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Ofwat restrictions are forcing water companies to innovate

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Leading water consultant GHD has claimed that tighter regulator restrictions are driving water companies to think outside the box ahead of the next funding period.  

GHD water sector lead Stewart Tennant told New Civil Engineer that Ofwat has implemented tighter controls on water companies AMP7 business plans. 

He said that this in turn is forcing companies to take risks and be innovative with their five year bussiness plans (2020-2025).  

“Ofwat is putting really tight controls on the affordability of the AMP7 programmes, [which] means we are going to have to do things differently,” Tennant said. “You can only squeeze the supply chain so much, we can only cut cost margins on concrete and pipes by so much.” 

When the initial review of water company business plans were reviewed by Ofwat in January, 14 of the 17 water companies were sent back to the drawing board by the regulator to revise their spending plans.  

Tennant added: “To actually achieve the step chain the regulator wants, we will have to start doing things differently, we have to look at different solutions for the problems we face in the water industry, and I think the regulator is recognising the need for change and greater efficiency.” 

Ofwat chief executive Rachel Fletcher said the regulator was challenging companies to “deliver more for less” to their customers in the next five-year funding period, with “an increased focus on the things closest to people’s hearts such as keeping bills affordable, cutting leakage, protecting the environment and helping those most in need.”

However, according to Tennant, the water sector does not have a lot of “wiggle room” when it comes to innovating, as the fines can be crippling when something goes wrong.  

“The water sector is a regulated sector, and there are penalties, quite rightly, if you get things wrong,” Tennant said.  

“The dilemma is how the industry balances these regulators with the risk of innovation. It is the so-called fourth industrial revolution, there are new technologies coming in AI, digital technology, we can use them, there are clear opportunities, but it’s the leap of faith – who takes that risk?”  

“If you are truly innovating, you are doing something for the first time, and it might not work, and this is the real challenge for regulating sectors,” he adds. “This is why you see a lot of innovation in Formula One, if they have a problem with a component failure, they can go back and re-engineer it and can be ready to go by the next race, we don’t have that luxury in the water industry. 

“Water is a food grade product and it has to be available at the right pressures at the right times, and it’s the same for waste water, and if we get it wrong the fines can be in the seven-figures.” 

Ofwat Director Colin Green said: “Innovation is one of the key themes of our 2019 price review and is essential if companies are going to meet future challenges like climate change and population growth.

 “In business plans we saw some good examples of innovation but it’s clear that the majority of the sector still has some way to go if it is to address the challenges it faces. We expect companies to develop and implement new ways of working including looking beyond their boundaries.

 “At the heart of this is the culture the companies work in, there needs to be a willingness to collaborate more effectively with third parties, use new markets and move from successful pilots to swiftly embed best practice into day to day business,” he added. 

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