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UTILITY WEEK | 31ST MARCH - 6TH APRIL 2017 | 23 Customers Analysis N orthumbrian and Anglian have announced plans to merge their busi- ness retail arms to create Wave. This is the third high-profile merger seen in the sector. Is it a sign that the water retail market is on the road to a big six? Some market participants believe so. Rupert Redesdale – acting chief executive of new entrant The Water Retail Company – tells Utility Week the water market could quickly consolidate, as it follows the path of the energy sector. The non-household water retail market opens on 1 April with 22 companies licensed by Ofwat to provide water supply and sewer- age retail services. This is fewer than some had predicted. When Severn Trent and United Utilities (UU) announced their joint venture Water Plus last March, UU chief executive Steve Mogford said it was largely about scaling up. He said "scale is a benefit to address overall cost base and therefore competitiveness". Anglian Water Business managing direc- tor Bob Wilson, on the other hand, insists that Wave is about more than just creating scale. "This is about combining experience and expertise," he tells Utility Week, adding that the merger is not merely a "marriage of convenience". "We haven't just stumbled together, this really is something that has been studied. Both of our parent companies looked at it long and hard." NWG Business managing director Lucy Darch adds: "We have both approached the market opening in a very different way. When we look at each other, there are lots of things that Anglian have done that are great, and there are lots of things that Northum- brian have done that are great. Those com- plementary skills going together feels like a really positive thing for the business." Mass mergers Redesdale argues that such mergers are "all to do with scale". "The only way you can mit- igate the risk of bad debt is scale," he says. "You'll get niche players, but I actually think you're going to get a lot more exit from the market place, and you'll end up with a small number of very large operators." So, this is unlikely to be the final merger or acquisi- tion the water market will see, as it starts to "replicate the energy market model". Following electricity deregulation, regional companies merged into six large energy players: Eon, SSE, Scottish Power, British Gas, Npower, and EDF Energy. It is only recently that new entrants have begun to swipe market share from these companies. By the end of 2015, the market share of the independent suppliers had grown to 13.4 per cent, and the number of suppliers in the energy market has more than doubled – to around 40 – in the past four years. And yet, the big six continue to dominate. Now, it seems, the non-household water retail market is following a similar pattern. Market snapshot Ahead of market opening, the industry has seen its share of mergers, most notable of which was the Severn Trent-United Utilities joint venture Water Plus – currently the big- gest player in the business market, with 366,000 customers. The second largest player is Scottish new entrant Castle Water, which boasts a book of around 310,000 customers, aer snap- ping up the business bases of exiting Ports- mouth Water and Thames Water – effectively increasing in size ninefold overnight. The third largest player now looks set to be Anglian and Northumbrian's Wave, which will have approximately 250,000 customers. This is subject to regulatory approval, of course. Business Stream – the incumbent, and currently largest, retailer in Scotland – has made no bones about its focus on growth. It, too, looks likely to become a sizeable player in the English market. The retailer has already bought Southern Water's busi- ness customer book. It has also partnered with market peer Veolia Water and signed a multi-utility deal with broker Utilitywise – in which the former will provide water services and the latter will offer energy provision. And Source for Business, which is the trading name of Pennon Water Services, itself a combination of South West Water and Bournemouth Water, has joined forces with South Staffordshire Group – the parent company of South Staffordshire Water and Cambridge Water. When the merger between Northum- brian and Anglian's business retail arms was announced, The Water Retail Company tweeted that water market choice will end up being between "big regional companies and bespoke specialists". It could well be right. Reign of the water big six? Northumbrian and Anglian have announced plans to merge their business retail arms. This third high-profile merger prompts Lois Vallely to ask, will the water retail market have its own big six? THE BIGGEST THREE RETAILERS IN THE ENGLISH BUSINESS WATER RETAIL MARKET Wave (Northumbrian) Water Plus (Severn Trent and United Utilities) Castle Water (Thames) Castle Water (Portsmouth) Wave (Anglian) Company No. of customers Water Plus 366,000 Castle Water 310,000 Wave 250,000