Utility Week

UTILITY WEEK | DECEMBER 2022 | 19 Water most appropriate measure in certain catch- ments, or could hamper carbon initiatives or add to bills. Wessex believes companies should be able to choose other, more effi- cient, approaches if they produce the same outcome – fewer nutrients entering the environment. Wessex has piloted catchment permit- ting in its Bristol Avon catchment, where it holds the only permit of its kind, to reduce nutrients across the whole area. Thompson explains that this was instead of installing new treatment processes at each asset in the zone to remove phosphorus, which would be costly and consume large amounts of energy as well as producing carbon and chemicals. "Instead of that route, we negotiated with the EA to manage nutrients in the catch- ment with a single permit covering all assets, which spreads the required reduction for phosphorus across a number of sites. Indi- vidual assets are effectively given tighter permits at sites that either produce the most phosphorus, or are best able to contribute to overall reductions." By doing that, Thompson explains, the overall phosphorus entering the catchment is reduced without having to build treatment assets at every site. "The outcome is the greatest length of river improved by removing phosphorus across the catchment, but doing it in a more cost effective way." The EA introduced this as a mechanism at AMP7, but Thompson says that because of the difficulties in obtaining a permit, Wes- sex is currently the only company with one in place. Another nature-based solution used effec- tively by the company is at Poole Harbour, where Wessex is obliged to reduce the nitrates leeching into the harbour by 40 tonnes. "Traditionally, the EA would have insisted in us investing in a carbon-intensive treatment process, with an estimated cost of £31,000 per tonne of nitrate removed," Thompson says. "Instead, we worked with farmers to plant cover crops to keep the soil from being bare over winter to prevent leech- ing. By delivering that we have proved we can deliver the same outcomes with nature- based solutions at a cost of £9,000 per tonne of nitrate removed." The solution is 71% cheaper, has addi- tional biodiversity benefits created through the cover crops and avoided carbon emis- sions of the treatment plant. Having proven the efficacy of the approaches, the company came up with the Somerset Catchment Market via its non- regulated business EnTrade – of which Thompson is the director. He says this is a mechanism to operate a market bringing together the farmers and landowners who could participate in nature-based solutions, with the beneficiaries of those schemes such as housing developers or a water company. "Creating the market effectively brings the transaction costs down for individual organi- sations striking bilateral deals with farmers and generating a long-term revenue stream for farmers through land-use change such as wetlands, woodlands, rewilding to deliver for requirements such as nutrient neutrality for housing developments." From the pilot, EnTrade is preparing to go live with a platform for housing developers, which if successful Thompson says could lead to opening up the market for a range of buyers. Wessex could have the option to buy credits through that marketplace to meet its regulated obligations, if that is a more cost- effective route to go down. Setting blanket targets for all parts of the country through outcome delivery incen- tives such as for leakage is "totally bonk- ers", according to Greenfield, because it could result in carbon generation or costs that are not necessary when more efficient approaches could be found to deliver the benefits in the catchment. Levelling the playing field Another key complaint from Wessex is that financial regulation currently incentivises capital expenditure (capex) in business plans over operational expenditure (opex), despite a move towards the concept of total expenditure (totex). Greenfield describes the totex approach as sensible in principle and "probably the right answer", but at present it's not properly implemented. "Companies are incentivised to put more capex into the plan, because that earns a return and has the longest certainty over funding," Greenfield says. This in turn makes alternative options such as invest- ing in nature-based solutions that may have ongoing opex less appealing to shareholders when approving business plans. Wessex suggests putting those on a level playing field: "Any option should be equally attractive from an investor's perspective to ensure the priority is finding the option that is best for the environment and society, whereas at the moment, that's not the case." What's standing in the way? Greenfield describes two significant block- ers that have appeared since the WINEP was proposed. The first is nutrient neutrality targets to encourage homebuilding. Government proposed for water compa- nies with treatment works in protected nutri- ent zones to deliver phosphorus and nitrate reductions at sites serving more than 200 people, equivalent to the technically achiev- able limit. "For Wessex," Greenfield says, "that essentially means delivering 0.25mg phos- phorus per litre of treated wastewater at almost half our sites, rather than doing all this great stuff that we could do with farmers or landowners or anyone else. And we will have to do that by 2030 at every single site, so that's a huge amount." Putting that into context, Greenfield says the investment to meet phosphorous and nitrate targets alone would match the com- pany's entire capital programme of recent AMPS, which averaged £1.3 billion to £1.4 billion. Spending on water networks, carbon reduction, biodiversity, bioresources, reduc- ing storm overflows would be additional to that. Another change causing ripples is tar- gets included in the Environment Act that propose setting limits on phosphorus from treated wastewater. Greenfield says seman- tics are key here: "The biggest issue is the words 'from treated wastewater', because it will mean interventions required at all treat- ment works." A holistic catchment approach could garner the same outcome, but then not be compliant with the wording of the act. "The issue with these targets is that nature-based solutions such as wetlands and reed beds just aren't powerful enough to deliver that kind of reduction," Greenfield explains. This would mean traditional techniques that may not deliver on cost, carbon or add other nat- ural capital value. Removing the words "from treated waste- water" would allow the company to find the most efficient way to achieve the equivalent reduction across the catchment. Thompson describes the Environment Act as "a big opportunity to build a framework setting out long-term targets to drive private investment in environmental improvement", bringing together government objectives for the sector and environment and moving away from siloed schemes. "Looking back to the Strategic Policy Statement to Ofwat, it was all about deliver- ing more environmental value at lower cost – efficiency has got to be the way to unlock that. This is a chance for government to build a growth agenda that creates new green jobs, new capabilities and creates long-term cer- tainty for investors," he says. Ruth Williams, water correspondent

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