Ofwat consults on driving transformational innovation in the water sector

Ofwat has launched a new consultation on driving transformational innovation in the water sector as part of the development of its emerging strategy for regulating water and wastewater companies in England and Wales.

Launching the consultation, the water industry regulator said:

“We believe that the adoption of innovative approaches is key to delivering long-term resilience and great customer service at an affordable price, and the sector will need to step up and increase innovation in order meet the strategic challenges it faces in a cost-effective and sustainable way.”

“We also want to see companies work more effectively together and with their supply chain to better tackle these challenges.”

The consultation paper sets out options for customer-funded interventions designed to drive innovation to benefit customers in the longer-term.

Ofwat is proposing to make up to £200 million available for innovation activities for the period 2020-2025, for example through the introduction of an innovation competition or an end-of-period roll-out reward.

The consultation paper says:

“We are consulting on whether to make up to £200mn of customers’ money available for additional financial support, under two potential options. Firstly, we are looking at a collectively-funded innovation competition to run throughout the next regulatory period, 2020-2025. Funding would be provided through an increase in company revenues and formalised in the PR19 final determinations.”

“Secondly, we could provide a reward for the successful roll-out of innovative solutions at the end of the period as part of PR24, as either an alternative, or in addition to, a collectively funded competition.”

The regulator is seeking views on allowing the water companies to increase customers’ bills by up to a total of £200 million (shared across all companies) to fund and/ or reward innovation over 2020-2025. Ofwat’s current estimate is that this would increase the average customer’s bill by approximately £1.50 per year over 2020-2025.

The paper sets out a range of additional policy options for encouraging companies to work together to drive innovation in the sector and to ensure that regulation is effectively facilitating innovation.

Effective collaboration between firms in more competitive markets suggests that there is scope for enhanced collaboration without undermining the impact of comparative competition in the water sector, the paper says.

Examples include joint ventures and collaborations between established automotive groups to develop electric and autonomous vehicles, such as that between Ford and Volkswagen, and the Offshore Wind Accelerator, an initiative set up by the Carbon Trust and nine offshore wind developers in 2008.

Ofwat has also suggested that the water companies could develop and publish a sector-wide joint innovation strategy in order to further encourage a joined-up approach on innovation in the water sector.

The regulator is also considering whether to hold workshops with stakeholders to further explore options outlined in the paper.

Ofwat said it will reach a final decision on a package of innovation interventions for the period 2020-2025 in December 2019 at the latest.

Deadline to submit responses to the consultation is 20 September 2019.