Why Ofwat is opening the door to innovation

Ofwat has established its £200 million Innovation Fund in a 'disruptive' attempt to change mindsets and boost water companies’ capacity to collaborate and co-operate to solve problems. UW Innovate looks at the aspirations behind the Fund, and meets the teams behind two projects in the first wave to secure funding.

The launch of Ofwat’s five year £200 million Innovation Fund has thrown ripples onto the calm surface of the water sector, spreading out to reach every UK water company, universities, environmental specialists and digital entrepreneurs.

While innovation is hardly new to the sector, the direct involvement and investment of the regulator has had a galvanising effect, tapping into reserves of innovation that led to the first round being five times over-subscribed.

And Covid-19 pandemic, meanwhile, has also had a supporting role. By bringing in across-the-board changes to operational policy, it has swept away ‘this is how we do things’ resistance and shifted priorities towards the future.

Ofwat’s John Russell, senior director of strategy and planning, describes the fund as a response to the “big, existential problems” facing the sector – climate change, net zero and population growth. And while investment allowances are baked into the AMP price control period, the regulator also wanted water companies to focus on the immediate future, rather than long-term planning.

“It felt like maybe we needed a little bit more stimulus, more a sense of what we could do in the ‘here and now’, given the urgency of some of the issues the sector is trying to grapple with.

“There’s great innovation that goes on in the sector, much more than is talked about normally, but maybe we haven’t seen quite the same levels of innovation that we’ve seen in telecoms, in the digital space, or in transport or energy, where there are big decarbonisation targets.”

As well as supporting a broad range of projects to maturity, Ofwat’s stated intention is to build a culture of collaboration and diversity in a sector where both geography and regulation have militated against partnership working.

As Russell explains: “In the way we set up the fund, we were explicitly targeting collaborative bids between companies and third parties, bringing in more of the supply chain, bringing new people into the sector in a collaborative way. So we threw a bit of a rock into the pool and created a bit of disruption.”

Opening the door

Following a consultation with the sector on how best to support a culture of innovation, Ofwat partnered with Nesta Challenges to deliver the programme. It specialises in running competitive “challenge prizes” to sift robust projects from those that still need to be refined.

Chris Gorst, director of challenges at Nesta Challenges, adds that the aim of the programme was to “trigger a step change in partnership and partnering activity, to encourage water companies to think in a different way about risk associated with innovation, and shift behavioural aspects.”

Compared to other sectors, Gorst feels that it’s relatively hard for innovators to establish the depth and breadth of contacts they need to embed projects. Also, companies often maintain different processes for testing and approving new valves or pumps or safety equipment, for example.

“We hear it’s hard to get in to the water sector, then harder to spread out across the sector, every company has its own testing and approval processes.  And maybe there’s a slight caution about partnering with other water companies.

“But with these competitions, there’s a very clear signal of intent that we want you to work together, on shared challenges. And if you can find great solutions we want them to, to expand and spread out across the sector as efficiently as possible.”

Ofwat considers the first year of the five year programme to be a “pilot” for the rest of the five year programme, giving itself the option to review and adapt its methodology in response to market feedback. Under the first round  – the £2 million Innovation in Water Challenge – the judging panel choosing 12 widely varying projects from a field of 61 that each secured £250,000.

Winners included the Industrial Symbiosis project, led by United Utilities, which hopes to mainstream the uptake of “resource matching” software that allows waste or by-products from one company to be used as raw materials for another. Another striking innovation is the Organics Ammonia Recovery project, where a consortium led by Northumbrian Water will build a pilot demonstration plant at its Howden site, on the River Tyne, to turn waste ammonia from an anaerobic digestion plant into green hydrogen fuel. Meanwhile, the Seagrass Seeds of Recovery project aims to improve the biodiversity of estuaries and coastal waters.

Bids are currently being submitted for the Breakthrough Innovation Challenge, where £40 million will be allocated; the deadline for submissions is 4 June. Gorst says: “With Breakthrough, we’re looking for possibly longer term projects, probably more ambitious projects. With more funding, there are more opportunities to take innovations right through the lifecycle.” But teams that miss the cut will be able to make a second submission, as both “pilot” challenges will re-open at the ends of the year.

