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22 | OCTOBER 2020 | UTILITY WEEK Policy & Regulation Analysis A mid the upheaval and uncertainty cre- ated by the coronavirus pandemic, innovation leaders across the water industry and at the regulator have shown an admirable single-minded determination to ensure that the development and implemen- tation of a new innovation fund for the sec- tor has not been derailed. In August, following a second round of consultation on the fund's structure and administration, Ofwat published its final decision on design and implementation for the £200 million pot, which it wants compa- nies – in collaboration with wider stakehold- ers – to use to catalyse a step change in the way the industry tackles its biggest shared challenges. It has been decided that the pot will be split into two parts, a main competition open to collaborative bids led by water compa- nies in association with supply chain part- ners, academics and the like. And a smaller "innovation in water challenge" fund which is designed to support smaller projects and ensure smaller innovators don't feel they are excluded from funding opportunities. In its decision document, Ofwat also cleared up a few points of uncertainty for interested parties about the ways in which intellectual property rights will be treated. the level of match funding that will be required from bidders and a number of other bits of governance nitty gritty. Getting these details specified in a way that takes best possible consideration of consultation inputs while safeguarding the interests of consumers, who are ultimately footing the bill, has been no mean undertak- ing – especially given the context of Covid and a contested price review. However, before the fund can really take off and start having an impact there remain a few key considerations for Ofwat, water companies and their prospective collaboration partners to address. A major but relatively straightforward step which has yet to be taken is for Ofwat to appoint a managing organisation to govern the fund and assess bids. The regulator went out to tender for this position over the sum- mer and is expected to announce an appoint- ment very shortly. Likewise, a further iteration of the joint sector innovation strategy was expected imminently as this issue of Utility Week went to press. Ofwat requested the creation of this strategy as a condition for establishing its new fund and a dra strategy was published in early August following an intense period of collaborative work from water company innovation leaders. Perhaps a bigger challenge, however, is how bidding companies are going to ensure there are suitable resources and supporting processes to ensure co-created bids are effi- ciently put together, and that the progress of funded schemes and trials has sufficient granular detail to enable others to pick up outputs and apply them in their own context. This challenge was identified as a key issue by Thames Water innovation leader Andrea Gysin when she took part in a webi- nar hosted by Utility Week in association with technology and business consultant CGI this summer. Gysin pointed out that while there is considerable collaboration between water companies where they have shared interest in early phase research and development projects, these activities tend not to be sup- ported by the kind of rigorous recording pro- cedures that will be needed if funded project outputs are to be made available for the pur- pose of supporting wider rollout. "This needs to be addressed, and it won't come without a cost – mainly in time to indi- viduals," Gysin warned before going on to say that she welcome signals from Ofwat that it has recognised the resource required to support proper outputs sharing. She encour- aged peers across the sector to ensure they account for this resource in the funding pro- posals put forward. Finally, another issue raised during the same webinar which needs further thought before the new innovation fund launches in 2021, is how to engage consumers in funding decisions and communicate the transforma- tional value of outputs to them. This point was raised by CGI's VP water and market services Stuart Brand, who said that while a lot of care had gone into "pro- tecting customers' interests and ensuring their money is spent responsibly", there has been less discussion to date about how the sector as a whole will continue to engage consumers going forward. Indeed, this issue is notably absent from Ofwat's decision document on design and implementation, released in August. As 2020 dips into its final quarter there are many who will be willing the autumn months to pass as quickly as possible. But for those hoping that a new innovation fund will really trigger a transformation in the water sector's approach to tackling its grand chal- lenges, there's still plenty le on the to-do list before they can start wishing away a year that few will look back on with nostalgia. Jane Gray, content director Water sector innovation: ready for transformation? Ofwat's new fund for catalysing transformational innovation in the water sector is nearing kick off. Is the sector ready? Jane Gray reports. in association with What we know about Ofwat's innovation fund • The fund will be structured around two annual competitions, the innovation in water challenge and the main competition. • The innovation in water challenge competi- tion will involve "Dragons-Den"-style pitches for funding of small-scale projects. It is designed to provide funding opportunities for supply chain businesses that might otherwise find it difficult to pitch to water companies. The first round of this competition will take place in January 2021. • The main competition will be for large, stra- tegic projects targeting cross-sector benefits. Ofwat expects bids for funding in the main competition to be collaborative, including joint bids from water companies and other stake- holders. The first round of the competition will kick off in April 2021. • Ofwat has expressed interest in seeing a col- laborative funding bid from the water industry within the main competition to create a Centre of Excellence for water innovation which could coordinate sector innovation activities and sup- port roll-out of successful project outcomes. • Ofwat has stipulated that all funding bids should be matched by a 10 per cent minimum financial contribution from bid participants. • Ofwat has agreed to differentiate between "foreground" and "background" intellectual property rights in order to address some of the concerns put forward during fund consulta- tion in relation to IPR. It has also expressed a willingness to be flexible on IPR arrangements on a case-by-case basis. • Ofwat is running a tender process to appoint an independent partner which will be responsi- ble for running these competitions and assess- ing bids. Its decision is expected shortly.