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Costain responds to submission of water company AMP 7 business plans

Author: Maxine Mayhew, Water Sector Director

It is going to be a busy few months at Ofwat, the regulator for the water sector. They will be poring over the business plans which have just been submitted by the UK’s water companies setting out their five years plans for delivering for customers and the environment.

This is no mean feat as they have committed to respond with their initial assessment by January 31 next year. And there is a lot to go through as I have spent the last week reading them!

Ofwat has boiled down what it is looking for into four key areas: affordable bills for all, great customer service, long-term resilience in the round, all underpinned by innovation.

At Costain, our purpose is to improve people’s lives by deploying technology-based engineering solutions to meet urgent national needs, including in the water sector, and so co-creating the most effective answers to meet and surpass the framework requirements will be crucial. The plans for what is known as AMP7 for the 2020-2025 regulatory period will require very different solutions than the previous regime if they are to transform their performance, deliver the service customers want and have operations that are more resilient in times of stress.

Here are our insights:

The Ambition

What is clear from the individual plans, but also the industry overall, as summarised by Water UK (Water UK – a manifesto for water) is the scale of the ambition, with investment and spending at over £50bn, an increase of 13% on the current period.

In the current regulatory period, many challenges have emerged and impacted the service that the water companies deliver to their customers. Whilst not all of the water companies have experienced the challenges directly, the response from customers, the regulator and the government is consistent and applies to them all; the sector must transform its performance, deliver the service that customers want and have operations that are more resilient at times of stress.

The sector’s resilience to shockwaves from the environment - such as the freeze and subsequent thaw in March and the record temperatures this summer - has been severely tested and, in many cases, found wanting. Customers and the regulator want the sector to be more resilient to these challenges, so that services aren’t impacted or reduced.

The plans are all different depending on the current position and performance of a given company but also the customer views. However, there are several common themes peppered across the plans. Phrases such as ‘what matters most to our customers’ preface several plans and a focus on leakage remains prevalent. In aggregate companies are proposing to reduce leakage by 16% or 461 million litres a day. This ranges from 15% for United Utilities and Southern Water to up to a 40% reduction targeted by Yorkshire Water. The drive for leakage reduction is coupled with a focus for several companies on reducing per capita consumption - Southern Water with a transformation programme to 100l/h/day and Yorkshire and Thames also clearly citing reductions (9% and 4% respectively).

Improving the environment has a high profile as well as reducing sewer flooding. The focus in the plans is on catchment management schemes to maximise the possible benefits.

What is also evident this time is the engagement and focus on the customer with over five million consulted in the production of the plans. It is a testament to the approaches taken by the individual companies that customer ‘acceptability of the plan’ runs at over 80% for many including Affinity, Southern and Yorkshire, for example, and over 90% for some including Northumbrian Water. So it should not be a surprise that improving customer experience and supporting those customers who need it most are also core in the plans. Indeed, on average, customer bills will fall in the period in real terms, with some companies’ bills falling more than 10%.

As a result, words like innovation and efficiency are also pivotal in the plans. Several companies are clear about the areas that they are looking to tackle, like big data at Northumbrian Water using it to drive a heat map to achieve some 4.75bn litres of leakage reduction, or Affinity which is focusing on maximising the opportunities from digital technology to ensure “right first time” service.

Most of the plans are clear about the fact that these ambitions cannot be achieved alone, and that partnerships with the supply chain, communities and wider stakeholders are key to successful delivery.

The Solution?

So what are the likely themes we will see through the next few years that will ensure a successful water industry through 2020 -2025? A focus on asset optimisation will help ensure that new investment is targeted most effectively supporting both quicker improvement but also efficiency. We anticipate a rapid increasing digitisation of the industry from basic data to digital twins and intelligent asset optimisation. Indeed, increased connectivity between assets and control systems, integration of legacy and new, alongside data analytics, will change the shape of the future operational control centres that will allow them to provide resilient operations that are able to absorb the shocks that the environment will provide.

Ensuring that the circular sustainability, so inherent in the water cycle, is harnessed could also form a key part of the enablers. From managing carbon to transforming thinking to look at product creation (such as phosphorus recovery or hydrogen generation) thinking differently is key.

In addition, partnership innovation will remain a key plank of any successful plan both to drive predictability of outcome but also to provide new solutions. Maximising cross sector experience and embracing new ideas will be key for the step changes needed.

The plans are ambitious but this is crucial for the sector to transform. The challenges are clear but deliverable, provided we deploy all of our services and help our clients approach the problems from a new perspective; create a system from source to tap to river, optimise the existing assets in the system, create new digital connected assets and build the operational control centres of the future.

Traditional solutions like building a concrete tank at a treatment works or laying pipes still have their place in dealing with the growth and resilience challenges of the future, but that should not be the default approach. 2018 has shown us that the industry needs to change quickly and the smarter use of existing infrastructure as well as new smart infrastructure for the future is needed to achieve this.