In subsequent years, there could be a different approach. For instance, the framework of a challenge prize could allow Nesta and Ofwat to establish “stage-gated” processes where a field of competitors is narrowed down over time, or create challenges that focus more narrowly on particular problems.

“We might well want to zoom in on specific challenges that might be around climate change, or around environmental maintenance. Or it might be around Open Data, something that Ofwat is interested in seeing more widely,” says Gorst.

Portal to digital collaboration

One of the 12 winning projects will act as an enabler and accelerator for other future innovations:  a total of 19 water companies have supported a bid to fund a digital Centre of Excellence. Through its proposals portal and a service to broker relationships between companies’ innovation teams and academic or commercial partners, the Centre hopes to speed good ideas on the development path from bright idea to real life deployment.

Establishing the Centre of Excellence is also a case study in innovation itself – linking multiple water companies, and creating new communication and collaboration pathways between them. The key metaphor is that the Centre will act as a “front door” to the water sector for any academic researcher, private company or public sector agency that wants to engage with the water sector. “Innovators will have one door to knock on,” says Gorst.

While the sector already has plenty of co-ordinating bodies and associations, he points out that these often focus on lobbying and advancing common interests, rather than acting as an entry point  to outsiders. And while they are likely to be active across a range of issues, the Centre of Excellence is likely to retain a single-minded focus on innovation.

“Insofar as there are groupings of water companies, they’re not necessarily external facing, they’re not designed to face off to innovators and the supply chain.  That’s where the Water Centre of Excellence would fulfil that function, it’s the difference between a membership body, and a body that is the interface between the members and outside world.”

At Southern Water, innovation manager Elin Williamson explains that its inception pre-dated the Innovation in Water Challenge. In September 202, the 19 water companies drafted an outline business case for the Centre, as the online “infrastructure” supporting seven cross-sector ambitions: serving society, providing clean water, enhancing the environment, taking a whole life approach, reaching carbon neutrality, and diversity and partnership.

Because the group recognised that the Centre’s possible functions and ambitions could easily outstrip the capacity of the water companies to support it, it has been established with “core functionality” and an agile mindset that will allow it to evolve in response to changing needs.

The Centre’s “minimum viable product” is based on a four key services. These are: an online proposals portal through which innovators and businesses can submit their ideas and solutions; information and “needs statements” to clarify the sector’s challenges to outside collaborators; an service to facilitate and broker fruitful relationships between industry stakeholders, funders, academia and other entities, and creating a “virtual meeting point” where existing cross-sector groups or communities of interest can discuss collaborative research and innovation.

“It’s a place where people can bring their solutions and ideas to our challenges,” says Williamson, adding that the needs statements “are us, as a sector, collectively saying, ‘this is where we need you to help us innovate’.” And while she notes that there’s an “abundance” of existing working groups and forums in the sector, the aim of the Centre will be to “highlight, signpost and link the ones we can work with from an innovation perspective”.

Angela MacOscar, head of innovation at Northumbrian Water, reiterates that the Centre will have a focusing role: “We’re not there to duplicate, or try and replace existing capacity – we’re trying to harness the power of all the great stuff that’s going on, and just make sure it’s really accessible to people and in one place.”

But MacOscar emphasises that the open door will create an invitation to other utilities, contractors or adjacent businesses to drop in and see what’s happening. “We’re also very aware that there are brilliant things going on in other adjacent sectors that we’d very much like to take advantage of, because we want to really open the doors very wide and perhaps get some new faces – to mix up and add some diversity that perhaps wasn’t there in the past.”

That diversity of thought will also extends to hiring policy: the centre is expected to have two members of staff who are likely to new to the sector. “It’s an opportunity for us to seek expertise from other places,” says Williamson.

The Centre is due to be up and running by the fourth quarter of 2021, and will be temporarily “incubated” by the not for profit UK Water Industry Research Group.  Once established, the board will review the business model to decide whether the centre should offer additional service – such as hackathons, or workshops  – to address an unmet need, or whether to make seek further funding.

