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27 February 18

What measures are needed to ensure we can meet future needs in a sustainable and affordable way

Chris Offer Director of Regulation, addresses The All Party Parliamentary Water Group alongside Sir James Bevan, Chief Exec of the Environment Agency.

The work by the team at DEFRA and the Minister on the NPS needs to be lauded. Too often politicians are criticised as being short-termist – neglecting anything outside the electoral cycle – the NPS is a clear example of political leadership addressing long-term needs.

Those needs are becoming more acute. The Water Resources Long-term Planning Framework published by Water UK said that in the South East will need up to a 40% of supply increases by 2040.

The next generation will neither thank or forgive us if we fail to plan now to meet future water challenges. To do that there are many factors and no silver bullets.

We need, as the 25-year environment plan, and our own dWRMP highlight, to reduce water usage significantly as part of a two-pronged approach (addressing both water demand and future supplies) Reducing usage is more environmentally sustainable and means lower costs for customers.

That is why we are working with other water companies on our Keep Track of the Tap campaign and our work with the NGO Hubbub to promote and encourage changes in attitude and behaviours to water use.

Demand management continues to feature as a critical element of our future plans and we are looking at how we continue to influence customers through the use of ‘fast data’; adopting the techniques of behavioural science, choice architecture and nudge theory.

I am often asked why Affinity does not simply build some more reservoirs when I’m out in the communities we serve. The answer is understandably complex but comes down to a water trilemma of cost, security of supply, and environmental impact.

In unequivocal terms Affinity Water will need new supplies of water. We will increasingly become a net importer of water and so we have a keen interest in understanding how future water trading can be developed to the benefit of all. But ultimately a new reservoir and other strategic infrastructure that supplies the South East will be needed. The question becomes when and how certain are we about that.

While uncertainty around timing remains it is clear that at some point this investment will be required. The NPS is a helpful step forward to helping regional infrastructure investment when needed.

In simple terms it does not rain enough in the south east to keep providing a growing population purely from local supplies. We must use what we have as effectively as possible before we spend on assets that are likely to be required by reducing planning costs in particular NPS helps with this.

Regional co-ordination and system operation will also help to make sure we only invest what is needed and so should unlock the door to long-term investment that some would argue has been postponed as a result of the existing 5 year price regime that focusses on individual company plans opposed to regional solutions.

That is why Affinity Water have committed so much to working with the other water companies on sharing supplies, particularly through the groups WRSE, which my CEO currently Chairs, and Water Resources East.

That is why we need to ensure that we start to open doors in terms of policy options and not to develop limited solutions which close them.

The key for me is a system operator.

Like others in the sector we have thought for sometime that change was necessary in order to ensure that we are able to meet the water trilemma.

After working with WRSE and Water UK we developed a report with KPMG which examined how different operating models could work. I would also like to applaud the work of Severn Trent, UU and Thames on System Operator. The National Infrastructure Assessment has also explored the idea. It’s an idea whose time has come.

A System Operator is a body that manages the transportation and balancing of a commodity across a system used by multiple users and has been in operation in the gas and electricity systems in the UK for the last 10-15 years. There are examples from other sectors: IT, payments, and post-crash wholesale financial services regulation is predicated on central mechanisms co-ordinating transactions between companies.

Due to the nature of gas and electricity in that they are faster moving than water and operate within fully traded systems.

The System Operator in energy has been largely used to manage balancing of the system although in electricity this is being extended to include a longer term planning function.

Water companies of course currently carry out their own system operator activities to move water around on a day to day basis within their company boundaries.

We think initially the role of the System Operator would concentrate on the use of all available resources between water companies and other suppliers and be able to coordinate longer term requirements of the companies.

With access to holistic price information the system operator would enable efficient multilateral trading.

As more trading takes place over time the System Operator role might extend to seasonal, weekly and even daily optimisation of resources between suppliers but this could take many years. Initially the role would be more like a Regional Coordinator with decision-making authority.

The Regional Co-ordinator would not necessarily have to own assets to carry out this function.

For instance, an independent Regional Coordinator/System Operator identifies the needs and availability of the water resources in the East and South East and determines that a Regional Hub is the most effective and efficient solution to meet water scarcity.

The individual companies with the requirements would then decide how best to provide the infrastructure and the asset ownership and could for instance use a Direct Procurement model for example Thames Tideway) to provide these assets.

Under this model the Regional Coordinator / System Operator therefore does not need to own the asset, in the first instance it could simply be the coordinating body that identifies the need for the asset.

Under this model new assets serve customers not companies.

System operator design may not leave us with the icons of the last centuries – Chadwick and Bazalgette – but it will help to ensure that public confidence in the water supply remains high not just now, but into coming centuries.

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