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A sustainable approach to asset maintenance and renewal?

Those with long memories of debates about the regulation of the water industry will recall that assessing the appropriate rate at which the sector’s assets should be renewed or replaced has been a long-standing challenge.

It is now over twenty years ago that the Environmental Audit Committee memorably described the regulatory approach at the time as “intellectual neglect of this important problem”[1]. Winding the clock forward to the present day, it is now the House of Lords Industry and Regulators Committee that is reviewing the work of Ofwat – and there are growing concerns that as a society we – still – have not collectively found a solution to the challenge.

The Environment Audit Committee more recently noted that “a step-change in regulatory action [and] water company investment…is urgently required”[2], while Sir James Bevan (CEO of the Environment Agency) recently stated that “too many parts of our sewage system are not fit for the 21st century and have not been upgraded since Victorian times[3].”

And this isn’t a dry intellectual debate – across the country we all rely on the network of over 300,000 km of water mains (equivalent to more than 8 trips around the equator) to deliver clean water to our taps every day – and on the over 500,000 km of sewers (1.5 times the distance to the moon) to safely take away used water and protect rivers and beaches across the country.

So, when stakeholders such as Nick Measham (CEO of Salmon & Trout Conservation) are saying that “Without a step-change in public policy – leading to significantly increased levels of investment in water infrastructure – the situation will only worsen, with dire economic and environmental consequences”[4], it’s clear that this is a debate that involves and affects us all.

At Water UK, we’re playing our part in the debate by providing robust evidence and constructive proposals for a better, more sustainable approach. We commissioned Economic Insight to review the current situation and their findings are clear.

The rate of replacement of networks in England and Wales is far below the average of our European peers, and Economic Insight’s analysis shows this isn’t because the industry is under-spending regulatory allowances – it’s simply that as a society our current approach is not one that is sustainable in the long term. The need for change is clear – and all the more pressing as the future will be more challenging, with the additional pressures that tackling climate change and population growth will put on water and sewerage networks.

But we have an opportunity over the next few years to set a more sustainable, long-term path for sector as we work towards the next water sector price review – PR24 – which will set investment, price and service levels from 2025. We have been encouraged that Ofwat has made having a greater focus on the long-term a key theme for PR24 – we whole-heartedly agree. In this spirit, Economic Insight have recommended how the regulatory framework at PR24 could be updated to encourage a long-term sustainable level of asset maintenance and replacement.

While the details of economic regulation of the water sector may sometimes seem somewhat arcane, getting this right matters to us all. As a society we can’t afford to wait until the 2030s to move to a more sustainable approach to maintaining and renewing the assets which an essential public service depends on.

 

Footnotes:

[1] House of Commons Environmental Audit Committee – Seventh Report: https://publications.parliament.uk/pa/cm199900/cmselect/cmenvaud/597/59702.htm

[2] House of Commons Environmental Audit Committee – Water quality in rivers, Fourth Report of Session 2021–22, page 5: https://committees.parliament.uk/publications/8460/documents/88412/default/.

[3] Water: Myths, Facts and Inconvenient Truths – a speech by Sir James Bevan, Chief Executive of the Environment Agency, at the World Water Tech Innovation Summit on 22 February 2022: https://www.gov.uk/government/speeches/water-myths-facts-and-inconvenient-truths

[4] ‘Time to Fix The Broken Water Sector’ – a report by the Angling Trust and Salmon & Trout Conservation: https://anglingtrust.net/2021/09/27/time-to-fix-the-broken-water-sector/