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The Water 2020 decision document sets out a series of major reforms to the UK water industry, which change the way in which water will be regulated.

Water regulator Ofwat last week announced a range of changes to the way the water industry will be regulated in its Water 2020 regulatory approach paper. Ofwat’s Water 2020 reforms aim at providing market clarity, incentivising efficiencies, and encouraging innovation through competition.

The most significant of these changes is a planned shift from the current use of the retail price index (RPI) to the more commonly utilised consumer price index (CPI or CPIH) when establishing changes to market prices.

Following the December 2015 consultation, these reforms seek to:

• Build trust and confidence amongst customers
• Address critical challenges such as low levels of legitimacy and disengaged customers
• Secure a resilient future for water for the benefit of customers, the environment and wider society.

“If we do not change, then there is an increasing risk that the future could be characterised by disengaged customers and low levels of legitimacy” – Ofwat Water 2020 paper.

RPI has had its legitimacy as a measurement questioned and is used less and less by government and regulatory bodies, and Ofwat is keen to move to a system more trusted by consumers. A final decision on which inflation measure they will use, CPI or CPIH, is to be published as a part of their methodology statement for price review 2019 (PR19).

Ofwat will soon announce further consultations on specific measures, in order to inform this and other announcements made in PR19.

Ofwat Chief Executive Cathryn Ross commented, in the video accompanying the announcement, that “climate change and population growth mean we need bold, creative and innovative action to ensure we have reliable access to resilient, affordable water services in the future”. The below image sets out the targeted goals for the new regulatory approach.

Source: Ofwat.gov.uk: Water 2020: our regulatory approach for water and wastewater services in England and Wales.

The reforms also cover the development of two new markets – sludge and water resources – where there is potential to unlock substantial benefits for customers, companies, investors and the environment. Sludge is increasingly being recognised as a bioresource, as the increased strain on UK energy capacity and increasing carbon reduction requirements create the need for more energy sources which are “safe, green, sustainable and economically attractive”. 

Ofwat will introduce information platforms for water resources and bioresource markets making information available on current supply/demand, costs, and contract length, in order to promote higher levels of competition, price reductions, and innovative solutions. These measures also include new price controls, and the encouragement of greater use of markets in the financing and provision of new assets by third parties.

Ofwat hopes that these reforms will encourage competition in water resource and bioresource markets, through enabling the trade of resources with each other and third parties, as a way to combat increasingly scarce water resources. This includes incentivising companies to generate savings from project costs and cheaper financing through direct procurement for customers for high value capital projects.

Under our smart infrastructure initiative, SmarterUK, techUK are continuing to look at the role technology can play in future water systems and markets. If you’d like to get involved please contact Aimee Betts-Charalambous., Programme Manager | SmarterUK and the Internet of Things

T 020 7331 2058
E aimee.betts-charalambous@techUK.org