With less than 12 months to go before further water market deregulation comes into effect in England, process companies should be ready to seize the opportunity to drive down costs, explains Nick Simpson, Marketing and Communications Director at SUEZ Treatment Solutions UK.
As of April 2017 the water market for England will follow the model already in operation in Scotland, and will enable companies (non-domestic water users) of all sizes to choose their water supplier. This is in much the same way as companies have in recent years been able to shop around for the best energy deals from different suppliers.
In principle, this offers considerable opportunity for companies across the process sectors to cut their water costs, eliminate inefficiencies, reduce the complexity of sourcing across multiple sites and explore ways of reducing consumption. Process applications, from oil and gas to food production, use considerable volumes of water, so any potential cost savings will be welcome, as will the opportunity to explore further ways of reducing overall consumption to comply with sustainability targets. Two examples highlight this point: Scotland’s largest petrochemical site in Grangemouth consumes around 50 million litres of water per day – more than the entire city of Edinburgh, while the UK’s 1,400 or so breweries typically use between 60 and 300 litres of water to brew one single pint of beer.
The rise of competition
Competition for water services was first introduced in England in 2003, when high volume commercial (i.e. non-domestic) customers using more than 50,000 m3 (50 megalitres) of water per year were able to choose their suppliers. This Water Supply Licensing programme was, however, limited in scope and did not introduce realistic financial incentives or a suitable market structure to create true competition.
Although the threshold in England was subsequently reduced to 5,000 m3 (5 Megalitres) per year the same basic restraints continued to apply to the market. In particular, with 22 different regulated water suppliers across the country, issues such as non-standardised billing, complex tariffs, low levels of customer satisfaction and high costs for companies in dealing with transactions across multiple sites, have become common.
In Scotland, the situation is different. Water market deregulation has been in force since 2008. As a result, it is estimated that there has been efficiency savings worth over £43 million, with customers saving around 20 billion litres of water and around 50% of businesses taking the opportunity to renegotiate the arrangements for their water and sewerage services.
The Scottish market structure is relatively straightforward, with the country’s 130,000 non-household customers being able to choose between 16 different suppliers or Licensed Providers. Each of these purchases water and sewerage services at wholesale prices from Scottish Water, which is responsible for maintaining the publically owned water infrastructure (pipes, mains and treatment facilities). The licensing authority is the Water Industry Commission for Scotland, with a separate body, the Central Marketing Agency, being responsible for transferring customer information between retailers and for calculating the wholesale transactions between retailers and Scottish Water.
The general consensus is that deregulation of the water market in Scotland has been successful. As a result, and based on this experience, the Government in England now proposes to remove the consumption threshold for all non-household premises in England in 2017.
The first step towards this goal was the introduction of the Water Act, which passed into law in 2014. This Act is intended to allow all business customers, plus public sector, charitable and not-for-profit organisations in England, to choose their supplier of water and sewage services, regardless of where they are located in the country.
The objective is to make it possible for businesses to negotiate the package of services that meets their requirements, in terms of price, efficiency, customer service and support. The Act also makes it easier for water companies to sell and supply water to each other and enables incumbent water or sewerage companies, with the consent of the Secretary of State, to withdraw from the market – the so called ‘retail exit’. Additionally, the Act enables owners of small-scale water storage facilities to sell surplus water to the public supply network.
The organisational market model will be similar to that pioneered in Scotland, with wholesalers selling water to licensed retailers, who in turn supply non-domestic customers with retail services, billing, meter reading and operational information. Wholesalers can also supply operational services direct to their business customers, while a centralised market operator manages the flow of customer and transactional data between the wholesalers and licensed retailers.
With around one million eligible companies, the English market is around eight times larger than that in Scotland. In Wales, however, the existing threshold of 50 megalitres will remain in place as the Welsh Government has no plans to adopt a similar programme of water market deregulation.
In 2014, a programme of consultation and planning was put in place to develop and test the appropriate price control frameworks, IT systems and protocols to ensure a successful go-live date in the second quarter of 2017. A key part of the process has been finding ways to centralise and amalgamate multiple data sets, containing customer and supply records from all the current water companies, many of which use dissimilar legacy systems. This work is being managed under the Open Water Programme, which was set up by the Government, drawing together expertise from a variety of key market participants, including Defra, Ofwat, Market Operator Services Ltd (MOSL) and other interested stakeholders.
Cost saving or complexity?
In principle, deregulation could help process companies reduce their water costs. In reality, the situation is likely to become more complex before its intended benefits are realised, with the risk that many companies will temporarily be diverted from their core activities as the 2017 deadline approaches.
In simple terms, deregulation should allow businesses to reduce the cost of water and sewage services, either through renegotiation with an existing supplier or by transferring to a new one. In practice, there are likely to be some teething problems. For example, companies that operate from multiple sites around England, and which source water from different local water suppliers, might experience problems. There is a risk that pricing structures actually become more complex, rather than more transparent, which may make it difficult for all customers to negotiate worthwhile discounts.
Another concern, however, for process companies is that some water retailers may not understand the demands and challenges of the water requirements for large industrial sites, and therefore may not be able to provide the most appropriate advice or support. It’s also true that, for some companies, the management of water and wastewater has not historically been a priority, so the expertise required to achieve the greatest efficiencies, in terms of the cost for source water, process water utilisation and savings, and wastewater treatment, recycling and disposal, may not exist within each organisation. As a result, preparing for the 2017 deadline, negotiating the best deal and managing this on an on-going basis could add to the overall operating costs.
Nonetheless, to take advantage of the changes in the water market, process companies in England need to develop effective strategies for managing water and wastewater. For many companies, price may only be part of their requirement. They may, for example, place equal or greater value on factors such as single billing for multiple sites, flow monitoring, security of supply, greater water efficiency, enhanced customer or water hygiene services or carbon reduction.
One option is to consider outsourcing the responsibility for water and wastewater treatment, including cost and contract negotiations, to specialised providers, such as SUEZ Treatment Solutions UK. In many respects, this type of outsourcing is no different to that of many other non-core business services such as warehousing, IT or payroll and brings similar advantages – allowing the company to focus on its core process business while delivering cost savings, risk reduction, efficiency gains and, ultimately, a return on the bottom line.
Whichever approach is taken, the further deregulating of the water market in England offers real potential for those companies in the process sectors. However, the introduction date of April 2017 is looming fast, making the next few months the perfect time for both a strategic review of your water needs and the subsequent development of a long term water and wastewater optimisation and efficiency plan.