7 Mar Can New Ideas Really Replace Traditional Water Industry Practices?
Posted at 15:33 in Uncategorized by Rene Willemsen
It’s been some time since I shared my thoughts on the state of the water industry on LinkedIn. I wrote my last article about two weeks after Ofwat published its draft methodology for PR19. Since then, I’ve had plenty of time to consider the scope of the challenges water companies will have to tackle to meet Ofwat’s standards, as well as the practical steps they’ll need to take to thrive in the face of a more demanding and complex price control process.
With PR19 requiring a considerable shift towards greater service resilience and a Totex focus on asset health, it’s understandable that many water companies are already considering new ways of delivering customer outcomes and improving standards of asset maintenance and stewardship. In fact, spend any amount of time in the water industry and you’re likely to hear discussions about ‘innovation’ and its importance in relation to AMP cycles and price controls.
But while there is much talk around innovation, how much is really being implemented versus traditional methods of asset refurbishment? And how much of a role will innovation play in helping water companies to effectively engage customers and achieve the level of resilience Ofwat now expects?
The Argument For Innovation
Although innovation is just one of the PR19 draft methodology’s four areas of focus (along with resilience, customer service, and affordability), I believe it is an area deserves special attention in its own right. If we take a step back from the buzzwords and see innovation for what it really is, it’s obvious that adopting new approaches is absolutely critical to delivering key outcomes and successes in resilience, customer engagement, and affordability.
Take Northumbrian Water’s collaboration with CDEnviro for instance: by installing a grit removal process at a large wastewater process plant, Northumbrian Water improved the quality of the sludge required to generate energy, reduced their digester cleaning costs, increased capacity in their digesters, and minimised the excessive wear they were experiencing from years of grit accumulation. By working with a third party to address the root cause of their problems, Northumbrian Water were able to achieve Totex efficiencies and cost savings that undoubtedly paid dividends in other areas of the business and likely helped them meet ODIs.
While this is admittedly just one example, there is no shortage of water companies following suit with similar examples of innovation. You need look no further than the resilience work Adler & Allan is doing with Thames Water to see that companies are quickly realising just how high PR19 has raised the bar. And while Ofwat is promising the world to those whose business plans it deems to be ‘exceptional’, it has made no secret of the fact that business-as-usual will not be good enough for water companies to avoid significant scrutiny and costly punitive action.
Against the backdrop of this regulatory environment, successfully overcoming the challenges of ageing assets, climate change, and population growth demands more from water companies than ever before. Not only must they show clear examples of customer engagement and links between innovation activities and resilience outcomes, they must now also contend with environmental threats that can compromise serviceability or ultimately lead to costly pollution incidents.
Fortunately, ‘challenging’ and ‘impossible’ are two very different things, and having already seen a number of water companies venture far from their traditional practices with great success, I’m confident that Ofwat’s carrot and stick approach will go a long way in incentivising companies to embrace bold new ideas. However, if this is going to happen, water companies will need to think of innovation as more than something they must simply include in their business plans. Instead, they will need to see innovation the vehicle through which they will be able to achieve the necessary step-changes in affordability, customer service, and resilience.
In light of the environmental risks I mentioned earlier, resilience is perhaps the most immediate area of focus for the water companies who are willing to embrace innovation. And with Ofwat calling for companies to consider resilience for AMP7 and beyond, it’s easy to see why. But I think it’s important to realise that resilience needs to be about much more than spray-lining settlement tanks with Adler & Allan’s polyurea coatings, installing novel grit removal processes, or using state of the art bund technology to contain pollutants and sewerage
Now termed “resilience in the round”, Ofwat expects that water companies will take a holistic approach to resilience and will have long term recovery and coping strategies in place to secure ‘corporate’, ‘operational’, and ‘financial’ resilience.
While each of these areas of resilience probably warrants its own article, the main point here is that resilience in PR19 will look very different than anything we’ve seen in PR14. It will demand a clear shift away from traditional capex biases in favour or Totex expenditure; a movement away from reactive maintenance in favour of PPM that prioritises asset health and refurbishment over replacement; and the end of the rigid, traditional thinking that might have worked well in the past, but just isn’t compatible with where the sector is headed.
Ultimately, wherever water companies choose to focus their efforts and resources, innovation will need to play a key role: good enough is no longer good enough.