There is no doubt that the water industry has gone through a period of unprecedented change in recent years. The opening of the English retail water market in 2017 marked a real shift in the industry, as for the first time businesses and public sector organisations were able to choose their supplier.
But what next for the market? Before making any assumptions on how the market is likely to evolve, it’s necessary to understand the current landscape.
The opening of the market was in response to customer appetite. Businesses, in particular those with multiple sites operating in Scotland and England, wanted improved choice, with many wanting the ability to be able to choose a single supplier for all their water needs. They also wanted improved customer service and greater support around water efficiency savings too.
Customers do now have that choice and retailers are working harder than ever before to meet their customers’ needs. We are also starting to see an increase in activity in the water efficiency space. However, a number of market frictions remain that need to be addressed to enable the market to develop and reach its full potential.
In Ofwat’s State of the Market Report, published in July, data quality; wholesaler performance; and inefficient wholesaler-retailer interactions were all identified as key issues that need to be addressed. I would add to this, the lack of switching in the SME sector and the complexity which exists in the marketplace.
Whilst these issues will take time to resolve, there are some practical measures that could be taken which would help to make a real difference. Greater harmonisation across wholesaler policies and tariffs; improvements to data quality and agreement on how to fund the costs of correcting bad data; and extending the regulatory incentive mechanisms to incentivise wholesalers to improve their performance in relation to retailers and businesses customers; would all be welcomed.
The PR19 draft determinations provide an opportunity to address or improve some of the market frictions that exist. Unless there is a concerted effort to resolve these issues then the reality is that the market will develop slowly. We know there is consensus over what the issues are – we now need real action to address them. And if we do that, then we will be operating in a far more buoyant, responsive, efficient market, which delivers for all customers.