Managing demand and preparing for a drier future are central themes to the final methodology for PR24 from Ofwat with water efficiency finally getting recognition and, importantly, funding in the form of a £100 million dedicated fund.
Following a summer of drought and hosepipe bans being implemented for the first time in a decade by six water companies, managing demand has been called into sharper focus.
Ofwat’s blueprint for 2025-30 will set separate performance commitments for leakage, per capita consumption (PCC) and business demand with “stretching but achievable service levels” in line with relevant industry commitments and statutory government targets. Companies will be set enhanced incentives for leakage and PCC.
Reductions in business consumption will be incentivised for the first time. All companies will be expected to set out how efforts in this AMP will build towards 2050 goal of cutting leakage by a minimum of 50% and driving PCC down to 110 litres daily from the current average of 145 litres.
Nathan Richardson, head of strategy and policy at Waterwise told Utility Week the organisation was very pleased to see water efficiency getting some prominence in the methodology.
He said: “It’s something we have been advocating for a lot over the past year because a lot of action and money has been dedicated around supply-side schemes but there’s been a gap on the demand side and water efficiency, despite regional plans showing such large deficits.”
He added that some solutions hinge on reducing demand in the coming decade without clear routes to do so.
Details of a proposed £100 million fund for water efficiency are yet to be confirmed, however Ofwat said it would be designed to facilitate the development of transformative improvements to water efficiency at regional and national level to help reduce demand for water. Waterwise will work with the regulator on what format would be most effective. Richardson said he envisaged it being similar to the Ofwat Innovation Fund launched as part of PR19 to encourage companies and other participants to bid for collaborative projects.
Waterwise is equally pleased that non-household water usage will for the first time be set a standalone performance commitment. At PR19 companies were set per capita consumption (PCC) reduction targets, which have been tough for all to meet. Lockdown caused an increase in household demand as customers spent more time at home than previously. This was countered by a fall in usage by commercial customers.
“Non-household usage seems to have been ignored over recent years,” Richardson said. “It has been left to retailers to do out of their already really tight margins so we are really pleased there’s an expectation on wholesalers.”
Within PR19 business plans for the current asset management period (AMP7), Richardson described many companies as having “stepped away from demand management for non-household consumption” because it was not incentivised in PR19. When the market was established in 2017, water efficiency consideration was “handed over to retailers” but will be picked up once more by wholesalers.
Another positive for demand reduction is the shift in tone regarding smart metering, backed up by data from water resource management plans (WRMPs) that indicate a move towards smart meter rollout over ‘dumb’ meters. Ofwat said all companies will be expected to consider smart meter solutions as the standard installation type.
Richardson stressed that any rollout plans should be coordinated with business users as well as household customers as many NHH meters are old and unreliable.
Companies will need to work together to introduce national standards for the data collected from smart metering to ensure interoperability across the sector and utilise such information to best manage demand.
Combined sewer overflows up the agenda
Combined sewer overflows (CSOs) have become a well-recognised if not fully understood part of the wastewater systems in the national press and used by politicians to berate the sector. They had 32 mentions in the final methodology, compared to zero in the 2019 equivalent document, highlighting the urgency with which the regulator now wants to see action taken.
The message is clear that waiting for the next AMP to take action is not an option, which is consistent with what Ofwat has been telling wastewater companies throughout this year. All work undertaken ahead of 2025 will put firms in a better position for PR24 and fast-track benefits to the environment by minimising the risk of harm from CSOs.
Ofwat said all companies must meet their legal obligations and it expects them to “at least match the most ambitious commitments made by the leading companies”. Ofwat’s methodology stipulated that “where appropriate” companies should go beyond the government target of an annual average of 20 spills per overflow from 2025 onwards, without additional expenditure allowances. However where government targets demonstrably go beyond current legal requirements, Ofwat will permit extra funding.
Ofwat said it will support a step change increase in the use of nature-based solutions by robustly and extensively considering their wider societal and environmental benefits within business plans, and introducing an environmental performance commitment offering outperformance payments for delivering more for the environment.
An obstacle to implementing nature-based solutions had been the operating costs of non-traditional solutions and who would pay. To address this Ofwat said it will provide a more level playing field by setting a ten-year ongoing operational expenditure allowance for such solutions that are wholly or primarily based on ongoing operating expenditure.
The sector is expected to work towards net zero through ongoing activities funded through base level expenditure allowances. To go further and faster there will be a net zero challenge introduced that will run on a competitive basis offering enhanced allowances to cut operational emissions.
A performance commitment will be introduced to deliver reductions over the five-year period. The sector set its own target to reach net zero by 2030 – ahead of national 2050 targets.
There will also be a river water quality performance target intended to encourage reductions to the amount of phosphorus discharged at wastewater treatment sites, which Ofwat said would cover the utilisation of partnership working, catchment management and nature-based solutions.