Although highly regulated, the water sector is a dynamic environment. Out of necessity it is responsive to policy change, not least the Water Act 2014, which encourages greater efficiency, competition and innovation.
But low margins and the drive to keep costs down have left many struggling to innovate.
Following the National Audit Office’s criticism of Ofwat for failing to ensure water companies share unexpected financial gains with customers, the industry can expect renewed pressure to deliver value for money.
Radical thinking is required to transform how water is managed so that consumers benefit from efficiency changes.
I wonder if the five-year AMP cycle is a barrier to innovation. After all, the asset base that the industry is attempting to build, improve and maintain for future generations requires decisions that will resonate for 30 years or more.
The Thames Tideway Tunnel proves that a different approach to financing long-term water assets is possible. There is a pent-up demand for infrastructure investments.
Encouraging drive towards totex
The drive towards total expenditure (totex) and catchment management is encouraging. Both could help water companies deliver innovation and efficiency savings through better engagement with the supply chain.
Other industries are considerably more advanced in taking a whole-life approach. Lessons can surely be learned from the way assets are planned, delivered and maintained in the oil and gas sector.
“Innovations in artificial intelligence and mobile technology can equip water companies with decision-making tools that aid maintenance planning”
Procurement will be crucial to realising the totex approach, creating meaningful packages of work that combine capital and operational expenditure.
Through strategic procurement, water companies can also access expertise within their supply chains, gaining fresh-thinking and valuable experience.
Only through a step-change in the way services are procured will the sector be able to move away from expensive ‘find and fix’ asset maintenance.
Partnerships can deliver
Some water companies are starting to introduce strategic partnerships to help long-term asset management. While the wider industry is yet to embrace this approach, there are pockets of innovation.
South West Water, Exeter University, the Environment Agency, Aecom and four councils are collaborating to develop a new, joined-up vision for the region. Such partnerships will play an important role in safeguarding the UK’s water security.
Greater collaboration also encourages use of new technologies. Innovations in artificial intelligence and mobile technology can improve data management, equipping water companies with decision-making tools that aid maintenance planning. But the upfront costs can be hard for some to swallow.
The challenge now is to encourage technology investment so that water companies experience cost benefits further down the line.
With industry facing additional pressure to bring down costs, embracing innovation is no longer ‘nice to have’ but critical to business operations.
Marc Baron is managing director for water, UK & Ireland, at Aecom