Water efficiency is still way too niche in Ofwat’s plans

Press Release – 6th September 2022

Influential campaigning organisation Waterwise has published its response to economic regulator Ofwat’s plans for the next funding round for water companies in England and Wales.

Waterwise Managing Director Nicci Russell said: ‘We welcome the inclusion of business water efficiency and net zero plans for the first time; and that demand management will be a common requirement. However, the draft methodology is lacking in many areas which will hinder the sector’s ability to deliver against this. English plans show a huge gap in the next few decades between the water we have and the water we need, and that water efficiency will be needed to plug 30% of this gap. So we need more ambition in the price review framework. Water efficiency is still way too niche. As the independent water efficiency experts, we have lots of helpful suggestions of how the methodology can drive the change we need – for example, setting a 20% minimum spend on water efficiency in water resource management plans; and not classifying a company plan as ‘Outstanding’ or even ‘Standard’ unless it sets out really ambitious water efficiency investment and plans. And we need more on net zero, smart meters and behaviour change! It’s been clearer than ever this summer how water scarcity is a real issue right here, right now in the UK – and how important it is for us all to use water wisely. We need more action from everyone – including Ofwat.’

Waterwise’s response can be found here. Highlights include:

• In the last four years we have experienced two droughts and several extreme heat events with records being set on an almost annual basis. Climate change is with us and we are woefully unprepared for the future in terms of how we manage our water resource needs. PR24 comes at a critical juncture for Ofwat in terms of water resources and must drive sufficient investment to meet society’s water needs. However, water efficiency is not hardwired into the wider price review approach.
• We agree with the key challenges and the four ambitions set out for PR24 but we believe the draft methodology is lacking in many areas which will hinder the sector’s ability to deliver against this.
• We want to see Ofwat require at least 20% of total water company spend in their water resources management plans to be spent on water efficiency. Water efficiency will need to make up 30% of the gap between water supply and demand in England in coming decades. Currently water companies in England are spending less than £3 per customer a year on actual water efficiency delivery, against more than three times as much just on investigations into a handful of potential supply-side options that will deliver far less water.
• Ofwat should take heed of the recommendations of the Senior Water Demand Reduction Group – commissioned by the Secretary of State – for PR24. These include a target date for a smart meter for every home business; and mainstreaming behavioural science and behaviour change. Neither are mentioned in Ofwat’s plans.
• No company’s business plan should be awarded ‘Outstanding’ or ‘Standard’ status without sufficient and ambitious water efficiency investment and scope.
• The methodology appears to be drafted as if in a vacuum from wider policy and legislative commitments and challenges such as statutory national carbon and water demand targets, economic growth, public health, housebuilding, the cost of living crisis (including energy bills) and social and climate justice.
• We welcome the net zero measures but they do not go far enough. The Senior Water Demand Reduction Group suggested that Ofwat require water companies to carbon cost their entire business plans. Waterwise has long and publicly urged for both the sector and Ofwat to include these emissions in zero carbon plans and measurement.
• There is still no commitment to an independent review of the price review  methodology’s impact. The Senior Water Demand Reduction Group recommended an independent audit after each price review and at the end of each price review period, on the impact on water efficiency against statutory and wider regulatory and policy ambition. We continue to assert that Ofwat should not be marking its own homework on the impact of its price reviews, and call on it for an independent review against the issues it cites as important, which include demand management, customer bills, climate change and the environment.

In conclusion, Nicci Russell said: ‘Water efficiency should be at the heart of Ofwat’s plans. As well as being crucial to meet the water supply deficit, water efficiency also reduces customer bills (both water and energy); reduces carbon emissions; and leaves more water in the environment.’