Conference Round Up

 

Innovation Through Co-operation

Waterwise Conference 2013

The following is a summary of a selection of the presentations at the conference written by Philip Turton, Editor, Water Demand Management Bulletin (to keep up with all the latest developments in water efficiency visit [link] and subscribe).

Presentations from the event can be found within presentation pages of the Waterwise website.

The agenda can be downloaded here.

Interest in water efficiency was confirmed yet again by the presence of a packed conference at Lady Margaret's College, Oxford.

The conference was again graced by the presence of the Water Minister, Richard Benyon, at the gala dinner. He expressed his, and the Government's commitment, to water efficiency. This was the perfect introduction to a boisterous Water Efficiency Drama, performed by Enact Solutions in the Great Hall rather than in the usual schoolroom.

Promoting Innovation

Planning for the long term

Delivering water efficiency

Green Deal Guidance

HTA and Water Efficiency

WATEF Network

 

Promoting innovation

To open proceedings for conference on innovation in the water sector, who better than Imperial College Business School’s Professor Martin Cave who, in 2009, produced the Cave Report: An Independent Review of Competition and Innovation in Water Markets. 

This report helped set the agenda for the Government’s current reforms. In his presentation, Promoting Innovation in the Water Industry, expressing his personal views, he considered the many anticipated legislative and regulatory changes in the context of how they might assist in (or hinder) the promotion of innovation.

He saw the water sector as dealing in incremental innovations rather than in paradigmatic shifts. He considered how co-operation on innovation can be restricted by competition law. In the case of 'horizontal' collaboration, pre-competitive R&D is not a problem. By contrast, commercial exploitation of innovation may be against competition. However, 'vertical' competition, such as working with house builders, is  not likely to pose a problem.

In examining the innovation record of the water sector he said that, after privatization in 1989, it was successful in coping with increased capital investment and improved labour productivity.

Since 2001, expenditure on R&D has been low compared with other sectors but this may not matter if innovation flows from the supply chain. There has been some industry-wide R&D co-operation, primarily through UKWIR, but the levels of investment in IT (eg for telemetry) is said to fall behind other countries.

He said that there is evidence of incremental innovations in the context of a sector with a need for safety and security and in the context of a regulated monopoly.   However, productive efficiency was flat, except for a jump in 2000, as shown in the graph, below.

In a monopoly there is scope for a co-operative approach, but there is no stick, in the shape of a rival threatening to reduce prices or improve services. The worst form of regulation for innovation is cost plus, with no carrot - in the form of a reward for increased productivity. The water sector has (roughly speaking) had a 'cost plus' system for non-innovative capital expenditure and a ‘race to be second’ for innovative capital expenditure.

By contrast, operating expenditure innovation yields no or few returns. This enhances the capital expenditure bias arising from high allowed rates of return on capital. Ofwat’s regulatory reforms (totex, etc - see Nicci Russell's presentation.) reduce but do not eliminate these effects.  

A better option is an incentive regulation system that sets a trajectory of prices into the future, as a target for the firm to beat. He pointed out that, in a market structure, inventive activity tends to rise as one moves from a monopoly to a small number of competitive firms. Such activity then falls away as you move towards a large number of competing firms.

Competition, though, can help incentivise innovation. Retail competition, due to start in 2017, can improve service and, as a CCWater survey 2012 showed, SMEs want such services as internal leakage control and environmental services. He commented that this may send some pressure upstream in the value chain and sideways to households.

In the case of upstream (wholesale) competition, there are three possible approaches:

  • inter regional transfers of bulk water by incumbents. This is not disruptive but good for allocative efficiency. It is a form of ‘co-opetition
  • supplies contested by new entrants in ‘single buyer’ model. It probably needs abstraction reform) but is more disruptive as it may promote new technologies
  • unbundling/common carriage. This allows direct contact with customer or retailer.

He noted that said that upstream competition is feared and resisted by the companies.

