Ofwat has indicated that it will consider more ambitious leakage targets for future price reviews but said further improvements will be dependent on advances in technology as well as greater levels of industry collaboration.
In the House of Commons Environment, Food and Rural Affairs (Efra) select committee’s report on the regulation of the water industry, it was argued that the 15 per cent leakage target for PR19 was “not ambitious enough” and that, while the industry has committed to ensuring a 50 per cent reduction by 2050, it should seek to do so by 2040.
In its response, Ofwat said it welcomed the focus on leakage and that it is working to ensure that all water companies face a “genuinely stretching performance commitment on leakage” in AMP7.
However, the regulator also highlighted the fact that its 15 per cent target “represents an improvement on the most ambitious company’s leakage performance commitment in PR14” and suggested companies may be limited by the standard of the tools available to them.
“At future price reviews, we intend to continue to review the leakage challenge we set companies to ensure that targets stay in line with advances in technology and the best available evidence on driving leakage reduction,” the regulator said.
It added: “A significant increase in industry collaboration and innovation is likely to be necessary to achieve continued improvements in leakage performance. As part of our review of our regulatory strategy, we will consider the appropriate role for Ofwat in relation to collaboration and innovation.”
Ofwat also noted that the National Infrastructure Commission had recommended that leakage be halved by 2050, rather than the earlier target, and that Water UK had said the companies were committed to cutting leakage by at least 50 per cent by 2050 “at the latest”.
Ofwat also expressed disappointment in the lack of progress on water transfers in its response to the report.
The Efra report expressed concern that “existing incentives in PR19 are not strong enough to incentivise water companies to invest in water transfers”, with little progress so far seen on the idea for a water grid that would enable supplies to be moved to water-stressed areas as required.
“We agree that water transfers have an important role to play in securing a resilient and efficient water supply,” Ofwat said.
It added: “Financial incentives to trade water between companies were introduced at PR14. In developing our methodology for the 2019 price review, we considered carefully, including through consultation with water companies and others, whether any changes to our existing incentives were merited and concluded that, whilst we would retain them, there was no justification for strengthening the incentives at this time.
“We consider that the principal remaining barriers to trading water relate to coordination problems, environmental and water quality constraints, and commercial practice, rather than the level of direct financial incentive.”