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UTILITY WEEK | 13TH - 19TH MAY 2016 | 19 Operations & Assets In assocation with "There are still opportunities to drive innovation in the water sector – and here is how you can do it." I t is now nearly six months since the publication of the original Water Sector Innovation and Percep- tions of Totex, and on reflection, innovation within the water sector remains limited across the wholesale market and focused on near-term productive efficiency gains. We are not seeing innovation embraced to provide wider benefits obtained through improved allocation of resources or dynamic changes in the way wholesale services are provided. The following are four thoughts on how this might be achieved: • Ofwat can use the PR19 process to support inno- vation and long-term efficiency gains. Clearly the water and wastewater networks will continue to be a series of regional monopolies, however it will be benefi- cial for Ofwat to look at clear incentives for innovation and long-term efficiency gains, possibly revisiting how Ofgem considered innovation in establishing RIIO. • Use commercial models as a catalyst for innova- tion. All the leading utilities have adopted commercial models which incentivise partners to deliver their capital programme at a typical saving of 20 per cent versus AMP5. However, these models generally do little to incentivise opex savings, with the potential to limit true innovation and support a capex bias. Utilities could consider alternative commercial models which clearly incentivise longer-term efficiency gains and opex only solutions. • Improved resilience can be a springboard for innovation. Ofwat is placing increased focus on resil- ience, while at the same time, the past few months have seen some clear challenges across the sector including flooding and water contamination issues. As a conse- quence we are seeing several utilities invest in a deeper understanding of asset condition, asset criticality and operational risk. As understanding of the asset base improves, this can combined with data analytics to sup- port innovative network and process solutions as well as a step change in the ability to make informed risk-based decisions, delivering both improved service resilience and major efficiency gains. • Think big, start small, kill early, scale fast. When looking to drive innovation, the technology sector and its approach to rapid prototyping is an interesting exam- ple to consider – trying new ideas, but not afraid to kill those that don't work or rapidly roll out those that do. By comparison, the sector remains conservative, taking comfort in large programmes when there is the oppor- tunity to trial innovative approaches in several areas including – energy load levelling, asset management and analytics – at a local level, identifying the most promising and accelerating the rate of innovation. Opinion Tim Cooper, Partner, advisory, at Arcadis Water Sector Innovation and Perceptions of Totex Research conducted by Utility Week in Association with Arcadis shows operations leaders in the water sector recognise the need to inno- vate but are reluctant to embrace the reality of change this requires. The report is available to download at: http://bit.ly/1TOo83L Utility Week Live The totex regime in AMP6 comes as part of a regulatory shi that has also seen Ofwat move away from setting outputs for water companies, instead setting outcomes . The aim is to encourage a drive for greater cost efficiency and improved customer service and to pro- mote the optimisation of existing assets rather than the creation of new ones. Water companies and their supply chains are managing risk and reward in new ways to reflect the new regulatory approach and the totex regime. This is being discussed in detail at Utility Week Live in the water theatre on 17 May. Arcadis head of asset management, Luke Dirou, will be speaking in the seminar, alongside Ynon Gablinger, principal, analytics, from Ofwat; and United Utilities supply chain and commercial director Martin Gee. For more information, visit: www.utilityweeklive.co.uk Gas & power transmission and distribution innovation investment in 2014/15 Gas distribution NIA investment National Grid Gas Distribution: £7.64m Wales and West Utilities: £1.6m Northern Gas Networks: £2.4m SGN: £3.31m Gas transmission NIA investment National Grid Gas: £4m Power Transmission NIA investment National Grid Electricity Transmission: £10m Power distribution - the latest annual reports for power disillusion innovation investment relate to the final reporting period for the Incentive for Innovation funding mechanism Electricity Northwest: approx: £3m Northern Powergrid: £1.2m Scottish and Southern Energy Power Distribution: £3.6m Scottish Power Energy Networks: £3.9m UK Power Networks: £4.5m Western Power Distribution: £1.8m All the figures given are for the amount of money actually spent on innovation projects in 2014/15. Allowances for each company may have been larger than these sums. Source: Innovation in UK: Utilities a State of the Nation Report