On the subject of capital market competition, the current merger regime allows change of ownership but not a Darwinian destruction of the ineffective. Mergers (in the South East) can be a non-disruptive substitute for bulk supply. The threat of hostile take-overs can supply more market discipline, but there is a down side of such mergers, such as higher barriers to entry.

Finally, he set out a framework for reform through legislation (L) and regulatory change (R)

 

Abstraction

Treatment

Pipes

Retail

Innovation measures

Economic/environmental regulatory incentives (R); competition measures (L); re-establish technological capability(L);  change to merger regime (L)

Business Competition

Use of competition in the market

Increased trading (but in dominated market)(L)

Possible graduation to common carriage(L)

None

Business market(L)

Use of competition for the market

None

For new/ replacement capacity or via single buyer(L)

Insets(L); network expansion(L)

None

Use of market-type instruments

Economic pricing of abstraction and discharge rights(L)

Enhanced economic purchasing(R)

None

None

Use of dominant firm regulation

For legacy rights

Continues on large scale

Predominant form, with new pricing rule(L)

Household sector

 

Planning for the long term

Environment Agency’s Head of Water Resources, Trevor Bishop presented Planning for Long Term Water Efficiency. He began by giving out the good news. Water companies abstracted 15,500 Ml/d in 2011, nearly 500 Ml/d, or about 3%, less than previous year. In 2011/12 demand reduced by approximately 2% compared with the previous year and total demand has shown a consistent reduction of about 1% a year since 2006.

From 2003 there has been a small, but consistent, average decline in household per capita consumption (pcc) of about 1% each year. The average pcc is now 146 l/p/d (2% or 3 litres less than previous year). There is an 18% difference between measured and unmeasured pcc (129 v 155), this difference being skewed by people opting for a meter. Average leakage per property in England and Wales has dropped by 7% in 2011/12 to 127 l/prop/day.

He suggested a moment’s pause to applaud that fact that we are making some headway but warned that we must not be complacent in the face of increasing population and more extreme weather.

He noted that the drought 2010/12 was very different to the previous drought of 2006.

A key factor in a better approach during the latest drought was the establishment of a National Drought Management Group. There was a communications sub-group and, because there was a serious threat to the smooth running of the Olympics, an Olympics sub-group. There were representatives covering public and private water supply, farming and the environment. There was a gradual and more focused drought awareness raising supported by the introduction of a new system of temporary, drought permits and orders.

There was a different and positive approach to embracing the media (Trevor mentioning that he had been involved in 500 media interviews over an 8 month period). The overall result was that public perception improved, as illustrated in a survey of Thames Water customers that showed 92% of respondents saying ‘I am going to save water’.

Trevor said that this was a ‘tipping point’ in showing how we can influence the public. However, with one of the wettest year on record following, there has been some loss momentum. However there are plans bring together the stakeholder and re-emphasise the messages.

In planning water security in the 21st century, he set out the key actions required in the next decade covering access and allocation, water demand management, supply resilience, environmental resilience and drought management. He said that we need to liberate latent innovation as ‘there is lots out there in supply chain as well as overseas’. We are not now in the vanguard of innovation as we should be.

 

Delivering water efficiency

Nicci Russell, Director of Parliamentary and Public Affairs at Ofwat (late of Waterwise), presented  Sustainable Water – Delivering Water Efficiency Through New Approaches. She said that we ‘need to do things differently to the last 20 years to ensure the long-term future of the water we all rely on with respect to people, the environment and the economy’. We need to consider if new approaches could mean more effective use of scarce resources.

The way we manage and value water in society has to change. Ideally this means using the ‘true value of water’ (the subject of a current UKWIR project) in all that we do. All water cycle players need to work together to deliver this more sustainable approach. Nicci outlined a number of significant developments.

Ofwat has already developed the concept of totex (combining capex and opex) that addresses the historic bias towards capital expenditure. This should encourage more water efficiency projects.

