would still benefit.

For some CEOs, purely the galvanising effect it will produce in terms of getting the sector to focus on change and improvement was beneficial in itself. As one CEO put it: “It’s almost less about the pot of money and more about the symbolism, the stimulus, and reflecting on how we approach innovation, which is hugely positive.”

Not surprisingly, though, the research also threw up a myriad of concerns. Some of these will have been allayed by the extra detail that has emerged in Ofwat’s latest consultation, published earlier this month – after the report was researched and written.

Ofwat’s latest instalment confirmed for example that data should be open by default, there would be greater flexibility on match funding to allow more contributions in kind and there were clarifications too around intellectual property rights.

Ofwat’s consultation has also brought to the fore more ideas from Ofgem’s innovation fund, including the need for the sector to identify ways of reaching out more effectively to innovators, including those who do not necessarily already operate in the sphere. Ofwat says this could be, for example, through creating a single point of contact for innovators – which happens under the Ofgem innovation fund competition. Our report includes an interview with Ian Cameron, UK Power Networks head of innovation, who sets out the lessons that Ofwat and water companies can learn from his experience of bidding for Ofgem innovation funding and warns that to get widespread buy-in, Ofwat should not tie the process up in red-tape.

Of course, with only five years for the scheme to run, CEOs are keen that the sector and Ofwat do not spend too much time working out the detail. There is much to sort out and time is precious.

The splintered nature of the sector, where water companies and their supply chains are represented by dozens of bodies, can mean politics get in the way of speaking with one voice. The encouraging news emerging is that a skeleton of a sector-wide innovation strategy is now forming under UK Water Industry Research (UKWIR), which Ofwat highlighted in its consultation.

Fundamentally the comparative nature of the regulatory framework, which pits water companies against one another, has imbued a culture that does not like to share ideas. Ofwat needs to clear aside obstacles that stand in the way to allow companies to pool their brainpower and resources – to allow those whose expertise shines through in certain areas and share their knowledge and developments for the good of the sector and society. Customers’ money and the reputation of the sector is at stake.

The full report is available to download here

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