Going underground

One successful project gives water companies previously unimagined insight into leaks on their networks by tapping into existing fibre optic cables “hardwired” into roads and the built environment. Using fibre optic cables as a below ground sensing technique  – to measure temperature, vibration, acoustic signals or strain – is well-established, but lacked traction in the water sector due to the difficulties and expense of laying fibre inside or on top of pipes.

However, engineering consultancy Focus Sensors has developed a system that can exploit the unused fibre strands in telecoms cables, using a laser device mounted in telecoms cabinets. “The system can be deployed across our network with minimal interruption to assets or customers,” says Kieron Maher, innovation architect at Severn Trent and ‘Dark Fibre’ bid author.

The bid  exploits a variation on the technology that has been already been deployed in the rail industry: using fibre optics to detect changes in ground stability that form as the result of poor weather or – more likely in the water industry’s case – because of leakage and bursts.

Ed Austin, managing director of Focus Sensors, explains that its technology is based on its proprietary “Indus” device that launches pulses of light along a fibre, then measures its return journey. “You’ve got a measurement of the change of strain in the fibre, every meter along it. So the minute you turn it on, you end up with 20,000 sensors, collecting 20,000 measurements, all happening all the time.

“That’s how we can see what changes along the fibre, for instance we can see how stable every single meter along a railway track is. By taking measurements at different time, you can see changes to the stability of the tracks. We’re gathering 75 megabytes every second from every single fibre we’re connected to, and we’re turning that into useful information,” Austin concludes.

The system could give water companies access to data on the condition of buried pipes and valves in a similar way to drones or laser scanning giving utility companies a digitised record of their overground assets. As long as existing fibre is in reasonable proximity to pipes, the system could eventually offer an affordable “data as a service” to water companies, without any need for them to invest in new infrastructure or monitoring equipment.

The funding will allow the team to test the system under multiple variables: what the pipe is made of, the distance between the pipe and the fibre, how the fibre cable is laid. “The first step is to do some testing under a controlled environment, then in parallel we’ll do some testing in an area using ‘dark fibre’,” says Matt Lewis, innovation portfolio manager at Severn Trent.

“It’s about capability and finding out what this method of finding leaks is capable of, and then potentially come up with some kind of heat map in terms of scenarios and variables. There will be some areas that are just golden and you’d be daft not to use it, and there will be other where it won’t work so well.”

While engineers are typically resistant to over-hype, the sheer universality of the solution – when every road is wired for wifi and digital TV – makes it a potentially game changing and affordable technology for every water company.

Not surprisingly, all the UK water companies are engaged in the project and watching on the sidelines, with Severn Trent and Wrexham-based Hafren Dyfrdwy acting as the lead partners.

Facing the future

At Nesta Challenges, Gorst sees challenge prizes as having a catalytic, galvanising and focussing effect: he traces the origin of publicly funded challenge prizes to the Longitude Prize, established through an Act of Parliament in 1714 to reward a simple and practical method for the precise determination of a ship’s longitude at sea. “It represented a massive social and economic challenge at the time,” he says.

In a more recent example, he cites the DARPA Grand Challenge prize competition for American autonomous vehicles that staged a race across as the Mojave Desert, funded by the Defense Advanced Research Projects Agency, as being instrumental in advancing the technology behind today’s autonomous vehicle and automated lane-keeping trials.

Closer to home, Nesta Challenges’ track record includes facilitating “open banking” challenges in the FinTech sector, providing a way for consumers to securely share their data with financial providers, while a project commissioned by the Solicitors Regulatory Office invited technology innovators to find ways to widen access to legal services.

“It’s about galvanising interest and getting people to focus on particular problems, and accelerating the processes of innovation that might otherwise take a long time,” he explains.

In a sector where there is no natural competition or consumer choice, and decisions tend to revolve around regulatory drivers, water companies may have been inhibited from engaging in the type of collaborative effort that drove the innovations described above.

When Ofwat and Nesta Challenges review progress after the pilot phase, they will be looking for measurable outcomes on the projects that receive funding, but also for evidence of ‘softer’ shifts in attitudes to partnership working that can truly bring about transformative change.