Regulation is moving from a ‘target’ based approach towards an ‘outcomes’ based approach. Water companies are to propose outcomes and develop more sustainable (and innovative) solutions (especially in the delivery of the supply-demand balance) to meet them. This includes going beyond the five years business plan period and delivering such outcomes in partnership. Companies are being encouraged, including through the WRMP guidance (see below) to increase their demand management programmes.

Another development is the Abstraction Incentive Mechanism (AIM) that introduces rewards and penalties to discourage taking water from over-abstracted sites, and incentivise alternative approaches such as demand management.

The Government’s draft Water Bill proposes retail competition, giving choice of supplier to all non-domestic customers - which has already taken place in Scotland. Water efficiency can be delivered as a retail service or through third parties, with costs recovered through the wholesale price control.

Ofwat co-authored the Water Resources Management Plans Guidelines [link]  which Waterwise called a ‘significant contribution to meeting Water White Paper’s scale of ambition on water efficiency…’.

Nicci said that water companies need to do more on water efficiency in the future than they have in the past. This year is crucial, as forward-thinking companies can significantly increase their water efficiency activity, particularly as barriers have been removed and new incentives set in place. Increasingly the Waterwise Evidence Base [link] provides better information than ever before on the costs and benefits of different water efficiency approaches.

Nicci gave illustrative information of the effect of retail competition in Scotland. It has led to a significant increase in water efficiency (costs have been cut by £10 million since 2008), as suppliers compete to provide a better service and bring bills down. Customers have switched on the basis of water efficiency service, not price.

Thus, in England, if the Government’s Water Bill is passed, all business customers will be able to choose their supplier, rather than 2% now. With well over 1 million customers there is a huge potential for water efficiency and the Government estimates £31m of savings from water efficiency from the Bill.

In conclusion she said that ‘water efficiency will need to play a far bigger role in the solutions than it has previously, but delivering this requires us to work together far more than in the past – innovation in itself’. There is a huge opportunity and need to do more water efficiency than in the past, as cited at the recent City Conference [link].

 

Green Deal Guidance

The Government has introduce the Green Deal scheme, that, despite considerable lobbing, concentrated, at the outset, on energy saving but did not include water saving despite the fact that a third of energy used in the home is used in heating water. However, local schemes are beginning to include water saving devices and, to help this process, the publication Green Deal Guidance for the Water Sector [link] has been produced. This has been issued in conjunction with an UKWIR report Links and Benefits of Water and Energy Efficiency Joint Working. [link]

Waterwise’s Jacob Tompkins and Energy Saving Trust’s Andrew Tucker explained how the Green Deal [link] and Energy Company Obligation (ECO) [link] are energy efficiency retrofitting programmes led by the government but delivered independently of it, by registered Green Deal Providers and energy companies.

The Green Deal covers households and non-domestic properties and customers can take out a Green Deal now. Energy efficiency retrofitting measures are to be financed through a loan scheme (set up through legislation) repaid through savings on energy bills. Green Deal will include at least two visits, one each from an advisor and an installer.

ECO is designed to complement the domestic Green Deal. ECO will be used to provide insulation and heating measures to low-income and vulnerable households and insulation measures to local communities.

Water efficiency can offer significant energy, carbon and other household bill reduction savings for Green Deal, ECO and other in-home energy efficiency schemes. Hot-water saving devices, such as showerheads and taps, have been included in the Green Deal List of Measures.

Andrew Tucker then took delegates through the main aspects of Energy Saving Trust’s publication Green Deal Guidance for the Water Sector. He emphasised that there should not be a separate ‘blue’ deal for water, but a 'green' deal with energy and water included together.

After providing a background to Green Deal and ECO, it covers the important step of securing and designing effective water and energy partnerships. This involves identifying the delivery scheme, how to initiate discussions, seek agreement of key delivery and outcome issues and deal with contracts and agreements.

It then lists the recommended water efficiency as well as recommending water efficiency information, materials and customer advice, and how best to engage with households in saving water. It helps practitioners in the important step of calculating and reporting the water, energy, money and carbon savings using standardized, evidence based information.

