In this thought piece James Higgins, Corporate Affairs Manager at MOSL, offers insight into the role of non-household market plays in water efficiency in the face of a changing climate.
What’s the water efficiency problem?
It’s easy to think that wasting water shouldn’t matter in Britain as we have plenty of rain. While it seems like we have a lot of wet days, most of them are in winter rather than summer when we need extra water. You may also be surprised to hear that Sydney and Melbourne in Australia get more rain each year than London.
The changing climate is increasing the difference between summer and winter. In England, three of the five wettest winters on record have happened in the last eight years. May 2020 was England’s driest on record and summer rainfall is expected to decrease by approximately 15% by the 2050s.
All of this means that if we don’t take action, every region of the UK faces water deficits between 2025 and 2050 as a result of the changing climate and population growth.
The Chief Executive of the Environment Agency, James Bevan, has referred to ‘the Jaws of Death’ – the point when if we don’t intervene, we won’t have enough water to meet the needs of homes, businesses, schools and hospitality.
A key part of avoiding those jaws is reducing demand, by using less water more efficiently. The plan being developed for the water-stressed South East of England region assumes demand reduction is around half the solution to secure future supplies. This includes water companies reducing network leakage as well as customers using less.
The awareness challenge
Customers are generally not aware of the need for action to secure future water supplies. Unlike populations in other countries, customers have no memory of having to restrict water usage or being without water. Research by CCW showed that 30% of household customers were not even aware they lived in an area of water stress, results backed up by research on non-household customers.
The non-household water market was opened up to competition in 2017 to deliver lower bills, better customer service and water efficiency.
While there are many opportunities, to date there has been no measurable reduction in water consumption. Water is cheap compared to energy which means the cost of fixing a leak is often more than the annual bill.
If customers won’t take action then the industry needs to be incentivised to act on their behalf (until they realise they need to). It is cheaper to invest early and prevent water shortages than have to react to a drought situation. The water regulator Ofwat has been clear this is not a challenge we can build our way out of by increasing supplies.
Water companies (referred to as ‘wholesalers’ in the non-household market) are naturally incentivised to balance supply and demand as part of their price five-yearly price review settlements.
Despite being responsible for the supply of water to 100% of customers, the focus to date has been on reducing household per capita consumption (PCC) with Defra aiming to reduce this to 110 litres per person per day by 2050.
PCC does not apply to non-household customers and companies are not directly rewarded for reducing non-household consumption despite it accounting for around 30% of water consumed.
Now is the time to act
There are some critical decisions coming up that will set the direction for water efficiency for non-household customers out to 2030. The 2024 price review – known as PR24 – for wholesalers will inform the investments they will make during the 2025-30 period.
The creation of the market actually created some barriers that have hindered the delivery of water efficiency. Retailers were given the responsibility for water efficiency at market opening but they are not incentivised to promote it as less consumption means less revenue.
With PR24 there is a unique opportunity to encourage wholesalers and retailers to collaborate in helping organisations to save water. We are pleased to see this outlined as a priority for Ofwat in PR24. We now need to inform what that looks like as an industry.
Ofwat’s current review of Retail Exit Code (REC) price caps is another key opportunity to help non-household customers use water more efficiently. Price caps apply to the 91% of customers who haven’t engaged with the market since it opened in 2017. Most of these customers use the same amount or less water than a typical household.
The level of these caps means it is often a struggle for retailers to serve these customers profitably. Raising the caps could invigorate competition and help retailers compete on price and water efficiency offerings.
Joining the drops
One thing that is becoming increasingly clear is the environmental challenges we face are interlinked. While the energy industry works to transform the energy system to meet the UK’s net zero emissions target by 2050, the water sector is responding to the already changing climate with the need for action to secure future supplies year-round.
The potential use of green hydrogen as a clean alternative for transport and heating would need A LOT of water. It is created by using renewable electricity to split water back into hydrogen and oxygen.
If the approach to solve environmental challenges is not coordinated we could, for example, risk running out of water in our pursuit to deliver net zero.
In the energy sector there is a lot of talk about the need for a whole systems approach across power, heating and transport. In the water sector there are increasing calls for whole systems thinking across non-household and household customers.
It is becoming increasingly clear that to deliver on the environmental challenges we face, we need to go even wider than that and have holistic conversations that cover the two sectors.
James has ten years’ experience in communications in the utilities sector. James is currently Corporate Affairs Manager at MOSL, who operate the non-household water retail market. The focus of this role is on engagement with stakeholders, including the regulator Ofwat and Defra, as well as shaping the market operator’s input to the PR24 price review. Before joining MOSL, James spent nine years in a policy and communications role at gas distribution company SGN.