Water & Wastewater Treatment Magazine
Issue link: https://fhpublishing.uberflip.com/i/957171
www.wwtonline.co.uk | WWT | APRIL 2018 | 17 • SCHEMES WITH CAPEX EXCEEDING £100M IN PREVIOUS PRICE REVIEWS Water company Scheme Claim value Notes Large enhancement projects in the 2014 price review Severn Trent Water Birmingham resilience main scheme £265M United Utilities Thirlmere and West Cumbria £215M Thames Water Thames Tideway Tunnel £404M Thames Water Counters Creek sewer flooding scheme £257M Total: (2012-13 prices) £1,141M (£1,210M in 2015-16 prices) Large enhancement projects in the 2009 price review / commenced in AMP5 Thames Tunnel Lee Tunnel £555M Thames Tunnel Deephams STW £264M An AMP5-AMP6 overlap project Southern Water Brighton & Hove STW £192M Wessex Water Integrated supply grid £271M An AMP5-AMP6 overlap project United Utilities Vyrnwy LDTM cleaning £172M An AMP5-AMP6 overlap project Total: (2007-08 prices) £1,454M (£1,808M in 2015/16 prices) Large enhancement projects in the 2004 price review / commenced in AMP4 Thames Water Beckton STW upgrade £201M An AMP4-AMP5 overlap project Thames Water Crossness STW £246M An AMP4-AMP5 overlap project Thames Water Mogden STW £168M An AMP4-AMP5 overlap project United Utilities Shell Green Incinerator £102M United Utilities West to East Link Main £123M An AMP4-AMP5 overlap project (Source: Ofwat 2016) Total: (2007-08 prices) £840M (£1,045M in 2015/16 prices) Ofwat engaged with the sector through several rounds of consultations. The first proposals around direct procurement date back to around December 2015, with further rounds of proposals again in 2016 and 2017. "There has been a long process in shaping the final proposal," Knowles says. "We've had a lot of opportunity to engage with the industry and get feedback. "As with all of our consultations, we take on board the feedback and build that into our proposals. I think you can see that in the difference between the dra† proposals we put out in July and the final proposals in December. We noted in the document that where people had sug- gested tweaks to the methodology, and where we thought it was appropriate, we have put them in at a very detailed level." One of the "suggested tweaks" was more clarity on the proposed £100M threshold for projects eligible for direct procurement. "Someone questioned whether the £100 million threshold was a hard threshold or whether you can go below it. We said that it is fine to have a proposal that can go below that thresh- old; if you think it's going to work and is going to provide value for money then we'll consider that on its merit," Knowles says. "That is the sort of real granular detail that they've gone into and we have taken that on board and built that into our proposals." The ultimate test will be how much financial investment direct procurement attracts and whether the £100 million threshold has been pitched correctly. Ledger is confident there will be plenty of investors prepared to support these pro- jects. "If the deal is right then they'll in- vest," he says. "We'll have to wait and see how successful direct procurement will be, but the £100 million threshold should not be viewed as a hard and fast rule. If there is a great project valued at around £90 million to £95 million, companies should not be deterred from considering the direct procurement route." Ledger's confidence is buoyed by Atkins' water clients, who are already "looking ahead and preparing for the changes" that will be introduced as part of PR19. "They are actively considering direct procurement for relevant projects," he says. However, he admits there re- mains some uncertainty around how the DPC model will work in real terms and how investors will make a return. Five-year outlook Despite these initial concerns, Ledger is hopeful the introduction of DPC will be transformative. "I believe it presents a great way to unlock opportunities. We o†en talk about improving resilience, whether that's through better connections across water infrastructure or addressing flooding and drought, etc. Direct procure- ment could allow more inter-generational and inter-company projects and ultimate- ly help address some of the issues around resilience," he says. While this is a sentiment shared by Knowles, he acknowledges that it might be difficult to judge the success of direct procurement in the water sector within just five years. Ofwat expects DPC to develop and evolve over several price reviews. "In the first five years, it's dif- ficult to speculate and it's very much down to companies and what they bring forward in their business plans," Knowles says. "Looking at other sectors, like the electricity sector with offshore transmis- sion for example, we can see that over the various rounds confidence in the market built up over time and so did the benefits. The first round of that was reasonably successful and then rounds two and three were yet more successful. That's the expe- rience we've had from other sectors. "In this first round we hope to see a few projects that provide good value for customers, then we'll see what the future brings." Time will tell whether Ofwat's pro- posals are as robust as the operational resilience that is expected from the UK's water infrastructure.