Water companies have highlighted environmental regulations as a barrier to competitive sludge treatment, according to an Ofwat review of bioresources activities.
The regulator will undertake an in-depth review of the market to inform the regulatory approach ahead of the next price review.
The report noted the benefits to customers and the environment from efficient use of bioresource activity by water companies.
At PR19 the regulator separated out the way it governs bioresource activities to drive more commercial arrangements for how companies’ activities interact to best benefit billpayers.
The report noted a “reasonable degree” of competition in the market for sludge transport and disposal, but treatment of sludge is low and falling lower – down from 2 per cent in 2017/18 to 0.8 per cent this year.
It found there is significant involvement of third parties to deliver haulage and disposal services with companies holding an average of 11 contracts with third parties in 2019/20.
Companies cited environmental regulation and concerns around appropriate treatment charging as barriers to engaging in sludge trading.
“The challenges posed by climate change and population growth mean bolder, more creative and innovative action is needed to ensure everyone has reliable access to resilient, affordable water and wastewater services, both now and in the future,” David Black, senior director at Ofwat said.
“We have introduced a number of reforms in recent years to promote the bioresources market. I am concerned that our monitoring of the market has revealed that the trading of sludge for treatment is very low and falling and that companies report a number of barriers to competition.”
The regulator will review bioresources activities undertaken by water companies including transporting, treating, recycling and disposing wastewater sludge to develop even more low carbon energy sources.
Following this report the regulator intends to look more closely at the bioresources market and publish a review in spring 2021.