Evaluating supply sustainability for water customers: Deregulation deconstructed

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The deregulation of the water industry in 2017 set out to accomplish a lot.

Five years on, to what extent has it delivered on securing a sustainable, quality water supply?

Evaluating supply sustainability for water customers: Deregulation deconstructed

Progress

Protecting Britain’s water supplies for the long term was the underlying reason for deregulating the market in the first place; the end goal is to make it really easy for customers to make good water management choices.

There has been an increased focus on the need for timely, accurate meter read data and trading parties are now being held to account on this as a key performance metric. This is critical in providing customers with actionable data for strategic water management.

Companies that Self-Supply reported average efficiency savings of 4% (336Ml) during 2020-21. One saved 13% of total water consumption.

“We use one billion fewer litres of water a day now, compared to 2005”*

“In our first year of Self-Supply, we reduced water consumption by the equivalent of 676,313 pints”*

Customers are increasingly aware of how the environmental impacts of water and greenhouse gas emissions are interlinked, and that there can be no progress on net zero aspirations without tackling water efficiency. This is underlined by the fact that voluntary and mandatory environmental reporting now call for disclosure on water.

“We have achieved a CDP A rating for water security for three consecutive years; this has helped boost our CDP climate change disclosure”*

Roadblocks

Despite businesses waking up to their water use impacts, there has been little progress on strategic water management and consumption savings. Indeed, the Environment Agency believes that an additional 400 million litres per day will be needed to address the impact of climate change on water availability across England by 2050.

Water consumption volumes have remained largely unchanged

 Source: MOSL Market Charts

There is currently no target for customers to save water. Indeed, the market is operating in such a way that customers who use more water are rewarded with lower charges. The UK is an outlier on this issue and, when water scarcity is concerning, this is illogical.

Further, there is little to motivate retailers to save water because being water-efficient negatively impacts their turnovers. This is twofold: not only is there an immediate revenue loss but, to embed teams to deliver savings to customers, adds to costs and reduces profit margins. With strict price control measures limiting available retail margins, it currently doesn’t make commercial sense to save water.

Water saved is valued at less than water produced. Tallying recent wholesaler incentive schemes, the value placed on water efficiency schemes was below the cost of the repairs and well below the cost of production of water.

“Environmentally and ethically, it is important that wholesalers and MOSL take ownership and accountability for the water industry’s impacts without being driven by incentives”*

Only 7% of business customers regard water efficiency as a priority. In fact, the proportion of customers mentioning water efficiency has decreased over the last two years (from 25% in 2020 to 7% in 2022). Their top priorities remain uninterrupted supply and value for money, suggesting that they do not link the need for sustainable, efficient consumption with supply security and keeping costs down.

Customer trust in wholesalers to do the right thing for the environment is sorely lacking according to Discover Water. Just three out of the ten UK wholesalers had achieved a four- star rating by the Environment Agency and Natural Resources Wales for their overall performance in protecting the environment. Two wholesalers received just one-star.

“Wholesalers need to provide their scope 3 emissions/m3 as part of BEIS carbon reporting factors. The industry should be benchmarking its sustainability performance against other utilities which have certified accreditation”*

The lack of accurate, regular consumption data for the majority of businesses means that there is always a, sometimes significant, lag between identifying water wastage and rectifying it at site level. Discover Water reports that 113 litres of water per property in the UK is lost to leakage each year.

Some wholesalers are engaging directly with customers on water efficiency. This may seem like a good thing, but it absolves retailers from responsibility. Customers should be free, and indeed encouraged, to choose their retailer on the basis of their service delivery – that is effective competition in action. If they want water efficiency and their retailer doesn’t deliver it, their recourse should be to change retailer. When other parties step in to offer these services, even in the lightest terms, it can have dramatic onward consequences for a competitive market because it supports under-performing retailers and negatively affects those retailers that do more.

“[the market should] support organisations to deliver consumption reduction / efficiencies over the short, medium and long term. This is key to minimising our impact on the environment, and aligns well with many end user aspirations of delivering sustainability targets as well as mitigating / reducing future cost increases”*

Moving forward

  • Mechanisms should be introduced to ensure that all parties perform the correct roles in a competitive market. Retailers must take responsibility for efficiency gains.
  • Retail tariffs should reward water reduction. Green Tariffs should be introduced to incentivise customers to address the challenges of climate change through water, while falling bloc tariffs should be eliminated.
  • Customers should be educated on the benefits of saving water outside of billed costs, e.g. increasing biodiversity, reducing carbon, preventing flooding.
  • Customers should be supported with the data they need to engender behaviour change within their organisations.

*Direct customer quotes from survey conducted by Waterscan, May 2022

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