The price of water and sewerage services is a big issue for council finance directors – and in a tightly regulated sector where your supplier is determined by geography, there’s little room for negotiation.
Water prices have been rising ahead of inflation for over a decade and while upward pressure may ease in medium-term due to a forthcoming industry shake-up, experts say a number of factors will combine to drive costs up further.
From April 2017, all public-sector organisations in England, as well as charitable and not-for-profit groups and businesses, will be able to choose their water and sewerage supplier – whatever the size of the enterprise and wherever located.
The Water Act 2014 ends the ‘one size fits all’ approach to enable local authorities to negotiate the outcome that suits their needs, depending on customer service, a better-tailored package, efficiency advice or price.
Sourcing wholesale services from former monopoly providers, suppliers will compete by offering better deals at competitive prices. The public sector in Scotland, where competition is already in place, is forecast to save more than £36m over four years, from discounts, prices and water efficiency measures.
If the experience of other utility sectors is a guide, we’ll see new entrants, some departures and eventual ‘consolidation’. But don’t expect early discounts to last, for the long-term price trend will remain upwards.
The £44bn investment planned for the water and sewerage network over the next five years will put strong upward pressure on bills, according to Green Alliance, while meeting environmental quality standards will remain a primary cause of rising costs.
Finding ways to satisfy rising demand will require new investments by water companies, particularly in southeast England, says the charity and independent think tank focused on the environment in its research paper, Cutting the cost of water: The case for improving water efficiency in the UK.
Water scarcity is already a problem, with all but one company region in England and Wales currently classed by the Environment Agency as water-stressed. The paper identifies three factors that will increase scarcity – population increase, reduced availability due to climate change and regulatory restrictions on abstracting water from over-stretched sources.
Green Alliance suggests large-scale water efficiency as a far better way to manage scarcity than increased supply – by reducing peaks in demand, tackling water deficits where they arise rather than in a blanket approach, cutting non-essential water use by large users and integrating water and energy efficiency programmes.
While regulatory reforms will help suppliers take steps to cut water use, further measures will be needed to encourage long-term water resource planning, such as maximising water savings through energy efficiency retrofit programmes.
In this environment, large users will have limited room to manoeuvre on price. The big savings will come from water efficiency and management – through improved technologies, metering, data capture or a combination of these.
How should local authorities respond to this challenge?
Many are installing innovative technology to save water, achieve financial savings and lower carbon footprint.
Budget planners will look to suppliers to make a convincing business case – technology should deliver not only financial savings but also other benefits, such as improved hygiene to create a better workplace, and a reduced carbon footprint – up to 90% of commercial waste water for offices is from the toilet.
They should also ensure results are measurable, especially for significant capital projects – with adequate pre-installation monitoring so that savings are real, not just sales talk.
Garry Moore is CEO of Propelair® Limited, the UK designer and manufacturer of the revolutionary 1.5 litre flush toilet.