Ofwat have released the results of their five-yearly review into the water industry in the United Kingdom with a host of transformative measures to be introduced by 2025.
The eagerly anticipated final determination from Ofwat are laid down in the PR19 document, with the headline grabbing news for the public being that water companies must reduce consumer bills by 12% by 2025.
As well as cutting bills, water companies have been told that they have to offer further assistance to nearly 1.5 million customers who currently struggle to pay for their water.
They must reduce leaks by 16% and pollution incidents by 30%. There will be a £13 billion investment in new and improved services, including major strategic pipeline projects to cope with the impact of population growth and climate change.
— Ofwat (@Ofwat) December 16, 2019
What is the Ofwat price review and how does it reach its final determinations?
Every five years, England and Wales’ 17 water companies create a business plan for the next five years. These plans set out what the companies want to achieve and how they intend to do it – along with how much consumers can expect to pay. Water companies consult both their customers and local communities before producing their plans, with more than 1.5 million members of the public surveyed.
The water regulator Ofwat then holds a review into these plans before releasing a report into the industry as a whole and what it must achieve over the coming five years. These are Ofwat’s final determinations and they are revealed in the PR19 document, formulated after detailed scrutiny of each of the companies’ plans.
Water companies must reduce consumer water bills by an average of 12%
British water companies collect more in revenue through water billing than any other country in Europe. The cost of water became the main justification behind Jeremy Corbyn’s 2019 General Election pledge to renationalise the industry.
Ofwat want to oversee an average reduction of 12% to water bills by 2025. Customers of Northumbrian Water can expect to see the biggest change with bills set to drop by 26% from their £429 average in 2019-20 to £319 in 2024-25.
South West Water customers currently have the highest average bill in the United Kingdom at £527 in 2019-20. By 2025, that will have been cut by 20% to £422.
Ofwat has told water companies that they can achieve these savings through lower financing costs in the future and an improvement in general efficiency – as well as not passing on the cost of a company’s inefficiency to its customers.
Offer greater financial support to struggling customers
As well as cutting bills, Ofwat’s PR19 document wants water companies to offer greater assistance to those who struggle to pay their bills. About three million customers in England and Wales say that they have difficulties.
To reduce that number, water companies will increase the number of customers on concessionary tariffs to over 1.4 million by 2025. A further 70,000 will be put on payment matching schemes and another 20,000 placed on hardship schemes.
Ofwat today tells water companies to significantly increase climate and environmental spending *and* cut bills. Gonna be interesting to watch them square the circle. https://t.co/4kQHw2bD6A
— James Murray (@James_BG) December 16, 2019
Water companies, climate change and the environment
One of the biggest challenges facing the water industry over the next five years will come through climate change. The United Kingdom has already begun to feel the effects through record-breaking summers with 2018 the hottest British summer on record. Conversely, 2019 looks set to go down as the wettest winter in British history.
These extreme weather events have a big impact on water supply. To combat heat and the threat of drought, Ofwat have said in their final determinations that up to £469 million will be invested in overcoming long-term drought resilience issues. One of the schemes already set go ahead is the construction of a new £100m reservoir in Hampshire with other new water resources set to follow.
Flooding meanwhile can have a devastating effect on people, property and infrastructure. Water companies will invest more than £1 billion to protect the environment, homes, business and drinking water from flooding.
Water companies must reduce pollution incidents by 30% while they have also committed to being carbon neutral by 2030.
Improving water supply infrastructure in the United Kingdom
With the population of the United Kingdom set to grow by three million over the course of the next decade, serious investment needs to be made in the country’s water supply infrastructure to ensure that demand can be met.
Ofwat’s final determinations will significantly increase the resilience of the water network through a £13 billion investment in new and improved infrastructure. This money will be used to improve the reliability of critical facilities within the water network since as aqueducts.
It will improve the resilience of water mains which face the strain of being part of the main road or rail network and it will protect water and sewage treatment works from disruption caused by power failures and extreme flooding.
With population growth expected to effect the south east in particular, Ofwat has laid out a programme of national water transfers which aims to move reserves from areas where supply outstrips to demand to those where shortages are common.
Once such scheme involves the construction of a 310 mile pipeline which will connect water reserves in Lincolnshire with more populous Essex and Suffolk. It will be the largest strategic on-shore pipeline project that the UK has seen.
Ultimately, the Ofwat review wants water companies to reduce a customer’s reliance on a single source of water. When problems do then occur, properties and businesses will no longer be completely cut off from the network.
Cutting leaks by 16% by 2025
Leaks were responsible for 3.17 billion litres of lost water in England and Wales in 2018-19. Part of Ofwat’s infrastructure drive will therefore focus on reducing leaks by 16%, which the water regulator says will save enough water to supply every person in the cities of Birmingham, Bristol, Cardiff, Leeds, Liverpool and Sheffield.
Wasted water is costly both to the environment and customer bills. By developing the technology to repair even the most difficult of leaks quickly, water companies will be able to pass on efficiency savings to consumers via reduced bills. They will also need to pay less to have water removed from the environment.
The Ofwat Innovation Fund
To meet the challenges set out by Ofwat in their final determinations, each water company is going to have to find innovative solutions which deliver results in a cost-effective and sustainable way.
As a result, the regulator will set up a new Ofwat Innovation Fund, including a competition with £200 million in funding up for grabs. Water companies will be encouraged to collaborate with each other and other companies within their supply chain to come up with new ways to reduce leaks through pipe repair, cut bills and use technology to improve supply and reliability.
The fund is a popular concept with senior executives of water companies with 80% backing its creation. No further information is available yet as Ofwat consults on the format that the innovation competition should take, with further details set to follow in mid-late 2020.