Government leadership is needed for the water sector to decarbonise while reducing costs
The water sector has long been overlooked by the Government, but drastic action is needed now to get water to net-zero
The narrative of the water sector is one that doesn’t necessarily spark the same amount of discussion as other utilities, such as energy. However, the sector is currently at a crossroads – a ford, if you will – thus, the sector is in need of government attention.
Utility companies have been at the forefront of the current pandemic, as the lockdown confining people to their homes would not have been plausible without the sector stepping up to meet the needs of consumers. Despite this, while the Government announced an energy sector deal there has been no supplier agreement of the same sort for the water industry. Measures were taken by the regulator, Ofwat, but there was a lack of governmental intervening policy.
As water companies operate as a monopoly, protecting competition is not as vital as it is for energy companies. However, companies and stakeholders were vocally disappointed that Covid legislation omitted the sector, especially during a time when there is significant pressure on water companies to make cost reductions alongside decarbonisation.
Companies and Ofwat have been facing mounting external pressures to ensure the sector delivers an affordable and secure product, while simultaneously increasing innovation and transition to carbon free.
The Public Accounts Committee (PAC) placed pressure on regulators in 2019, urging them to ensure companies were doing their utmost to protect vulnerable customers and keep prices fair after failures from the sector became apparent. Now, the committee’s most recent report, Water supply and demand management, has highlighted the “serious risk” of certain areas of the country running out of water supply in the next 20 years.
Lack of Government leadership
Ofwat’s annual report, published at the beginning of July, highlighted how companies are making strides in reducing water bills for consumers, which have been steadily decreasing since 2015. Similarly, indications of increasing customer trust were reported, with “encouraging growth in support for vulnerable customers across the water sector, with increases in the number of customers registered for priority services and for social tariffs.”
This is a good start, and proves that Ofwat’s crack down on companies has had certain desired effects in relation to reducing bills. However, some companies have argued the pressure to reduce prices is unfair, stating that they can’t innovate if bills are too low leading to conflicting priorities.
This point has been reiterated by PAC, as their report condemn the Government’s “weak efforts to encourage reductions in water consumption [which] have achieved very little”, concluding that: “the responsible bodies – the Department for Environment, Food & Rural Affairs (the Department), the Environment Agency and Ofwat – have collectively taken their eye off the ball and urgent action is now required if we are to have a reliable water supply in the years ahead.”
The situation is complicated, as it is clear that stronger regulation and company accountability won’t necessarilly target all challenges currently facing the sector.
Therefore, to improve water efficiency whilst keeping utility prices low and transitioning to net zero, government must step in to facilitate the balance.
PAC have argued that the Government has not “done enough to resolve the tension that water companies face between needing to invest in infrastructure to improve water supply and the pressure to keep water bills affordable for consumers, particularly where consumers say they are prepared to pay more.”
Furthermore, water companies are – according to Ofwat and PAC – not yet showing sufficient moves toward the decarbonised transition.
PAC is sceptical of the effectiveness of water companies’ efforts to mitigate environmental damage, arguing that they were unconvinced that the UK’s net zero emissions target has been sufficiently embedded in the oversight and regulation of the industry. However, regulators can only do so much to ensure this transition.
Disparities in the performance of companies remain significant across the sector with certain suppliers leading the industry, and others falling significantly behind across a range of indicators. Naturally this occurs across any privatised industry, however, water and sewer waste are a central component to climate security. Globally, it is at the centre of economic, social and development impacts. The risks outlined by PAC and other stakeholders cannot fall on deaf ears.
Annually published performance tables alongside Ofwat’s anticipated £200m innovation fund would be a good starting point to tackle sector-wide challenges – but questions remain over the Government’s policy silence. Retrofitting infrastructure and decarbonising the sector will be near impossible by 2050 without a Government led water strategy.
As PAC’s report argued, Defra need to lead the sector through this turbulent period, ensuring customers and climate change are equally dealt with before targets fall out of reach.
Alexandra Goodwin is the Dods Political Consultant on Energy, Climate Change and Built Environment. To download the complementary report lookahead on the water sector click here.