Utility Week

16 | 4TH - 10TH MAY 2018 | UTILITY WEEK Policy & Regulation Analysis Y ou don't have to have a degree in mete- orology to know that it rains more in the north of England than in the south. For years, there has been growing concern in the increasingly congested south east about constrained water resources. A desalination plant, which is something one might expect to find in Dubai rather than near Dagenham, has been operational on the Thames since 2010. Shiing some of the north's excess water to the south, which is forecast to become more parched at the same time as it faces increasing population pressures, seems like a no-brainer given the regional mismatch in resources. The National Infrastructure Commission (NIC) agrees, judging by a report it published last week. The report, which will form part of the NIC's upcoming National Infrastructure Assessment, has been brought forward to feed into Ofwat's price control review process. To guard against the increasingly frequent risk of drought in the water-stressed south, the government's infrastructure adviser rec- ommends that by the 2030s "at least" 1,300 megalitres per day (Ml/day) should be pro- vided via a combination of a national water network and additional supply capacity. Only about 4 per cent of the UK's water supply is currently transferred from one region to another. The most well-known examples of inter-regional transfers are the Victorian aqueducts that continue to supply Birmingham and Liverpool with Welsh water. Security of supply is one of the top items on customers' agendas, says Tony Smith, chief executive of the Consumer Council for Water (CCWater). "It makes sense to get water flowing into areas where there is less. If it dramatically improves water supply, it would be a good thing," he says. Improving interconnections Water doesn't need to set up its own version of the National Grid to pipe supplies from the Scottish Highlands to London, says NIC chief executive Phil Graham. Instead, transfers could be carried out by improving interconnections between com- panies' existing networks. The NIC proposes that water be transferred by pipelines and pumping stations as well as existing infra- structure and networks of rivers and canals. Improved transfer infrastructure could potentially provide 700Ml/day of extra capacity, estimates the commission. The cost of providing this extra capacity via transfers compares well with building new supply infrastructure in the regions where it is most needed, according to NIC analysis. And it would boost the ability of the overall system to adapt to potential droughts, says Graham: "It creates flexibility in the system." Long or complex transfers can be energy intensive, the NIC report acknowledges. A Water UK briefing on transfers points out that water is heavy and so more expensive to shi around the country than electricity or gas. But building extra capacity has environ- mental downsides, says the NIC. Reservoirs may be good value for storing large volumes of water, but need a lot of land, which is in scarce supply in the most drought-prone parts of the UK. And desalination is energy inten- sive and produces highly polluting waste. Graham says creating a transfer system would better enable water companies to identify where additional supply capacity is most required. Regime barriers But the key barrier to greater water transfers, identified by the NIC, is the way the price regulation regime incentivises companies to build their own reservoirs because they pro- vide greater control over their asset base. Water companies have already started to discuss transfer arrangements as part of the current Ofwat price control consultation. The NIC's solution is a wider rollout of the direct procurement mechanism used by Ofwat to kickstart the delivery of the Thames Tideway Tunnel. Graham argues that the costs of providing this additional infrastructure will "not be excessive", especially because they will be spread across a 20 to 30-year period. And the costs of doing nothing will be a lot greater than having to import water from abroad, he warns: "It's absolutely nowhere near as expensive as not tackling these problems and then dealing with them when drought occurs with tankering or importing water from abroad." But Graham says moves to set up a transfer system will "undoubtedly" require a steer at national level. "Part of the reason this hasn't moved much is lack of clarity over long-term ambition. We are trying to give the industry the certainty of what the long-term aim is." Leakage target However, boosting supply on its own won't solve the problems of water-stressed parts of the UK, according to the NIC. It also rec- ommends the water industry be set a goal of halving leakage rates, currently around 2,900Ml/day, by 2050 – with Ofwat setting five-year targets for each company. CCWater's Smith agrees with the NIC that efforts to tackle leakage are vital to underpin- ning the credibility of efforts to boost invest- ment in supply: "One of the biggest barriers to customers changing their own behaviour is if they believe a water company is wasteful of their resource." The slowdown in progress on tackling leaks since the 2000s, identified in the report, reflects the cost-benefit calculation Ofwat uses to help determine investment in tackling leaks. Smith says: "The problem with that methodology is that it doesn't take account of the reputational effect and cus- tomer behaviour. It should have done." The commission also calls on the Depart- ment for Environment, Food and Rural Affairs to publish new regulations by the end of next year to require water companies to consider systematic rollout of smart meters. These measures would cut average con- sumption in England from the current 141 to 118 litres per person per day, the report estimates. Given the buffeting they have received over the introduction of electricity smart meters, ministers will probably need con- vincing that a further rollout makes sense. North-south transfers of water is a techno-fix whose time may have come. Transfer window for water Transferring water by existing infrastructure and river networks could provide 700Ml/day of extra capacity, estimates the National Infrastructure Commission in a new report. David Blackman writes.

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