Ofwat has announced plans to double the size of its Innovation Fund to £400 million.
The regulator is seeking feedback on its plans for increased innovation between 2025 and 2030.
It includes proposals to ringfence £40 million for cross-sector schemes which look to tackle shared problems such as climate change resilience, net zero, supporting customers, and the environment.
Ofwat’s Innovation Fund consultation document adds: “As well as encouraging water companies to work collaboratively, we would like to continue to explore the potential to work collaboratively with innovation funds in other sectors, where aligned funding of solutions would be beneficial to both sectors.”
It adds: “One approach to cross-sector funding could be to run competitions similar to our Water Discovery Challenge, asking innovators to bid for funding that solved a particular cross sector problem.
“We propose to allocate approximately £40m of the fund to work with other sectors on shared problems. This would be a discretionary fund, that if not used for cross-sector working, could be used to increase the funding available in one of our other funding streams.”
Other funding streams proposed within the consultation document include:
- Continue with the Water Breakthrough Challenge Catalyst and Transform streams aimed at water companies (£250 million).
- Hold two rounds of the Water Discovery Challenge (£20 million).
- Introduce a new water company led collaborative challenge targeting specific sector-wide problems (£50 million).
- Introducing an implementation fund (£40 million)
The cost of a £400 million Innovation Fund will vary depending on the size of the company and number of customers but will be on average £2.45 a year on average or 4p a week, but this will be slightly more or less depending on the size of the company and number of customers.
“All projects must therefore demonstrate a benefit to household water customers, either directly or indirectly,” the consultation document adds.
The Innovation Fund was established at PR19. It has so far funded 77 projects which tackle issues such as: using data; leakage reduction; ecological status; net zero; and climate change resilience.
“At PR19 we created the Innovation Fund to encourage companies to collaborate to drive innovation in the water sector,” the consultation document adds. “Innovation takes time. It is still early days for the Innovation Fund, but we have seen a significant increase in the levels of collaboration and sharing of information.”
It adds: “But we need to do more. The challenge facing the water sector is significant and requires a step change in investment, not just for 2025-30, but for decades to come. The scale of the challenge for the water sector is growing with new targets and tighter environmental targets, climate change and we cannot afford to operate in the same way the sector has in the past.
“Innovation is critical. The sector also needs to look ahead and innovate to develop the solutions to future problems. That is why we are proposing to double the size of the Innovation Fund at the 2024 price review (PR24) to £400 million.”
Ofwat will publish a final decision on the size of the fund as part of the PR24 final determinations at the end of 2024. The new Innovation Fund will commence in April 2025.