Water & Wastewater Treatment Magazine
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Russell also highlights Thames Water's scheme offering cash boosts to water re- tailers if they encourage business custom- ers to be more water-efficient, which has proved more cost-effective than finding new water resources. "I think there's a huge opportunity for water companies to help their non-house- hold customers be more water-efficient, and that in turn will help ensure that everybody's bills don't have to be mas- sively hiked to pay for great big resilience mop-ups," Russell says. Low margins For many in the water industry supply chain, the lack of money has been a long- standing problem. With return on investment low, spend- ing on research and development is lim- ited, while staff retention and recruitment can be extremely difficult with better salaries on offer in other sectors. "The sector is a victim of its own suc- cess," Ian Small, innovation champion for AECOM's civil infrastructure division across UK, Europe, Middle East and Africa, says. "The industry is never going to be able to get customers to agree to put the bills up, so it's either going to have to bring about a step change in how it delivers or accept the sector is going to get squeezed, which could result in less qualified staff because it can't pay the salaries of the top people." This summer, Balfour Beatty issued a position paper that proposed some potential solutions to the problems facing the supply chain. Titled 'Two Sides of a Coin', it backed Ofwat's ambition to increase investment while keeping bills affordable but ex- pressed concern that the current balance of risk and return could lead to increases in the costs for consumers over the long- term by disincentivising investment in innovation and skills, and simultaneously destabilising the supply chain, making it less productive. "The cost of water, and the stability of the industry more generally, is under pres- sure to ensure it meets increasing demands linked to population growth and the requirement to upgrade ageing infrastruc- ture," Mark Bullock, Balfour Beatty's chief executive officer for rail and utilities, says. "These pressures will develop over time and change as the world does. To manage and mitigate the risks coming from these pressures, the water indus- try needs to innovate and evolve with a long-term aim of lowering water costs for customers. We believe that without a sustainable supply chain, which is able to innovate and attract new talent, costs to customers will not reduce." The paper makes a series of recom- mendations, including the need to deliver sustainable margins, provide enough certainty to facilitate investment in R&D, address the skills gap and facilitate greater collaboration. "At an industry level, to reduce costs of delivering water, we need to change focus from low-cost bids to an understand- ing of the practicalities of delivering the project," Bullock adds. "There needs to be better recognition of the output required to deliver schemes in an efficient and ef- fective manner. "Currently, the relationship between those commissioning projects and those delivering them is underpinned by an unbalanced combination of risk and reward due to this lack of understanding or mismatched priorities. This ultimately results in a supply chain that is unable to invest in innovation or skills that would otherwise help shape the future of the sector. As it stands, the uncertainty of repeat and new business in the industry limits the desire to invest in anything other than the job at hand." He adds: "Innovation will be the way in which the sector will mitigate contin- ued significant increases in water prices over the long term for the customer. It of- fers the best way of ensuring that the £50 billion of investment planned by water companies between 2020-2050 is spent as effectively as possible, while delivering the 21st-century water infrastructure the country needs." Future In AMP7, UK water companies will have little choice but to find ways to get by with less income, but the longer-term picture is less clear. In 2016, a report commissioned by Water UK suggested that the additional cost of making our water supplies more resilient would be around £4 per house- hold each year, while the most wide- spread situations of severe drought could cost each household more than £100. The National Infrastructure Commission, meanwhile, calculated last year that while the cost of investing in drought resilience may be around £21 billion, the cost of not doing so could be £40 billion. If the sector falls short in its prepara- tions, the result may be that costs – and customer bills – increase substantially when pressures bite. "It's certainly the case that valuing water isn't just about price," Waterwise's Russell says, "but it's also clear that price of water may go up in the future if we don't start valuing it more." www.wwtonline.co.uk | WWT | OCTOBER 2019 | 13 • PR19 PLANS Ofwat made the following announcements when publishing the details of its dra determinations in July: • Bills are expected to fall by 12 per cent in AMP7, which represents an average £50 reduction before inflation • Nearly 1.5 million customers will get help with water bills through social tariffs and WaterSure • Companies are set to spend £49 billion on business as usual services and new investment and an extra £12 billion to improve services for future generations • Companies are expected to cut leakage by an average of 17 per cent