Expert analysis of the UK water sector
Excerpts from the latest edition of The UK Water Report.
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Expert Forum | Policy
On demand
Richard Thompson wants urgent action – including political leadership – on demand reduction, as the new National Framework reports a 6bn litre a day supply gap, excluding data centre needs.
By Karma Loveday
The updated National Framework for Water Resources (NF2) makes for solemn reading. Published last month, the Environment Agency’s updated assessment of long-term water needs found we will be at least 6bn litres of water a day short by 2055 without urgent action.
A public water supply (PWS) deficit accounts for 5bn litres a day. The remaining 1bn is a new number for the National Framework: a forecast on non-PWS requirements to 2055. In reality, this number only covers hydrogen and carbon capture and storage (responsible for 767 Ml/d), and agriculture. Data on other sectors, including navigation, chemicals, leisure and – most worryingly, AI/data centres – is something of a mystery still.
“There’s an urgency to it, and we're doing our best to make sure that lands.”
Richard Thompson, Deputy Director of Water Resources at the Environment Agency (EA), is under no illusions as to the need to act at pace. “There’s an urgency to it and we're doing our best – through the framework and through other things – to make sure that lands,” he says.
The Framework calculates that more than 60% of the overall deficit will need to be addressed through demand management and leakage reduction. But before 2040, when supply-side schemes start to come online, up to 80% of the deficit will need to be demand-side addressed.
Thompson says the EA is “leaning in” to support progress, including by drawing up the mandate for a water labelling scheme and helping to develop the methodology for a water credits scheme for Cambridge. But he appreciates we need to shift mindsets and that this will require a different national narrative. “It is going to require a sense of urgency from government and regulators, and the public really need to understand.
“A lot of the narrative recently has been about a failing industry, letting down customers, polluting the environment. That's not a narrative which is going to help people use less water or feel committed to using less water. So that's the bit that I think we're going to have to change…We've got to build confidence and trust somehow, so that people realise [using less] is the right thing to do and it's not just a consequence of water companies being profligate or regulators taking their eye off the ball.”
Report | Finance
A cascade of market failures
Lina Nieto champions the part credit markets can play in delivering water neutral development – and sets out how to ensure water credit systems are trustworthy and effective.
By Dr Melvyn Weeks, Associate Professor of Economics, University of Cambridge and a Fellow of Clare College.
The regulation of natural monopolies in the utility sector represents one of the most complex information processing challenges in modern economic governance. When electricity distribution networks, water companies and gas transmission operators submit their business plans to their regulators, they create documents that span hundreds of pages, containing intricate financial projections, technical specifications, and strategic commitments that will determine how millions of consumers receive essential services over the next five to eight years. These submissions form the foundation upon which regulators make decisions affecting not only the prices customers pay, but also the quality, reliability and sustainability of the infrastructure that underpins modern society.
But when regulators, consumer advocates, non-executive directors and other stakeholders cannot efficiently navigate the complex web of commitments, projections, and justifications that business plans contain, the regulatory process fails to deliver the oversight and accountability that competitive markets would naturally provide. This information processing bottleneck represents a dimension of market failure which characterises the market structure of utilities.
Addressing these cognitive constraints becomes essential for restoring the competitive pressures that regulation is meant to provide. AI systems could provide regulators with analytical capabilities that match or exceed those of regulated companies. By making complex regulatory information accessible through natural language interfaces, these systems could restore the democratic accountability that information complexity has eroded.
Critically, AI systems excel in conducting comparative assessments across complex company submissions, providing the potential to identify patterns and discrepancies across vast documentation sets while maintaining consistent analytical standards that human reviewers cannot sustain across multiple submissions.
By making complex regulatory information accessible through natural language interfaces, these systems could restore the democratic accountability that information complexity has eroded.
“Just as there are water consumption targets for new house builds in England and Wales, should there not be a similar requirement for new data centre builds – especially in water-stressed regions?”
Report | Water efficiency
A cascade of market failures
Phillip Mills surveys the prospective growth of data centres by region and calls for them to have water consumption targets.
By Phillip Mills, Director of Policy Consulting Network
This article provides an in-depth analysis of larger data centres in the planning, approved or in-development stages – by region – as well as of those expected to be in operation by or before 2030.
Analysis by AI has identified 20 larger data centres expected by 2030, including ‘hyperscale’ and ‘enterprise’ facilities. Over half of these data centres are planned for London and the South East – a significant area of water stress.
Water demand has been calculated based on an assumption that new data centres will be significantly more water efficient than existing facilities.
This approach suggests the South East – the region with the most hyperscale and enterprise data centres proposed – is expected to see an increase in water demand, assuming all proposals go ahead, of between 10.0 and 22.5 Ml/d by 2030. This is equivalent to demand from a population of 91,000 to 205,000 (assuming 110l/h/d per capita consumption).
There must be a more sustainable way forward. Just as there are water consumption targets for new house builds in England and Wales, should there not be a similar requirement for new data centre builds, especially in water-stressed regions?
