Innovation and sustainability in the UK water industry

The usage demands of a growing population, compounded by several years of extremely low rainfall that led to regional drought, have caused this crisis. The local government has responded by determining a daily allocation for water users in order to bring down consumption. In addition, urgent investment is being made in desalination plants, groundwater collection projects, and water recycling programmes.

This is not an isolated incident, and it will not be the last one to affect a major city. We are facing a global water sustainability challenge: 97% of the world’s water is saltwater and understood to be unfit for human consumption, agriculture or industrial use. Of the remaining 3%, only about 1% is readily available for human consumption. This 1% is expected to become increasingly scarce and the global imbalance between supply and demand is forecast to become significantly worse.

This raises an important question about the feasibility of wholesale water being traded as a commodity on a global level. At present, the supply, regulation and ownership of water is understood to be a local issue and many would argue strongly that it should remain as such. CNBC Markets Editor Patti Domm noted in a 2014 article, Why trading water futures could be in our future, that

“history is full of examples where water diversion led to wars or environmental tragedies.”

However, with an abundance of research and commentary being amassed on the subject of water sustainability, there is now wide acknowledgement of the need for innovative solutions to enable the wholesale global management of water. Arguably, this is a focus driven by regions such as the Western United States, India, The Middle East and Sub-Saharan Africa that are confronted with water scarcity issues of a severity that the UK is yet to experience. Regardless, this does not mean that the UK can merely pay lip service to the global challenge or that its management of local water shortage challenges will not need to evolve. It was only a few years ago that Eastern Brazil suffered a major drought and in this case it was the slow response of government that was largely blamed for the water supply crisis and resulting social, economic and political disruption. Lessons on the need to proactively address water sustainability are not being learned. The images of mass demonstrations in Sao Paulo have clearly been forgotten. More recently, and closer to home, what should perhaps resonate more strongly is the ongoing drought affecting Portugal and much of Spain, largely due to three years of low rainfall, where the latter half of 2017 saw rivers come close to running dry. The impact on agriculture has been devastating. Reservoir levels are running dangerously low and clean water now has to be delivered by tanker to many rural communities.

For the UK, achieving sustainability in the water industry means addressing both current and future challenges, which are both broad and varied in their nature; from meeting the clean water needs of new developments, to managing the uncertainty caused by climate change, addressing requirements for the maintenance and renewal of ageing mains infrastructure, achieving targets to reduce energy usage and improving customer satisfaction.

Whilst we can trust that, as an industry, we have not totally overlooked or forgotten the fundamental challenge of sustainability, there does seem to be a significant disconnect at the moment between the global or holistic view and the UK industry’s latest ‘hot topic.’

Changes to the UK water market mean that most organisations can now choose the company that they want to supply their water retail service. This represents what the regulator describes as “the largest competitive water retail market in the world having opened for business”.

In response to this increased competition, and perhaps compelled by the fear of value chain and organisational evolution, the UK water industry appears to have become heavily focused on retail innovation. But is this really the answer to all of its challenges?

Industry forums are directly referring to the adoption of futuristic, leading edge retail models as the solution to the industry’s sustainability challenge. Top online retailers such as Amazon, Apple and easyJet are being referenced as benchmarks for how the water industry needs to develop its customer experience and interaction. Adding confusion to the mix is the rebranding, selling-off and proposed disaggregation of the business retail arms of many water companies as they double-down and nestle in to the comfort blanket of wholesale services in order to reinforce their positions within an industry evolving at an uncomfortably fast pace.

The emerging consensus that retail innovation or mimicking the customer service model of online companies is the Holy Grail or missing piece of the puzzle for the water industry to overcome its sustainability challenge needs to be questioned. Huge changes will be required across all stages of the water value chain to effectively address sustainability. And right now, there’s certainly much less palpable excitement and fanfare around new methods of managing water resources or wholesale business transformation and resilience.

The risk is that the UK is separating itself from the global water resources management challenge, where innovation is focused on water security and the management of water as a scarce global commodity.

Recent reports published by major infrastructure and asset management firms on the development of water utilities promote frameworks for creativity and innovation that, rightly, focus on developing new approaches to serving customers and managing assets. However, they only refer to sustainability as an ‘additional benefit’.

We must challenge the definition of sustainability and the stakeholders who are shaping these discussions in the UK. A choice must be made as to whether we want to seriously contribute to addressing sustainability of water as a global resource, or be limited to viewing sustainability from the medium term perspective of the current players in our local industry.

Arguably, it’s also questionable as to whether these players have really grasped the bigger picture. Maybe the ever-increasing thoroughness of the regulator’s incentivisation and performance management of improvements in customer service and satisfaction metrics have disproportionately skewed the agenda towards retail and customer service.

Or perhaps the UK players deserve more credit. They do have a bit more in their sights than just retail innovation. Ofwat’s PR19 suitably focuses on building resilience and defines the avoidance of dependency on single assets as key to the long-term provision of water services, as well as the ability to adapt and recover from disruptive events. So there are allusions, even if indirect and aided by interpretive leaps, to the need to extend beyond local assets and boundaries in order to sustainably manage demand and supply.

Added to this, some clear steps have been taken. Although research documents and consultations are yet to spawn innovative transformational plans, since its 2011 Water for life white paper the UK government has acknowledged the need for advancements in water abstraction to create a more dynamic system for effective sharing of water resources. In A Green Future: Our 25 Year Plan to Improve the Environment, published at the start of 2018, the government encourages innovation and looks to formalise plans around improving access to water to encourage trading and storage, the growth and implementation of robust long-term plans that develop new water resources where needed, and reforming approaches to water abstraction. Water re-use and alternative water solutions are also being actively promoted and pursued by companies such as Anglian Water, which demonstrates recognition of how exploiting the multiple uses of water is one of the best ways to maximise sustainability.

Most notably, in 2010, Thames Water opened the UK’s first major desalination plant, the Thames Gateway Water Treatment Works, and heralded a step change in technological innovation and drinkable water yield from desalination. However, investment is yet to gather real pace across the rest of the industry. In line with predictions that we will see the number of desalination plants across the world double by 2050, The Institute of Chemical Engineers has set the expectation that the UK will pioneer this revolution in global water management with an additional three major desalination plants and up to 800 smaller units. It will be important for the UK industry to collectively focus on sustainability and water management in order to reassert itself as a world leader in this area.

As is the case for retail innovation, the UK water industry must aim to be at the leading edge of sustainability and implementing water management solutions such as desalination and new technical and commercial solutions for treating and recycling water produced by industrial activity.

The next step must be for the UK water industry to globalise its ambitions, plans and particularly its actions. We need to acknowledge that whilst water sustainability may appear to be just a local challenge, it is a significant issue for which the solutions must extend across local, regional and national boundaries. Perhaps, some of the noise and energy around the UK ‘topic of the moment’, retail innovation, would be better directed towards this cause. The vision and initiatives promoted by organisations such as the World Water Council would be an appropriate reference point.