It is vital that installers are properly trained. The guidance gives an outline of water efficiency training recommended for in-home assessors and installers. It also provides all the Green Deal documents and links as well as water company contacts.

The guidance covers a number of common, easy to fit, water efficiency devices that make established well quantified savings. These are showerheads, tap retrofit devices, dual flush devices, cistern displacement devices, boiler retrofit devices and devices to influence behaviour. In giving water efficiency advice, the quality of engagement delivery is important. The advice should be tailored to the particular customer while address some of the common myths about water saving.

 

HTA and water efficiency

Tim Briercliffe, Director of Business Development,  Horticultural Trades Association (HTA), presented Co-operation and Engagement between Water Companies and the Garden Industry. He opened by playing an Environment Agency video of water efficiency at Lowaters Nursery, a winner in the 2012 UK Water Efficiency Awards [link].

The scale of the HTA is substantial with 1,600 members and 2,500 outlets covering retailers, garden centres, DIYs, retail nurseries, wholesale nurseries, landscapers and manufacturers.

He contrasted the situation in the drought of 2006 when there were poor relationships with water companies with the improved collaboration in the face of the 2010-12 drought. In 2006 hosepipe bans affected 6.3 million homes in the South East and one in three households reduced their spend on plants and garden products. Garden retailers in the South East lost £12 million in revenue, a 7% reduction. Contracts were cancelled (particularly for hanging baskets) and businesses closed.

As a result, there was lobbying for a consistent approach between water companies and fair treatment for gardeners. The HTA members wanted phased introduction of water restrictions and talked to Waterwise, Defra, UKWIR and Water UK.

They also did their homework looking at international case studies, in Australia, USA, Canada and New Zealand, where phasing of restrictions has worked for a long time and is less of a blunt instrument.

In 2012, when the drought situation became serious, a Drought Summit was called. Things improved with the introduction of Temporary Use Bans under new regulations accompanied by garden water use exemptions such as for drip watering systems and for Blue Badge holders. 

The water sector issued a good, clear message from the start, led by a working group organised by Waterwise that included the Association of Professional Landscapers, British Association of Landscape, Horticultural Trades Association, Institute of Groundsmanship, Society of Garden Designers, The Royal Horticultural Society and The Turf Grass Growers Association (TGA). The latter represents the value to the economy being worth £360 million to the UK economy.

In preparing for the future there are a number of current projects. There is a new e-learning project [link]. A partnership between landscape industry, water companies (via Water UK) and Waterwise will provide training, with certification, in water-efficient landscaping and sports ground management. A project with the Environment Agency is to demonstrate the water-efficiency of drip watering systems. Additionally there are further discussions on phasing in restrictions, utilising Garden Centres for communicating water messages to gardeners and the establishment of a new HTA Water Group.

 

Water Efficiency in Buildings Network

The opening day of the conference featured a workshop organised by the recently formed Water Efficiency in Buildings Network (Watef) [link]. This was its first joint academic/ research symposium with a keynote speech from Professor David Butler (Exeter University) on Water Efficiency in an Era of Weather Extremes.

The next day, Sue Charlesworth, from Coventry University, briefed delegates on the network. Funded by Defra, it was initiated in May 2011 by Dr Kemi Adeyeye of the University of Brighton. Its remit is to promote multi-disciplinary, holistic solutions for water efficiency in buildings. It is to promote independent, multi-disciplinary water efficiency research in the academic community and facilitate knowledge transfer between academia, policy makers and regulators, third sector organisations as well as the construction and water industries. Importantly, it will contribute to the evidence base for water efficiency.

The network organises conferences such as Edinburgh (November 2012) and Coventry (January 2013. At the Water Event, NEC, Birmingham, September 2013 [link] there is to be a workshop on Water Efficiency Interventions: A Customised Approach to Suit Business Needs.

Sue announced that research proceedings and discussion panel notes are available on the website where you can also register free via [link]. The benefits are free or subsidised access to events, free access to information, networking opportunities with academia and industry practitioners, knowledge sharing and practise dissemination opportunities.