Water, News, Ofwat

Power generators could supply water resources to business customers during downtime if a bilateral market was introduced.

This is one of the scenarios suggested by Ofwat as it seeks views on opening up the supply of water resources to third parties.

While power generators which hold abstraction licences already have the right to supply water resources, they must hold a retail licence to do so for anything other than self-supply. However, Ofwat has suggested that generators could set themselves up to choose whether to supply water or electricity at any given time, depending on demand and prices.

The scenario is one of three suggested by Ofwat, based on its initial discussions, as part of its call for information, which is open until 6 September. It defines a bilateral market as a “third party provider of water resources (such as out-of-area water company or other holder of an abstraction licence) contracting directly with a retailer to sell water to its business customers”.

There have been previous examples of generators working with water companies. For example, RWE previously had an agreement with Thames Water when they were both taking water out of the river in the same region. It saw the former agree to use less water at certain times if requested by Thames, which meant the water company didn’t have to turn down its own usage.

The other examples given of how a bilateral market could work in practice include self-suppliers such as brewers being able to sell surplus water. The other sets out the extended opportunity for companies with a surplus of water to sell directly to business retailers in areas that have low stocks.

The call for information document admits concerns may arise over third parties supplying treated water, and whether they would be covered by public health regulation. It suggests that one way to manage this could be to adopt a phased approach, whereby the third parties initially supply raw water to the appointed water company to treat, until a means of addressing public health regulation has been identified.

Ofwat also refers back to the 2009 Cave Review, which first proposed some form of bilateral market. In this report, the creation of a system operator role was suggested, taking responsibility for managing physical delivery of the water to the retailer. Ofwat said that while there was a potential link between the introduction of a bilateral market and a future system operator role, this should not be considered in tandem.

Launching the call for information today, Ofwat said: “A bilateral market would allow water resource providers, other than the incumbent water company, to contract directly for the supply of water resources with retailers operating in the business retail market.

“Many organisations with water abstraction rights use water for their own purposes and currently do not supply any surplus water they may have within their abstraction licences to meet water companies’ needs. Other significant entities with abstraction rights could include, farmers, landowners, non-governmental organisations and large industrial users such as brewers and power generators.

“Ofwat are keen to hear from a wide range of stakeholders, particularly potential participants in a bilateral market, such as potential third party suppliers of water resources and retailers in the business retail market. They are also interested in views on some of the policy issues that would need to be addressed in order for a bilateral market to be successfully established, and how such a market could complement or conflict with other means of providing water resources.”

Today’s report follows a letter to the chief executives of incumbent water companies by the head of Ofwat, Rachel Fletcher, in which she called on the sector to act more collaboratively to develop solutions. Ofwat’s chief executive said in the letter that the overall level of incumbent water company support for markets was “unacceptable”.

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