Report | International
Building confidence in water credits
Lina Nieto champions the part credit markets can play in delivering water neutral development – and sets out how to ensure water credit systems are trustworthy and effective.
By Lina Nieto, associate director in the Water Advisory Team at WSP UK.
Increasing water demand combined with declining availability is likely to harm water bodies and sensitive environmental sites. At the same time, the impacts of climate change – evidenced by the recent drought declarations – highlight that water scarcity is no longer a distant concern; it is rapidly becoming one of the UK’s most urgent environmental challenges. It also has the potential to limit growth, the Government’s flagship mission for economic prosperity.
In response, the idea of water credit markets – inspired by the success of carbon trading schemes – is gaining traction as a key part of the water neutrality toolkit. At present, this would be a voluntary scheme that businesses can incorporate into their ESG commitments.
The way that water credits work is one party who is able to reduce its water use creates water surplus and sells it to another party who needs additional water. This could be due to growth and expansion or a new building – commercial or residential.
To be effective, a UK water credit system must follow several key principles:
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Align with local needs – Water scarcity varies by region. Credits should support projects within the watershed where the water use occurs.
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Prioritise permanent solutions – Nature-based solutions, such as reforesting watersheds or restoring wetlands, should be central to credit schemes. These provide lasting hydrological benefits and additional gains in biodiversity, carbon storage and flood resilience. Since water systems cross jurisdictional boundaries, catchment-based approaches are essential for holistic impact. However, it is important to tackle immediate water wastage by upgrading fittings and fixtures and repairing visible and invisible leaks.
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Ensure ongoing maintenance – Efficiency systems must be well-maintained to retain impact. Households and businesses should be responsible for regular upkeep of infrastructure like irrigation systems and rainwater tanks.
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Promote transparency and trust – Utilising IoT tools can improve transparency. Real-time data should be accessible to stakeholders to confirm that projects deliver the promised benefits.
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Guard against market abuse – Limit the share of neutrality achieved through credits and mandate a baseline level of water savings before credit use is allowed. This ensures that credits do not become a license for unsustainable behaviour.
Real-time data should be accessible to stakeholders to confirm that projects deliver the promised benefits
The Thames board needs to work towards a compromise with government
Interview | Paul Gardner, Glanua
Something special?
Verity Mitchell weighs the latest options for Thames, including special treatment and special administration.
By Verity Mitchell
It’s business as usual for Thames Water: upgrading water treatment works, fixing leaks, attending to burst mains, presenting to the judicial review for the new reservoir – the challenges of AMP8. In the background, as it continues to spend its emergency loan proceeds, discussions continue about new sources of equity and debt refinancing to underpin its recovery.
Awash with advisors, the Thames board needs to work towards a compromise with government. The senior creditors have submitted revised turnaround plans, approaches to financial resilience and proposals for governance to Ofwat. "Our focus is on assessing whether the plans are realistic, deliverable and will bring substantial benefits for customers and the environment," an Ofwat spokesman has said.
Thames’ board continues to request special regulatory treatment to avoid financial penalties. If that is not acceptable, the board needs to consider more widely what other regulatory compromises or structures would be acceptable to the A creditors. Otherwise, Thames argues that the alternative is the Special Administrative Regime (SAR) which it says will be “a highly uncertain and destructive process, both in duration and outcome, and would likely cause significant loss and disruption to all of the company’s stakeholders, including customers”.
Interview | Paul Gardner, Glanua
Right place, right Tyne
Northumbrian Water’s smart sewer project is working out how to optimise Tyneside’s wastewater system to limit storm spills.
By Verity Mitchell
Northumbrian Water is pioneering at pace a proactive approach to sewer management, which will see storm spills cut while limiting the cost and inconvenience of building new infrastructure.
The project involves smart sewers: getting real time visibility of network activity, pairing that with sophisticated weather forecasting, and then proactively intervening with strategies designed to optimise what can be held in the system before discharges occur. For instance, storm tanks built to prevent flooding in bad weather are being used between 30 and 50 days per year, leaving spare capacity at other times to hold water back.
The initial results offer promise. In February, which was wet, the model kicked in 16 or 17 times, storing flows in the tanks and then returning them for treatment once water levels in the system had fallen back. “We're seeing some real positives, in that it was doing exactly what it was intended to do,” says Tony Baines, wastewater treatment manager and project lead.
He continues: “What’s interesting is we’ve been operating not in the extreme events when there’s heavy rainfall – we're still going to have the discharges coming out of the overflows then – but in the middle ground of rainfall when we have the ability, and had the capacity, to make choices where you can hold flows back.”
“What's interesting is we’ve been operating not in the extreme events when there’s heavy rainfall – we're still going to have the discharges coming out of the overflows then – but in the middle ground of rainfall when we have the ability, and had the capacity, to make choices where you can hold flows back.”
Competition Watch
Interview | Fallon Wilkinson
Coordinating collaboration
Fallon Wilkinson has just been re-elected as retailer chair of the RWG. She shares her aspiration to grow visibility and customer focus.
