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What’s Driving the Success of Self-Supply?

On the back of news that self-supply continues to be the highest performing trading party group in the open water market, Waterscan’s Commercial Services Manager, Nathan Morgan, gives his general view on the marketplace and why the self-supply community is outpacing the rest.

Nathan, it’s been nearly three years since the non-residential water market opened to competition across England and Wales. What’s your opinion of how it’s shaping up so far? The most important thing, and the greatest benefit of the work that’s been done so far, is that the open market has introduced customer choice for the first time. It’s good to see change happening and innovation occurring but I think all involved parties would like it to happen faster.

What are the issues that are preventing an efficient, competitive water market right now? The development of the market is being impeded by poor data quality and anti-competitive behaviour, both of which are causing negative outcomes for customers. The market regulator Ofwat and the market operator MOSL are fully aware of these issues and are taking firm steps to address them, which is good to see.

Detail surrounding these aside, I believe there is one over-riding theme however: inconsistency across the marketplace. This is because we currently have dispersed systems, divergent processes and some market codes that are open to interpretation. This situation enables wholesalers to implement different solutions, in turn impacting retailers, the self-supply community and most importantly the end customer. It gives rise to a non-standard customer experience which is still driven by geographical location rather than the high quality, standardised single market experience that we’re striving for.

And the single most important thing that could be done to speed-up progress? Fast-tracking the planned industry bilateral hub will solve many of the issues around data, efficiency and the customer experience, leading to a more effective market.

What is it about self-supply then, that has enabled it to outperform other approaches to the water market? Self-supply is customer-led. Customers have ownership of their own market performance and are motivated to deliver the best outcome that they can for themselves. From my experience of attending the self-supply users forums, it’s interesting to note that control has proved to be a more important driver for customers over price. Through initiatives like the forum, self-suppliers have gained a strong and clear understanding of the market which enables them to make decisions and take positive actions that support their operational and sustainability goals. This level of control has proved to be an incredibly important factor.

More and more companies are applying for self-supply licences but why isn’t everyone? Firstly, there remains a general apathy around engaging with the open water market across much of the business community. Unlike the gas and electricity markets previously, awareness of the opportunity to renegotiate with incumbent water suppliers and switch to new ones (currently around 50% of eligible businesses) is not high enough to drive action.

Secondly, self-supply is not suited to all organisations: it usually doesn’t make sense for low-volume water users like many SMEs to opt for this route; it’s better for large consuming, multi-site operations. Some larger companies, already resource-stretched, have come to us with concerns about a lack of resources and knowhow internally to play an active role in a marketplace they don’t yet understand. However, the ability to engage with peer group organisations that are self-supplying at the forum, is reassuring for most.

For those that have taken the leap though – and there are nine active self-suppliers to date – the benefits are outweighing any concerns they may have had at the outset. They have transparent data on which to make effective business decisions. Many are achieving consumption savings that go beyond initial expectations. And for those organisations with a complex property portfolio, there are tangible administrative efficiencies. It’s no wonder that the self-supply community has become a driving force in the new water landscape.

Can you provide a specific example of how self-supply is benefiting companies that you work with? Yes. We have reduced long unread meters (those that have not been read for 12 months or more) to below pre-market averages. Long-unread meters are a major issue across the water marketplace because, without accurate consumption readings, there can’t be accurate customer billing. The self-supply community is driving change and signalling to other trading parties just what can be done.

BT, which was only approved for a self-supply licence in January 2019, has reduced its long unread meters by 88% in less than a year. Currently the only self-supply company that has more than 5,000 supply points, BT has shown what is achievable across a sizeable portfolio. Although categorised as a ‘self-supply’ company in MOSL reporting, if BT had been included in the ‘large retailer’ category, it would have shown an overwhelming lead in this market segment.

In the medium to long term, in what ways do you believe self-supply will benefit the wider industry? Self-supply already gives customers an increased profile and voice in the industry. With this voice comes the ability to drive tangible improvements against market performance standards and shape a water sector for the people and organisations it serves.

Finally, self-supply has been singled out by Ofwat as the most innovative approach since the market opened. What other innovations would you personally like to see come to fruition in the future? I would like to see the introduction of further competition when it comes to the supply of water and wastewater services; for example, in meter operations and in waste collection and treatment facilities. A centralised, digital marketplace to allow third parties to introduce new products and services to companies operating in the market would also fuel further innovation.