By Karma Loveday
Following a one-year term, Water Plus’ Fallon Wilkinson has recently been re-elected to serve a second term (this time for two years) as retailer chair of the Retailer Wholesaler Group (RWG) – a voluntary body working to improve interactions between water retailers and wholesalers, and ultimately to improve market outcomes for customers. It’s an important role, given how essential collaboration is in the non-household retail world.
“When I went for the chair, my main thing was I wanted to help make it more transparent and less opaque… to keep that visibility and engagement up so that we have an RWG that carries on going from strength to strength,” she says.
There is already a good mix of companies involved, albeit some inevitably have greater capacity to take part in more activities than others. But ensuring fresh people come in is vital. It helps, she says, that taking the chair coincided with MOSL starting to provide secretariat support to the RWG. That has boosted transparency, including through better website updates, communications and information circulation.
Wilkinson would also like to see the RWG taking a studiously customer-centric approach. “I'd like to see the RWG continue to focus on the issues that really make a difference to customers,” she says, “and I don't think those are going to fundamentally change in the near future.” So expect more work on tariffs, water efficiency and smart metering. “Smart metering will be a key topic," she comments, "particularly around roll-out and handling complex scenarios like multi-site installations.” Potentially there could also be work on emerging areas linked to water efficiency, such as alternative water sources.
“I'd like to see the RWG continue to focus on the issues that really make a difference to customers."
Corporate Water Stewardship
Bold steps not perfect plans
Waterscan inspired large customers to act now and put their best foot forward on water stewardship at its annual Water Matters conference.
By Karma Loveday
Waterscan’s annual Water Matters conference – this year attended by around 150 major users and guests – moved well beyond the blunt message that water needs to be on the business sustainability agenda. A delegate leaving at the end of the day might well have wondered why water was not already a central plank of their corporate sustainability strategy.
The event weaved together motivation to act by explaining why water stewardship is a no-brainer for business, with inspirational ideas on how to actually make a start.
On the latter, there was inspiration aplenty, including insightful practical examples from customers who have already taken the leap into active water stewardship.
A delegate leaving at the end of the day might well have wondered why water was not already a central plank of their corporate sustainability strategy.
Corporate Water Stewardship
Big ideas for smart meters
Major users are pitching in to ensure the smart water meter rollout works for them.
By Karma Loveday
Major water users are data hungry and want to make the most of smart water meters when they get them. Get the rollout right, and it should be a win win: large customers can maximise the benefits of having frequent and granular consumption data; and trading parties can avoid unnecessary costs and frustrated customers. Get it wrong, and there will be missed opportunities to increase customer satisfaction, water saving and business resilience.
To aid this cause, industrial and commercial customer membership body the Major Energy Users’ Council launched a new group last month – the Smart Water Meter Rollout Strategy (SWMRS) Group. This comprises two metering specialists and a subset of interested /experienced MEUC members from the national retail, food and drink, public, manufacturing, infrastructure, education and facilities management sectors.
The aims are to ensure large user views, and their experiences from smart metering in the energy markets, are clearly articulated and shared with all interested parties in water, to maximise the chances of making the water rollout a success. This acknowledges heavy users will have requirements beyond those of domestic customers or small businesses – for instance, for more frequent data, out-of hours installations, or secure access to sites. In addition, the group agreed a specific goal to ensure smart metering works to support customers to reduce their water use.
Heavy users will have requirements beyond those of domestic customers or small businesses – for instance, for more frequent data, out-of hours installations, or secure access to sites.
CONTENTS
This month's articles
Summit Report
No growth without water
Special
Interview
EA's Richard Thompson on National Framework for Water Resources
4
Pg
Industry Comment
Exploring water credits
8
Pg
Industry Comment
Cunliffe: cross currents
12
Pg
Industry Comment
AI solutions to regulatory overload
16
Pg
Industry Comment
A single regulator
20
Pg
News review
Six firms face bonus bans
22
Pg
Analysis
Latest options for Thames
24
Pg
Report
From skills gaps to growth opportunities
28
Pg
News review
Northumbrian enforcement
33
Pg
Analysis
Financial results roundup
36
Pg
Report
WRSE on regional achievements
6
Pg
Report
Cunliffe: condensed
10
Pg
Industry Comment
Cunliffe: act before the Act
14
Pg
News review
DWI on Reg 31
19
Pg
Report
MPs find water tone deaf
21
Pg
Report
CMA priorities for PR24 appeals
23
Pg
Industry Comment
AMP8 inertia
26
Pg
Analysis
Sludge disposal raises a stink
30
Pg
Feature
Smart sewers on Tyneside
34
Pg
Competition Watch
Interview
Fallon Wilkinson, REG retailer chair
Pg 38
Report
Major users launch a smart meter expert group
42
Report
Waterscan inspires stewardship
Pg 34
Industry
Comment
Craft beer boom
Pg 34